Contractor or Employee – what’s the difference?

The NZ Employment Court’s decision (Uber case) issued 25 October 2022 is likely to have some big ramifications for the workforce. 

Social service, health and community agencies and iwi, Māori services, subject to Social Sector Accreditation and Health and Disability Standards, may be affected.

Contractor versus Employee – why does it matter?

The case concerned the difference between an employee relationship and independent contractor. It involved four Uber drivers claiming that they were employees and were therefore entitled to minimum statutory entitlements like sick pay and paid holidays.

The difference between an employee and contractor has long been a challenging and contested issue. It has particularly important ramifications today given more use of remote working and a labour shortage in Aotearoa/NZ that is associated with more use of independent contracting.

The issue of contracting versus employment status also has pressing justice implications. Independent contracting can exploit and compound the disadvantages and hardship experienced by vulnerable populations, such as migrants and refugees. These groups may be most in need of statutory employment protections and entitlements. Yet, if they are unfamiliar with our law they may be more likely to enter contractual relationships that remove these entitlements from them.

The Court’s approach

The Uber case was about the status of the four Uber drivers. The court focused on the nature of the relationship between Uber and the drivers (as required under sections 6 (2) and (3) of the Employment Relations Act 2000.)

While the drivers claimed an employment relationship, Uber argued it was an intermediary platform that facilitated a contractual relationship between its drivers and those providing or wanting a service. The Court found against Uber because of evidence showing the company had a high degree of control over the drivers. Although the control was less direct and had a different look and feel from the more classic employment relationship, the Court found Uber’s ability to control the drivers was just as strong. The technology they used did not take the control away. Rather, it helped the company exert control in a myriad of ways.

Implications

The Employment Court clarified that this case was about the employment status of the four Uber drivers. It was not a declaration about the status of all Uber drivers. However, it will clearly have ramifications for Uber.

It may well have implications in other areas. At the Policy Place, for example, we work with organisations in service industry where it is not uncommon for facilitators, carers, advisors and counsellors to be engaged as independent contractors.

Time for review

Review use of contractors

In the wake of the Uber case, it may be timely to review and rethink contracting arrangements. Be open-minded and think carefully about the role undertaken by a contractor – how much control they have over when and how they do their mahi/work, who benefits, whether they can grow and diversify and who controls things like pricing and performance.

Be wary of assumptions and keep in mind that:

• A contract that states a person is not an employee will not be the end of the matter. You can’t simply contract out of the Employment Relations Act 2000.
• A person can work for more than one organisation and still be an employee. As the Court noted in the Uber case, many workers these days work for multiple employers juggling part-time work.
• Flexibility and choice can be part of working as a contractor or employee. A casual employee can work variable hours as much as an independent contractor. With flexible and remote work these days, many even in full-time work can set and vary their own hours
• Although it’s more typical for a contractor than an employee to use their own tools and assets like a car, device and phone for work, this won’t be determinative. It can be a strong sign of the degree of inequality and control that one party has over the other ie that the party in control can move their costs and liabilities to the other party
• There is more mana and justice in contractual relationships that are based on informed agreement. If a person is unfamiliar with reading English and contracts, support them to obtain information and advice about the type of arrangement they want to enter – a contracting or employment relationship.