By Cilla Robinson, Clayton Utz

In recent years, there has been intense media focus on the sharing economy (collaborative consumption) and the introduction of peer-to-peer-based sharing of access to goods and services, coordinated through online plat- forms. The murky legal status of ridesharing services in Australia, such as Lyft and Uber, and their impact upon traditional employment relationships has arguably attracted the most attention.

Despite a legislative response in some Australian States to legalise Uber there is continued agitation around unresolved aspects of Uber’s operations such as driver’s tax and insurance status, whether drivers are legally employees, and passenger safety. What can corporates learn as the debate rages on?

Regulation of Uber in Australia

There is a natural tension in regulation between facilitating enterprise and protecting consumers and raising revenue; too light and the community can be put at risk, too heavy and innovation can be stifled and supply restricted.

At present, Uber has only been legalised in the ACT, NSW and WA. It remains illegal in a number of states and territories across Australia, including Qld and Tas. The Victorian Government is yet announce a position.

Prior to the legalisation of Uber in some states, Uber consciously flouted the regulatory foundations of the taxi industry which created an imbalance for taxi drivers who follow such regulations and have a higher cost structure as a result. Following legalisation, Uber drivers in NSW will now be required to undertake criminal background checks, pay a separate licence fee and undergo regular car safety testing. Uber drivers will also not be allowed to pick up passengers from Sydney Airport, and taxis will continue to have exclusive rights to pick up hailing passengers from the street and from taxi ranks.

Are Uber drivers employees or contractors?

There are significant issues raised by Uber’s business model: specifically, its characterisation of its workers as “driver-partners” rather than employees. It has been argued, most notably by the Transport Workers’ Union, that the relationship between Uber and its drivers is more indicative of an employment relationship than an independent contractor relationship, and that Uber’s characterisation of driver-partners as contractors has consequently deprived them of statutory benefits they would otherwise receive as an employee (eg, paid annual leave, sick leave, long service leave, superannuation contributions etc).

Although Uber requires drivers to pay a commission for each ride, drivers are independent in many ways, determining, for example, when they are available to provide a ride on the Uber app. However, in addition to Uber acting as a third party, facilitating contact between drivers and passengers through its online platform, the company controls some aspects of the way driver- partners conduct their business. The level of control exercised by Uber over the drivers is a key factor in assessing whether the drivers are employees or independent contractors.

Why is the distinction between contractor and employee important?

The importance of the distinction between an employment arrangement and other contracting arrangements lies in the rights, obligations and legal responsibilities which attach to the different types of labour arrangements and the consequences of getting it wrong.

The legal distinction between a worker who is an “employee” and a worker who is an “independent contractor” is not always easy to make. The courts decide whether a worker is an independent contractor or employee by assessing the entire relationship and looking behind the contract itself to determine the true nature of the relationship. The courts will apply a “multi-factor test” to the specific facts and circumstances relevant to a particular worker, considering a series of factors or indicia which might suggest that a person is or is not an employee. They include:

• Control. What degree of control is exercised over how the work is done? 
  
• Delegation of work. Can the work be delegated?
• The right to exclusive service of the person engaged. Does the worker do other work? 
• Mode of remuneration. How is the work paid for?
• Obligation to work or the right to dictate the place and hours of work. Can the work be refused? 
• The provision and maintenance of equipment and uniforms. Who pays for materials and equipment? 
• Business risk. Employees carry no enterprise or business risk and the employer is responsible for the quality of their work
• Views of the parties. How have the parties characterised the relationship? 
• Integration. What is the worker’s relationship to the business? 

The consequences of getting it wrong

If a worker is engaged as an independent contractor or consultant, and a court or tribunal determines that the worked is in fact an employee, the employer could be exposed to:

• compensation claims under the Fair Work Act 2009 (Cth) (FW Act) for underpayment of wages, unpaid annual leave, unpaid superannuation and unpaid long service leave;
• unfair dismissal claims;
• vicarious liability; and
• prosecutions by the Fair Work Ombudsman (FWO) for breaches of the FW Act.

Tips for in-house counsel

Uber is clearly changing the face of the taxi industry across the globe, and is forcing competition in a market that was previously fairly closed. 

In assessing whether a worker should be engaged as an employer or a contractor, in-house counsel should consider the following:

• Pressure test why a contractor model is being sought — what are the reasons? 
• Regularly review your precedents
• Meeting some but not all tests 
• Set expectations from the beginning 
• Clearly separate your practices out 
• Keep accurate and complete records 

Note: This is an extract from Inhouse Counsel, May 2016, Volume 20 No 4