To Employ or Contract - Is a Shake Up on the Horizon? November 2022

The distinction between an employee and a contractor has long been a contentious issue but could the recent ruling against Uber in the New Zealand Employment Court see a shift to a more robust and perhaps clearer distinction?

The case was brought against global ridesharing giant Uber by 2 unions on behalf of 4 contractors who argued that they were in fact employees of the company.  The Court found in favour of the drivers and in doing so looked beyond what was simply written in the agreement between Uber and the drivers and instead, into the true nature of the relationship.

what’s the difference?

An employee is entitled to minimum statutory rights as laid out in the Employment Relations Act 2000, Holidays Act 2003, Wages Protection Act 1983 and Parental Leave and Employment Protection Act 1987 to name but a few.

A contractor has none of these rights and is subject to commercial law. An employee has a “master/servant” relationship, and this includes a level of control by the employer over the employee’s day-to-day tasks. A contractor “is not a servant” of the organisation and is instead focused on “service outcomes”.

The review of this case included the level of “control” that Uber exercised over their “contractors” in reality, in whose interests the work was done (ie. Who would gain the most benefit) and, the extent to which the drivers were integral to the business.

At this stage, the case will likely be appealed, and the decision will only apply to those four drivers but there are two reasons why we should take note of it.  

what happened?

Firstly, the Judge presiding stated that the case “may well have a broader impact, particularly where, as here, there is apparent uniformity in the way in which the company operates and the framework under which the drivers are engaged”.  It also, added a new consideration to the test applied under the Employment Relations Act when assessing the nature of the relationship – that of “in whose interests is the work done?”.  Meaning this could be applied to any future challenges.  

Secondly, the Government is currently undertaking a review on Contractor-based business models and may give some consideration of the outcome of this case in deciding any future policies or legislation.  

what do you need to consider?

Whilst, of course, none of this will happen overnight, it is perhaps a wakeup call for businesses to look at their business model and consider the true nature of their relationship with contractors.  For some this will be genuine, however, there are some sectors where the contractor model is used almost by default but where, even if the current tests were applied,let alone a more robust system, they might find that in reality their workers are employees.

If a contractor relationship turns sour and they challenge the nature of the relationship you could stand to be liable to back pay all the entitlements due to an employee and you could be found liable to pay any outstanding tax they may owe.  Not to mention the time and stress of having to go through this process.

At EASI NZ we work alongside businesses to support them in deciding what the appropriate hiring model is for them and can help you with the paperwork to reflect this so that you can create a relationship that is based on fairness, clarity, and integrity.