Contractor or employee? One landmark case reveals the hidden dangers


The results from a recent case involving Uber drivers in the UK raises the perennial ‘contractor versus employee’ debate. As more companies grapple with this tough issue, will the effects of this landmark decision be felt everywhere?

There are many different ways to measure the success of Uber, but perhaps the most telling is the extent to which the expression ‘Uber, but for …’ has become a cliché for describing start-ups. But what business is Uber actually in? You might think that a model where people pay money to be taken from A to B is a transport business, but not according to Uber. Instead, the company says that it is a technology business.

It also says that drivers are self-employed independent contractors, and that the technology (the Uber platform) provides leads to the drivers. It is the drivers who then, in effect, contract directly with their passengers to provide the service.

Whether this argument applies in Australia is yet to be tested. However, if the result of a UK Employment Tribunal case decided last week is replicated in Australia, the company might find itself looking at something like ‘Uber, but for colossal employment law headaches’.

The UK Tribunal was asked to consider whether drivers were ‘workers’ for the purposes of the UK’s Employment Rights Act, National Minimum Wage Act, and Working Time Regulation. The company denied that the drivers were employees – and the tribunal disagreed.

Some of Uber’s problems stemmed from contradictions between evidence given by Uber’s regional general manager and evidence of what actually happened in practice. Her statements in the proceedings did not fit with submissions she had made to a regulatory body, which described Uber drivers as being commission-based and thus making them employees. However, when before the Tribunal, the general manager sought to explain away the regulatory submission as a ‘typographical error’.

Uber had other problems, too. Its argument that it helps drivers grow their own businesses was not supported by facts, such as rules that drivers could not solicit the custom of particular passengers, or could not contract on any terms or conditions other than those set by Uber.

Australian employment law has grappled with similar work arrangements where what is documented bears little relationship to the reality of the work performed. In Australia, it is always important to bear in mind the memorable expression of Fair Work CommissionDeputy President Gostencnik that:

“That which has webbed feet, waddles and quacks is likely to be a duck. Putting a saddle on it and calling it Phar Lap will not change that fact.”

The lesson for those who engage contractors in Australia – whether by the use of internet platforms or through more traditional means – is that it is important to focus on the reality of how the work is being performed, and not to assume that cleverly drafted contractual provisions will carry the day.

Unless it successfully overturns the decision, Uber in the UK will now be facing claims for underpayment of hourly rates and overtime, and the failure to provide paid leave. It might have been a successful disruptor of the taxi business thus far, but if anyone has an idea for ‘Uber, but for calculating back pay liabilities’, I might have an idea about where you could give that a pitch.

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Phillip McDonald
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Phillip McDonald

Excellent article. It is interesting to note that companies like Uber and Airb’n’b appear to have have been successful, in part, by evading laws applying to incumbents in their respective sectors, and hence keeping costs low. But taxi and hospitality regulations are only part of the relevant legal/regulatory frameworks the matter. I think it is inevitable that Uber will tested under Australian employment law at some point – it only requires one unhappy driver. If so, they are bound to discover, as quite a few organisations before tham have discovered, that it is not the company definition of employment that… Read more »

Neil Donaldson
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Neil Donaldson

I didn,t think it would be to difficult to work out. In a Taxi the money goes from passenger to driver then to owner under a bailment agreement. with uber the money goes from passenger to uber then to the driver so uber are paying the drivers an employment arrangement.

Cheers

Stephanie Lewis
Guest
Stephanie Lewis

Great article! It’s important for businesses and contractors to understand that responsible contracting arrangements can be very beneficial for both parties, however neither party can contract out of Statute. Terms and conditions should be based on relevant legislation and not just for the benefit of one party over the other. Risk and reward should be shared by both the Principal and the Contractor and the terms of the Agreement should be transparent and agreed to by all involved. At Certica, we specialise in responsible Contractor Management and have helped over 150,000 Contractors to ensure they remain compliant, while they concentrate… Read more »

trackback
How Restrictive will Regulation be for Sharing Economy Platforms? | Millar's Mind

[…] suggests any final decision would not be restrictive on the SE platforms in Australia. However, Macinnis (2016) argues that while no decision has yet been made in Australia, the UK deeming Uber drivers and other SE […]

More on HRM

Contractor or employee? One landmark case reveals the hidden dangers


The results from a recent case involving Uber drivers in the UK raises the perennial ‘contractor versus employee’ debate. As more companies grapple with this tough issue, will the effects of this landmark decision be felt everywhere?

