Contractor or employee? How a proposed law change will favour Uber over its drivers

Ride share company Uber has faced legal challenges around the world over whether its drivers should be classified as employees or contractors. New Zealand is no exception, with the most recent case heard before the Supreme Court in July.

While the outcome of that case is not yet known, Uber stands to benefit from amendments to New Zealand’s employment law, currently under select committee review. As it has elsewhere, Uber actively lobbied the government for changes to the law, and one of the proposed amendments was suggested by the company itself.

If enacted, the suite of amendments would clarify the distinction between employment and contracting arrangements, alter how personal grievance remedies are assessed, introduce a high-income threshold for unjustified dismissal claims, and abolish the “30-day rule” for workplaces with collective agreements.

Under the proposed law, whether a worker is a contractor would depend on a “gateway test”. This covers whether the contract describes the person as a contractor, whether they can work for other companies, whether they are required to work specific shifts, and whether their contract can be terminated for declining extra work.

Presented as a way of clarifying the legal status of platform-based workers such as Uber or DoorDash drivers, the changes may end up making it easier for employers to misclassify employees – and is out of step with other countries.

The amendments also don’t address the range of problems associated with platform work, including fluctuating pay and arbitrary deactivation.

The changing nature of work

Under current New Zealand law, employees – those who work under the direction of an employer – are entitled to protections such as the minimum wage, paid sick leave and safeguards against unfair dismissal.

Contractors, by contrast, are considered to be in business on their own account and do not receive such protections. This creates an incentive for some employers to misclassify workers.

This is important, given the new forms of work that have emerged in the past decade. Platform workers on services such as Uber, Lyft and DoorDash don’t fit neatly into existing categories of employee or contractor.

For example, Uber has argued it’s not a transport provider and that it does not employ drivers per se, but merely connects them with passengers. It also claims drivers enjoy more freedom than traditional employees, as they are not required to log on to the app.

Drivers, however, argue they are in fact working for Uber’s business, not their own. They point to the company’s pricing controls and other restrictions as evidence that they are, in practice, employees.

The proposed law would resolve this dispute in favour of platform owners. It would allow companies to draft contracts that define workers as contractors on a “take it or leave it” basis – terms that may be difficult, if not impossible, to challenge.

Vulnerable contractors

It has long been acknowledged that some contractors are vulnerable. They may be economically dependent on a single client, or technically able to take other work but practically constrained from doing so.

These workers need more support and protection than the current law offers. Recognising this, other countries, including the European Union, have taken a different approach.

Australia, for example, has created a new category of “employee-like” workers. These are not employees, but are still entitled to protections such as the right not to be unfairly disconnected from a platform and the right to challenge unfair contract terms.

The new law would also affect more than just Uber drivers and other platform workers. It would impose regulatory costs on businesses, which would need to seek legal advice and review their contracting arrangements.

There is also a risk that some employers will rewrite contracts to avoid extending rights to casual workers who should be defined as employees.

Rather than preventing the misclassification of workers, the law changes may make it easier. They do little to address the challenges vulnerable contractors face, fail to tackle the structural problems of platform work, and disregard how other countries are modernising their laws.

Lynne Coker, Senior Lecturer at the Ara Institute of Canterbury, contributed to this article which is based on a forthcoming analysis in the New Zealand Journal of Employment Relations.