26.07.2018

Contractor, Worker, Employee: The Gig Economy Gets a Judicial Serve

The UK Supreme Court’s recent decision about a plumber could influence how our own courts classify workers held out as contractors and workers for app-based companies like Uber.

In countries with similar laws to our own, there seems to be a steady march towards employment rights for people described as contractors.

They’re Plumbers, Jim, but not as we know it

In Pimlico Plumbers Ltd & Anor v Smith, Gary Smith, a plumbing and heating engineer, issued proceedings against Pimlico Plumbers Ltd, a substantial plumbing business in London.  Mr Smith claimed:

(a)       That he was an “employee” of Pimlico and that Pimlico had dismissed him unfairly, contrary to the Employment Rights Act 1996; and/or

(b)       That he was a “worker” for Pimlico in accordance with the Employment Rights Act 1996; and

(c)       That he was a “worker” for Pimlico in accordance with the Working Time Regulations 1998 and as such Pimlico had failed to pay him for the period of his statutory annual leave; and

(d)       That he had been in Pimlico’s “employment” in accordance with the Equality Act 2010 and has been discriminated against.

The Employment Tribunal decided that Mr Smith had not been employed by Pimlico under a contract of service (i.e. an employee), but he had been a worker and in Pimlico’s employment. This allowed him particular entitlements such as holiday pay and a minimum wage.  Pimlico then brought appeals against this decision in the appeal tribunal and Court of Appeal, which both upheld the Tribunal’s decision.

Pimlico appealed the decision to the Supreme Court, asking the court to determine if the Tribunal was entitled to make the decision it had.  The Supreme Court focused closely on Mr Smith’s and Pimlico’s relationship.

On one hand, Mr Smith’s contract with Pimlico clearly stated that his employment status was that of a self-employed contractor for the purposes of dealing with Pimlico.  Mr Smith was able to reject jobs, negotiate pay, make decisions on his working hours and was registered to pay tax on a self-employed status.  Pimlico was also under no obligation to provide Mr Smith with work and did not provide him with the tools to complete his jobs.

On the other hand, Pimlico required Mr Smith to wear the Pimlico-branded uniform at all times while doing work for Pimlico, use the Pimlico-branded van (to which Pimlico applied a tracker) and to work a minimum number of hours per week. 

The terms in Mr Smith’s contract with Pimlico also focused on Mr Smith’s personal performance.  Responding to Pimlico’s claim that the requirements are capable of applying to anyone who substitutes for Mr Smith, the Supreme Court said this “stretches their natural meaning beyond breaking-point.”  Mr Smith’s right to appoint a substitute was significantly limited to substitutes that were also bound to Pimlico by “an identical suite of heavy obligations.”  The dominant feature of Mr Smith’s contracts with Pimlico was an obligation of personal performance.

Accordingly, the court found that Mr Smith was a “worker”, which in the UK is a separate category to “employee” or “independent contractor”.  This entitled him to holiday pay, sick pay and protection from unlawful discrimination, but did not entitle him to unfair dismissal rights or statutory redundancy pay.  For these he needed to be an employee.

Similar Outcomes for Uber

This decision is likely to have a significant impact on app-based companies, like Uber, Uber Eats, Deliveroo, Foodora and Lyft. 

Uber’s drivers have already taken a similar issue to court in the United Kingdom, United States and Canada to argue that they are employees of Uber, not contractors. 

In Australia, the Fair Work Ombudsman has taken proceedings against Foodora for its treatment of three workers, and the Transport Union is taking an unfair dismissal claim on behalf of another worker.  The key issues appear to be requirements to wear uniforms and the degree of control.

In 2016, the Central London Employment Tribunal ruled Uber drivers were workers, not contractors.  The Tribunal looked beyond the Uber drivers’ contractual documents and emphasised the fact that Uber retains sole and absolute discretion to accept or decline bookings, interviews and recruits the drivers, controls key information, determines the default route, fixes the upper limit of the fare, subjects drivers through its rating system with what is effectively a performance management/disciplinary procedure, accepts certain risks of loss and so on.  

Although the Employment Appeal Tribunal dismissed Uber’s appeal, Uber is likely to appeal it to the Supreme Court.

Meanwhile, in New Zealand…

Some say our current employment law is not yet equipped to deal with these issues.  We only have two clear categories for people in the workforce: “employee” (protected by the Employment Relations Act and related legislation) and “independent contractor” (not protected by this legislation). 

The meaning of employee is determined by whether a person does any work for hire or reward under a “contract of service”.  The court will look at their written agreement as the starting point (if there is one).    However, the courts must determine the real nature of the relationship, which requires looking at the actual conduct between the parties and related matters.  This includes the intention of the parties, the degree of control the employer has over the person, the level of independence the person has when performing the work and how integrated the person is into the business.

Currently, the “dependent contractor” (who personally carries out the work for one entity) may fall between the categories of “employee” or “independent contractor”.  However, the Government has promised to address this potential gap in our legislation.  Both the legislators and, in the meantime, the courts may look to decisions from the Australia and UK for guidance.

As highlighted by the Supreme Court in the UK, and seemingly often overlooked in NZ, the fundamental difference between a contract of service (employee) and a contract for services (contractor) is personal service.  A true contractor agreement is all about the work (the services) and not who does it.  If a contractor agreement requires the person who signs it to do the work, then there is a reasonable argument under our existing law that the person is actually an employee. 

Despite some indication of reform, this type of issue has very recently been considered by NZ courts. In 2017, the Employment Court found that labour hire workers engaged by LSG Sky Chefs (a food caterer) were employees. The Employment Court ultimately held that:

[98] A labour-hire agreement does not represent an impenetrable shield to a claim that the “host” is engaging the worker under a contract of service.  Much will depend on the particular facts of the individual case and an analysis of the real nature of the relationship, including how it operated in practice. 

LSG sought leave to appeal the decision to the Court of Appeal. The Court of Appeal refused to grant leave to appeal on the basis that the Employment Court had not (contrary to LSG Sky Chef’s submissions) laid down any “far reaching new principles” and that it agreed that, having completed the necessary factual intensive inquiry, “it would have been surprising had the Court reached any other conclusion than the one it did”.

The LSG Sky Chef is, as the Court of Appeal stated, a case that turns on its facts, but will undoubtedly be worrying for those in the labour hire industry, but equally, to other businesses participating in the ‘gig economy’.

 

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