Last week the California Labor Commission decided that an Uber driver, Barbara Berwick, was an employee of Uber – even though Ms Berwick was described in her dealings with the company as an independent contractor.

How can someone who enters into an agreement as a contractor be found to be the opposite? And could New Zealand Uber drivers also be found to be employees and not contractors?

UBER-EFFICIENT

Uber launched in New Zealand about a year ago. It provides generally cheaper fares than taxis by connecting private drivers with customers who order rides on-demand using the Uber mobile phone app. Uber handles the payments, automatically charging the customer’s credit card, so there’s no need for customers to pay cash or swipe a credit card at the end of their journey.

The technology is important. From ordering a ride through the Uber mobile app, through to receiving an automated receipt for your journey to your email inbox, the user experience is seamless.

But as the California Labor Commission’s decision emphasised, the technology is useless unless there are drivers standing by willing to pick up riders.

And here is why the decision is of particular interest: Uber’s business model is built on the assumption that its drivers are not employees, but are independent contractors.

Presumably by treating its drivers this way, Uber is able to be efficient enough to deliver lower fares to its customers than taxi companies. That is because it avoids all manner of compliance and administrative costs (not to mention, potential personal grievances) that come with hiring employees.

But is the assumption that its drivers are contractors correct in law?

THE DIFFERENCE BETWEEN EMPLOYEES AND INDEPENDENT CONTRACTORS

It may be surprising to learn that under New Zealand law, as in California, it is possible that workers who are described as independent contractors can in some cases be found to be employees.

The test for defining who is or is not an employee is set out in the Employment Relations Act 2000. That test asks whether in reality a person is an employee– even if they are called contractors. In other words, the law says that if you look, smell and feel like an employee, then you’re employee, regardless of what title you, or anyone else, gave yourself.

So what is the dividing line between employees and contractors?

It certainly isn’t the type of work performed. From the perspective of an outsider, a person working at a desk, or fixing a toilet, or driving a vehicle could just as easily be an employee or a contractor.

So the courts have developed several tests that aide them when deciding whether a particular worker is in reality an employee and not a contractor.

The Control Test

Independent contractors are supposed to be just that – independent. One way of measuring independence is to examine how much control the business owner exerts over the worker. The greater the degree of control, the more likely the individual is an employee. Control might be exerted over a worker by:

• Telling them what to do and when and how to do it
• Preventing the worker from doing work for anyone else
• Determining working hours and breaks

The Integration Test

As a corollary of their independence, contractors are meant to have a business distinct from that of the business owner they work for. If however the worker is an integral part of the owner’s business, and represents themselves to the world that way, that is a further sign that they are in fact an employee. Evidence of integration can include:

• Business cards, name badges or email addresses that represent that the worker is part the business
• Equipment and clothing is provided by the business owner, rather than the worker supplying their own equipment or clothing
• The worker occupies a crucial role in the business

The Fundamental Test

The third test stands back and tries to assess whether the person is fundamentally in business on their own account. If they are, then they are a contractor. By contrast, if they are really just a part of someone else’s business, they are probably an employee. Signs that a worker is in a stand alone business can be:

• The worker has scope to increase their profits by increasing hours or reducing costs
• The worker operates through a company structure and pays their own taxes and issues invoices for their work
• The worker provides a special skill or expertise

APPLYING THE TESTS TO UBER

A key factor in the California decision was that without drivers, Uber’s business would not exist.

The Commission also did not buy Uber’s argument that it was just a technology business that supplied customer leads through its mobile app. It pointed to the fact that Uber vets the drivers, requires them to meet certain standards (such as not accepting tips), and facilitates payments from the customers to the drivers.

In other words, the Commission was persuaded that the drivers were integral to Uber’s business and that Uber exercised a degree of control over them that was consistent with a relationship of employment.

Accordingly, Ms Berwick was an Uber employee.

CONCLUSION

The California decision is unlikely to be the end of the matter. It dealt with the specific circumstances of a single employee and could well be appealed.

But the same arguments could be played out here in New Zealand because the analysis of whether Uber drivers are employees or not would refer to similar principles.

Of course, each case will turn on its own specific facts. Just because one Uber driver is found to be an employee, does not mean that they all are. The tests relating to control, integration and whether the worker is fundamentally in business on their own account must be applied to every case that arises.

But the decision underscores that technological innovation must still reckon with the legal test that looks at the reality of who is an employee and who is not, regardless of the description given to the relationship by the parties themselves.