When law students first learn contract law, they learn that entering into a contract can happen in all sorts of ways.
Only in the rarest of cases is a contract signed by both parties. In most cases, contracts just happen with both sides agreeing. The customer puts a few dollars on the tray, and the newsagent hands over the newspaper - a contract entered and fulfilled.
However, sometimes, customers probably do not even know the contractual relationships behind the services they purchase. They call an Uber through the app, the driver arrives, takes them from A to B and the customer is happy.
But what is the relationship between the driver and the customer? And what, more importantly, is the relationship between Uber and the driver?
It is a tricky question that has kept courts around the world busy for the past years. There are two basic schools of thought: One that sees the driver as Uber likes to see it, namely as a contractor. That means the driver enters into a contractual arrangement with Uber each time the driver accepts a customer’s request. Beyond that, there is no ongoing employment relationship.
But there is an alternative view, pushed by trade unions and some Uber drivers, who argue that they should be treated as employees of Uber.
The difference is more than a legal technicality. It would substantially change the status of drivers. Employees have minimum wages, holiday pays, dismissal laws and so on. It would also reduce the drivers’ flexibility to accept or reject specific jobs.
So, whether Uber drivers are contractors or employees really matters. In fact, Uber’s whole business model hinges on it. If Uber had to treat its drivers as employees, the company might just as well decide to stop operating.
Some recent court cases have demonstrated the difficulty of the situation – and a New Zealand Government initiative now promises to clarify the situation significantly.
Earlier this month, court decisions in both New South Wales and New Zealand have shownhow tricky the question of Uber drivers’ employment status is. In New South Wales, the Supreme Court ruled that Uber did not have to pay payroll tax on payments made to its drivers. In New Zealand, the Court of Appeal found that Uber drivers were employees, at least while logged into the Uber app.
These different outcomes, reached after long and costly legal proceedings, show the problems with applying old employment law ideas to the new realities of the gig economy. The New Zealand government has recently promised to simplify the classification.
Workplace Relations and Safety Minister Brooke van Velden has announced upcoming changes to New Zealand’s Employment Relations Act. These changes will bring in a ‘gateway test’ that businesses can use when responding to a claim that a person is an employee and not a contractor.
The proposed test is refreshingly straightforward. If a working arrangement meets four specific criteria, the worker will be considered a contractor. These criteria include a written agreement saying the person is an independent contractor, can work for other businesses, has flexibility in work hours or the ability to subcontract, and has no obligation to accept tasks additional to the existing contract.
This approach is very different from the current situation in both New Zealand and Australia. At present, courts sometimes struggle to determine employment status. The result has been a lack of certainty for both businesses and workers.
The New Zealand government’s clarification plan is a bold step towards providing much-needed certainty. It recognises that many workers in the gig economy value the flexibility and independence that comes with contractor status.
At the same time, it provides clear guidelines for businesses. This reduces the risk of costly legal challenges and allows them to offer better terms to contractors without fear of changing their status.
Critics might say that this approach could lead to fewer protections for workers. However, that view fails to recognise how work is changing in the 21st century. Many workers, particularly those in the gig economy, prefer flexibility to traditional employment benefits. The New Zealand approach respects this choice.
The contrast with the Australian approach is striking. While Australian courts will continue to struggle with defining contractors, New Zealand is taking decisive action to clarify the situation.
There are lessons here for Australia. The current approach in Australia, relying on case-by-case court decisions, creates uncertainty, stifles innovation, and ignores what many modern workers want.
Instead of waiting for courts to slowly develop new principles through lawsuits, Australia should consider following New Zealand’s lead and passing laws to create clarity. A similar ‘gateway test’ in Australia would provide much-needed certainty for businesses and workers alike.
By clarifying the legal status of contractors, the New Zealand government will provide the certainty needed for businesses to innovate. It can also enable workers to choose the employment arrangements that best suit their needs.
Australia should take note and consider doing the same.
To read the full article on The Australian website, click here.