Workers in the gig economy

31 January 2020

Whether certain workers are employees or independent contractors has become a hot topic in the era of the gig economy.

Courts and Tribunals around the world faced this issue in respect of Uber, with varying findings. Courts in a number of US states determined Uber drivers were employees while the Fair Work Ombudsmen in Australia found the drivers were contractors. In the UK, the Employment Tribunal threw a further alternative into the debate, finding that Uber drivers fell into a middle ground category of "workers" which entitles them to some minimum entitlements like minimum wage and paid holidays.

This classification issue is not a new one and can have very wide-ranging consequences.

Workers found to be employees are entitled to a range of minimum employment standards set out in various statutes. This includes things like minimum wage; holiday pay; sick, bereavement and domestic violence leave; and protection against unjustified dismissal.

If they are a contractor they instead operate under commercial and competition laws which afford them fewer rights and protections and they are responsible for managing their own income tax obligations. However, such a classification provides greater flexibility and control for these workers as it means that they aren't bound by employee obligations. For instance, they can work for multiple organisations, operate their own business and have control over the work they are doing.

Traditionally, the distinction between employees and contractors was based on the contract they were operating under: employees work under a contract of services (aka an employment agreement) and contractors are engaged under a contract for services (aka an independent contractor agreement).

However, the Employment Relations Act and case law have made it very clear that the label the parties give the relationship (i.e. employment or contractor) is not determinative. Instead, the courts will also look at the nature of the control exercised by the alleged employer, the integration of the worker into the workplace and whether the worker has been effectively working on his or her own account.

While operating as a contractor can certainly have benefits for some workers, it has been a longstanding issue in New Zealand that some employers deliberately misclassify their workers as independent contractors to avoid their obligations to provide their workers with minimum entitlements. This has resulted in many vulnerable employees being denied their entitlements under the guise of being independent contractors.

MBIE is looking at tackling this issue with a public consultation process on "Better protections for contractors". The Ministry set out that "the Government wants all contractors in New Zealand to have access to decent work and conditions". To achieve this, MBIE has proposed four broad categories of options to change the current law. These are:

a. Options to deter misclassification of employees as contractors, such as increasing the powers of Labour Inspectors and introducing penalties for misclassification;

b. Options to make it easier for workers to access a determination of their employment status, such as introducing disclosure requirements, shifting the burden of proof or reducing costs for workers;

c. Options for changing who is an employee under New Zealand law, such as specifying some occupations where all workers are employees or altering the "employee" test to include a category of vulnerable contractors; and

d. Options for enhancing protections for contractors without making them employees, such as extending the entitlement to collective bargaining or creating a middle ground category of workers.

What comes out of this process is uncertain. It is in very early stages, with submissions still open until 14 February 2020.

It is likely we could see some changes as, during its 2017 campaign, Labour had signalled that it would introduce a new category of workers called "dependent contractors" which would be a middle ground between employees and independent contractors. These dependent contractors would be afforded some minimum entitlements but not as much as employees, much like the category of "worker" in the UK.

As we enter 2020 this is just one of the major employment law issues that are being considered by Government. It appears we can also expect changes to holiday pay, privacy and the structure of the public service in the horizon.