There are many different ways to measure the success of Uber, but perhaps the most telling is the extent to which the expression ‘Uber, but for …’ has become a cliché for describing start-ups. But what business is Uber actually in? You might think that a model where people pay money to be taken from A to B is a transport business, but not according to Uber. Instead, the company says that it is a technology business.

It also says that drivers are self-employed independent contractors, and that the technology (the Uber platform) provides leads to the drivers. It is the drivers who then, in effect, contract directly with their passengers to provide the service.

Whether this argument applies in Australia is yet to be tested. However, if the result of a UK Employment Tribunal case decided last week is replicated in Australia, the company might find itself looking at something like ‘Uber, but for colossal employment law headaches’.

The UK Tribunal was asked to consider whether drivers were ‘workers’ for the purposes of the UK’s Employment Rights Act, National Minimum Wage Act, and Working Time Regulation. The company denied that the drivers were employees – and the tribunal disagreed.

Some of Uber’s problems stemmed from contradictions between evidence given by Uber’s regional general manager and evidence of what actually happened in practice. Her statements in the proceedings did not fit with submissions she had made to a regulatory body, which described Uber drivers as being commission-based and thus making them employees. However, when before the Tribunal, the general manager sought to explain away the regulatory submission as a ‘typographical error’.

Uber had other problems, too. Its argument that it helps drivers grow their own businesses was not supported by facts, such as rules that drivers could not solicit the custom of particular passengers, or could not contract on any terms or conditions other than those set by Uber.

Australian employment law has grappled with similar work arrangements where what is documented bears little relationship to the reality of the work performed. In Australia, it is always important to bear in mind the memorable expression of Fair Work CommissionDeputy President Gostencnik that:

“That which has webbed feet, waddles and quacks is likely to be a duck. Putting a saddle on it and calling it Phar Lap will not change that fact.”

The lesson for those who engage contractors in Australia – whether by the use of internet platforms or through more traditional means – is that it is important to focus on the reality of how the work is being performed, and not to assume that cleverly drafted contractual provisions will carry the day.

Unless it successfully overturns the decision, Uber in the UK will now be facing claims for underpayment of hourly rates and overtime, and the failure to provide paid leave. It might have been a successful disruptor of the taxi business thus far, but if anyone has an idea for ‘Uber, but for calculating back pay liabilities’, I might have an idea about where you could give that a pitch.

4
Leave a reply

avatar
100000
  Subscribe to receive comments  
Notify me of
Phillip McDonald
Guest
Phillip McDonald

Excellent article. It is interesting to note that companies like Uber and Airb’n’b appear to have have been successful, in part, by evading laws applying to incumbents in their respective sectors, and hence keeping costs low. But taxi and hospitality regulations are only part of the relevant legal/regulatory frameworks the matter. I think it is inevitable that Uber will tested under Australian employment law at some point – it only requires one unhappy driver. If so, they are bound to discover, as quite a few organisations before tham have discovered, that it is not the company definition of employment that… Read more »

Neil Donaldson
Guest
Neil Donaldson

I didn,t think it would be to difficult to work out. In a Taxi the money goes from passenger to driver then to owner under a bailment agreement. with uber the money goes from passenger to uber then to the driver so uber are paying the drivers an employment arrangement.

Cheers

Stephanie Lewis
Guest
Stephanie Lewis

Great article! It’s important for businesses and contractors to understand that responsible contracting arrangements can be very beneficial for both parties, however neither party can contract out of Statute. Terms and conditions should be based on relevant legislation and not just for the benefit of one party over the other. Risk and reward should be shared by both the Principal and the Contractor and the terms of the Agreement should be transparent and agreed to by all involved. At Certica, we specialise in responsible Contractor Management and have helped over 150,000 Contractors to ensure they remain compliant, while they concentrate… Read more »

trackback
How Restrictive will Regulation be for Sharing Economy Platforms? | Millar's Mind

[…] suggests any final decision would not be restrictive on the SE platforms in Australia. However, Macinnis (2016) argues that while no decision has yet been made in Australia, the UK deeming Uber drivers and other SE […]

More on HRM