Although immensely popular due to its user friendly interface and low prices, the Uber Group is facing challenges to its business model worldwide. Issues about the rights of Uber’s drivers have been litigated in several jurisdictions including Australia, the UK and just recently in New Zealand.
Uber operates an ‘owner-driver’ model that makes the legal distinction between contractor and employee difficult to determine. The distinction is important as employees enjoy a range of entitlements that a contractor does not, including minimum wage, leave entitlements, personal grievances and the right to bargain collectively.
In Arachchige v Rasier New Zealand Limited & Uber B.V, the Employment Court determined that Mr Arachchige was not an employee of Uber. The decision provides important guidance on the employment status of Uber drivers in New Zealand and will potentially affect thousands of New Zealanders who are driving for the rideshare giant, as well as drivers for similar business models. Rasier New Zealand Limited (the first defendant in the case) is a member of the Uber group of companies headquartered in Amsterdam and will be referred to jointly with Uber B.V as “Uber” for the purposes of this article.
Mr Arachchige was an Uber driver for approximately four years until Uber deactivated his access to Uber’s Driver App in June 2019 after a passenger complaint. Mr Arachchige then sought a declaration from the Court to declare the real nature of his relationship with Uber was an employment relationship as per s 6 of the Employment Relations Act 2000 (the Act). Such a declaration would allow Mr Arachchige to raise a personal grievance against Uber for unjustifiable dismissal.
The agreement between Mr Arachchige and Uber identified him as an independent contractor and stated that Uber is not deemed to direct or control him in his performance. However, this is not the only factor the Court considers when determining the real nature of the relationship between the parties.
Mr Arachchige had previously worked as a taxi driver for Alert Taxi where he considered himself to be in business on his own account. He claimed the key difference between the Alert Taxi and Uber business models are the degree to which he could build a customer base and negotiate fees. With Uber each customer is a stranger and the fee is pre-determined which limited his ability to work independently.
Mr Arachchige also argued that various other factors pointed to a relationship of employment. These included Uber reserving the right to control various aspects of its customers’ interactions with the drivers such as the driver rating system, the complaints process, and assuming responsibility for losses where the driver is not at fault.
Uber relied on several Australian decisions where Uber drivers were not found to be employees. In these decisions, the Fair Work Commission found that the fundamental elements of an employment relationship did not exist and that Uber had “relatively weak control” over drivers.
Ultimately, the dispute centered on the definition of employee under s 6 of the Act. The Court referred to decisions in Australia and the UK for guidance, but concluded that as there is no equivalent to s 6 in any other common law jurisdiction, the case had to be considered in light of the specific New Zealand provision.
The Court held that Mr Arachchige was not an employee of Uber. The agreement was akin to a service agreement rather than an employment agreement, and the relationship in practice was that of contractor and principal.
The Court conceded that there were aspects of the agreement that are not ordinarily present in a service agreement, such as qualification requirements and performance expectations. However, overall the factors rebutting an employment relationship were more compelling, including that Mr Arachchige:
- Determined how long he undertook services;
- Provided all the necessary equipment and tools to undertake the work;
- Was responsible for his own tax obligations; and
- Could determine what vehicle to use, when he would carry out the work and where he would do so.
The Court commented that the service agreement expressly allowed for Mr Arachchige to undertake work for other transportation services, even direct competitors. There is also no recruitment process or “vacancy” to fill. As long as the criterion is met, any person can become an Uber driver; there is no limit to the number of positions available.
The Court distinguished Leota v Parcel Express Limited which touches on similar issues. Unlike Mr Leota who was a courier driver for Parcel Express, Mr Arachchige was neither particularly vulnerable nor lacking in commercial comprehension. In addition, Mr Arachchige had flexibility in the jobs he accepted while Mr Leota worked as directed by Parcel Express. The key difference being that Uber had very little control over the way in which Mr Arachchige conducted his work while Parcel Express had substantial control over Mr Leota’s dealings. We have written about the Leota determination here.
While the Court’s decision solely determines Mr Arachchige’s relationship with Uber, it likely will deter an avalanche of litigation in New Zealand triggered by drivers who believe their rights have been curtailed. Uber has not been so fortunate in other jurisdictions such as the United States, where it has paid $20 million in settlements to drivers in California who sought damages based on being wrongly classified by Uber as independent contractors.
Considering the recent cases of Arachchige and Leota, along with the leading Supreme Court decision, Bryson v Three Foot Six Ltd, it is clear that because the contractual terms of an agreement are not of themselves determinative, the outcome will always be highly factually specific. Who controls the work, including how the work is carried out in practice, and the closeness of the management by the principal are significant. The Court must do a deep dive into the relationship between the parties.
If you have any questions about contractors, employees, or the distinction between the two please get in touch with our Employment team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.