Supreme Court Confirms Uber Drivers Are Employees

Words by Summer Law Clerk Eve Hagenson and Troy Wano

The Supreme Court unanimously dismissed Uber’s appeal, confirming four drivers as employees, rather than independent contractors. The landmark decision of Rasier Operations BV v E Tū is the Supreme Court’s first ruling on gig-economy employment relationships. This sets a precedent likely to reshape contractor arrangements across multiple industries.

Core Issue

The decision focused on the application of section 6 of the Employment Relations Act 2000 which requires the court to determine the true nature of the working relationship, regardless of what the contract states.

This is important for New Zealand businesses as employees, unlike independent contractors, are entitled to minimum entitlements. If certain arrangements are recognised as employment, businesses’ obligations and costs may increase.

Reasoning

The Supreme Court upheld the previous decisions of the Employment Court and the Court of Appeal that the four drivers were employees. It found that Uber has close control over the drivers’ work, that the drivers are integrated into Uber’s business and that the drivers cannot be considered an independent business. In coming to this decision, the key considerations included:

• Uber’s control over drivers,
• the inability to subcontract,
• limited opportunity to profit,
• the lack of practical freedom to work for others, and
• the goodwill accruing to Uber, rather than drivers

Although drivers had flexibility in their working hours and provided their own equipment, these factors were outweighed by Uber’s high level of control, and the driver’s integration into the core of Uber’s business. Despite the contracts stating that they were not employees, the drivers were not realistically able to operate as independent businesses.

This follows on from a decision of the United Kingdom’s Supreme Court in Uber BC v Aslam, as well as similar decisions in several European courts. Notably, Fair Work Commission decisions in Australia, which the Supreme Court viewed as an outlier, took a different position.

Impacts on Businesses

‘Gig economy’ businesses are likely to face significant impacts from this decision. Independent contractors under significant control, who are integrated into the core business, may now be classified as employees. Courts will likely place a greater emphasis on the real functions of contracting relationships, rather than contract stipulation. This may increase costs and liabilities, including holiday pay, sick leave, KiwiSaver contributions and possibly health and safety compliance obligations.

Even without a business controlling working hours, equipment or branding, and despite a contract stating that it is not an employment relationship, this does not necessarily protect a contracting agreement. Courts may look beyond labels and instead focus on the practical functions of the arrangement.

There remains uncertainty as to how this decision will impact New Zealand companies engaging overseas independent contractors. There is further uncertainty as the Government is currently considering legislative reforms, including the introduction of a new test for defining a contractor in the Employment Relations Act.

What Businesses Should Do Now

Businesses relying on independent contractors should review their contracting agreements and practices and check for potential exposure to claims for minimum entitlements. Ensuring that contracts and real-world practices align is imperative.

Businesses should also monitor the upcoming legislative reforms in this area of law, as these may further impact their obligations and contractor arrangements.

If you’d like to talk any of this through with our specialist, get in touch with our Employment Law Team. We’re always happy to have a chat.