Andrew Lacey
Managing Principal
Employment
Costs Orders against Non-Party Directors
19 December, 2018
The National Labor Relations Board, a United States’ equivalent of Australia’s Fair Work Commission (FWC) combined with the Fair Work Ombudsman (FWO), recently found that Uber drivers are independent contractors and not employees.
The finding in the United States means that Uber drivers are not entitled to many of the minimum entitlements and protections afforded to employees, only those available to independent contractors.
Notably, a different position was taken in the United Kingdom last year, with the UK Court of Appeal finding that Uber drivers were not contractors or employees, but rather “workers”, a class of person entitled to an essential bundle of workplace rights and protections, but not all of the entitlements ordinarily enjoyed by UK employees.
While some commentators have suggested that this “middle ground” class of ‘employee’ could likewise resolve tension between contractor and employee categorisation and entitlements in Australia, this remains the subject of much debate.
The United States Approach to Identifying Independent Contractors.
In the United States, the key test used to identify whether a worker is an employee or independent contractor is called the “agency test”. This test focuses on the degree of autonomy an employee has over the details of their work, and requires consideration of, among other things:
- the extent of control that a supervisor has over the worker’s labour;
- whether the worker is engaged in a business;
- the occupation the worker;
- the level of skill required by the worker;
- whether the worker supplies their own tools;
- the length of time that the worker is employed for;
- whether the worker is remunerated by hourly rate or fixed-fee;
- whether the work is part of the regular business of the employer;
- whether the parties believe they are entering into an employment relationship; and
- whether the employer is engaged in business.
Considering these factors through the “prism of entrepreneurial opportunity”, the National Labor Relations Board made their decision on the basis that Uber drivers have complete control of their vehicles, their work rosters and their freedom to work with competitors.
The Australian Approach to Identifying Independent Contractors
The Australian test to determine whether a worker is an employee or contractor is similar to that used in the United States, drawing on many of the factors identified above for this purpose.
Considering this, it is perhaps unsurprising that a similar position to that in the US has been taken by the FWC in Kaseris v Rasier Pacific V.O.F [2017] FWC 6610 and, more recently, in Pallage v Raiser Pacific Pty Ltd [2018] FWC 2579. In both of those cases, the FWC found Uber drivers ineligible for an unfair dismissal remedy on the basis that they weren’t classed as employees but were instead independent contractors.
Takeaway
As a global trend toward flexible working drives the popularity of the gig economy to new highs, differences in jurisdictional approaches to the categorisation of gig economy workers has increased the difficulty faced by international businesses seeking to comply with the requirements of differing domestic labour laws.
Where the use of freelance contractors is central to the profitability of an international business, such as Uber, the cost implications of individuals being found to be employees is significant and can also operate as a deterrent to competing in geographic markets regulated by labour laws which are inflexible on the issue of employee categorisation.
An example of this can be seen in the acknowledgement of the administrators of the Australian arm of German food delivery company Foodora, now in liquidation in Australia, that the business misclassified thousands of food delivery riders as independent contractors instead of employees, underpaying their staff approximately $7.5 million in wages and superannuation.
This has understandably provided businesses such as Uber with a strong incentive to vigorously defend claims against it by drivers that, if successful, would suggest that they should be categorised as employees.
This aside, diverging international approaches to assessing whether Uber workers are “employees” highlights the complexity of this issue – it is far more complicated than simply comparing a job description against a checklist of factors, particularly where varying weight should be given to criteria relevant to the role and industry in question.
Despite Uber continuing to repel challenges by drivers in Australia (and likely now also the US) that they are employees, organisations all too often incorrectly categorise employees as contractors and run risks of claims for backdated employee entitlements, investigation by the ATO for unpaid withholding tax and superannuation, and/or investigation by the FWO, and even prosecution by the FWO for sham contracting.
Employers should seek advice on and consider this carefully when considering the need for a new role/new hire within their organisation and whether the role is appropriate for a contractor to perform. As we can see, categorising the ‘worker’ appropriately has a direct impact on the rights and entitlements of the worker and can have far reaching, unintended consequences.
McCabes’s Employment team regularly advises businesses and HR professionals on how to correctly categorise a worker, the steps that can be taken to give certainty to a worker’s employment categorisation, the entitlements that they are consequently owed, and managing the risks involved in incorrect categorisation. If you have any questions or issues with respect to this topic, please don’t hesitate to get in touch.
