Dundas Street Legal – Susan Hornsby-Geluk – Mobile technology has paved the way for an on-demand economy. Uber is a poster child for this revolution in the way we engage with services on the go. It puts freelance drivers in touch directly with customers who want a ride. It’s disruptive to the incumbent players and it’s refreshing.
But the success of the Uber business model hinges on a potentially unstable premise – that the drivers are not employed by Uber. It seems that the speed of technology has outpaced the law in this area and Uber has recently hit a potential fork in the road.
In a recent case, Barbara Berwick, a San Francisco Uber driver, brought a claim to the Labor Commissioner of California for unpaid wages and reimbursement of expenses, on the basis that she was an employee. Uber argued she was an independent contractor and that she had been paid fully.
Uber are adamant that they are merely providing the technology for a network of independent contractors, in relation to whom Uber has no ongoing obligations. They argue that Uber just runs the app – an administrative intermediary between two parties, the passengers and the drivers.
In practice, Uber does not control the driver’s hours of work. The driver has to obtain and maintain insurance and a local permit to carry passengers. Uber performs a few background checks on prospective drivers, including a motor vehicle register check, and asks for basic information such as a drivers’ license, social security number, address, and bank details. It also maintains price and quality control procedures by requiring drivers to maintain a user rating of 4.6 stars or higher – otherwise their access to the app is cut.
In this case, the Commissioner held that because Uber obtained, through its app, the clients in need of the service and provided the workers to conduct it, it retained all necessary control over the operation as a whole. The Commissioner disagreed that Uber was simply providing the platform, finding that Uber was involved in every aspect of the operation by vetting prospective drivers, and controlling their tools by having certain vehicle quality and star rating requirements.
The Commissioner found that the drivers’ work was an integral part of Uber’s business, and without their services it would not exist. Without Uber’s app and intellectual property, the drivers would not be able to perform their work for Uber.
It seems the deciding factor in the case, however, was a legal one – under the relevant Labor Code, there is a presumption in favour of finding an employment relationship where personal services are being performed. The Commissioner held that Uber had not met the burden of proving that its drivers were independent contractors rather than employees.
What does this mean for Uber? The Labor Commissioner’s decision is non-binding and the financial impact of the decision itself, the value of Berwick’s wages and expense claims at US$4,152, is a drop in the ocean for a $40 billion company. However, the precedent value is potentially much higher.
There are 15,000 other Uber drivers in San Francisco alone. Uber is appealing the decision which reflects its concern about the broader context. In terms of Uber’s global operations, it is clear that the conclusion in the California decision was somewhat tied to the local labour law framework which tends towards a finding of employment where the work in question is an integral part of the employer’s usual business.
The Employment Relations Authority would not necessarily reach the same conclusion in New Zealand. Here a wider test would apply, assessing the real nature of the relationship, with no presumption towards either an employment or contractor relationship.
One thing that is clear is that if the same conclusion on employment status was to be reached outside of California, it would have a significant impact on Uber’s business, and probably cripple if not sink it. Uber relies on taking a small sliver of each transaction between passenger and driver. If that sliver became a sizeable chunk – to meet Uber’s liabilities for payment of minimum wages, annual holidays, sick leave, ACC levies, insurance, KiwiSaver and more – passengers may not be so willing to absorb all of those additional costs.
To date, Uber has loaded the costs of running its business onto its drivers. It would require a substantially different business model and therefore pricing structure to sustain being an employer.
Perhaps the bigger picture issue here, one that legal systems all around the world will have to confront, is that employment status is really black and white in the eyes of the law. You are either an employee and therefore the beneficiary of a bundle of rights and protections, or you are an independent contractor, and the beneficiary of not very much at all.
Technology has created a potentially very lucrative third wave of employment status, involving workers who look and feel like contractors but whom derive a large proportion of their work from a single source which wouldn’t exist without them. They also work whenever they want – or not – at their own pace. Ask any Uber driver why they have chosen to throw their hat in that ring, and they’ll tell you it’s for the flexibility.
This type of scenario presents a challenge for the Courts as the traditional characteristics delineating an employment relationship from a contractor relationship are being broken down. The law will need to evolve at some point to deal with this, but in the meantime, if there was a challenge by New Zealand Uber drivers to their employment status, it is hard to know which way it would go.
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