A recent ruling by New Zealand’s Employment Court, which declared that four Uber drivers were employees rather than independent contractors, has sparked intense debate across the country. The decision, in the case of Rasier Operations BV v E Tū Inc, is being hailed as a landmark moment for worker rights. However, it has also sent shockwaves through the business community, particularly among companies that rely on gig economy workers. As the implications of this ruling are unpacked, concerns are mounting over the potential impact on the broader gig economy, with some warning of significant consequences for business owners who operate a self-employed contractor model.
The Court’s Ruling and the Shift in Worker Classification
In its October 2022 judgment, the Employment Court found that the “real nature” of the relationship between Uber and its drivers pointed towards an employer-employee dynamic, rather than the independent contractor model that that Uber drivers have traditionally been classified. The Court of Appeal upheld the decision today, emphasising Uber’s substantial control over drivers. It noted that while drivers could choose when to work, they were subject to strict contractual terms that dictated key aspects of their operations. These included fare setting, driver behaviour guidelines, and the power to deactivate drivers from the platform. Chief Judge Christina Inglis concluded that this level of control and economic dependency placed the drivers within the scope of an employment relationship.
This decision builds on earlier cases in New Zealand and abroad, where courts have increasingly scrutinised the gig economy’s contractor model. The ruling stands in contrast to a 2020 decision involving another Uber driver (Arachchige v Rasier New Zealand Ltd), where the Employment Court found that the driver was an independent contractor. The shift in legal interpretation reflects broader changes in the workforce, where flexibility and digital platforms have blurred the lines between employment and contract work.
Legal and Political Repercussions
Legal experts view the Rasier Operations BV v E Tū Inc case as a critical development in the ongoing redefinition of employment relationships in the gig economy. The case highlights the limitations of traditional tests for determining employment status—such as control, integration, and economic reality—particularly in the context of modern digital platforms.
In the court’s judgment, the Chief Judge noted that while the drivers were not required to work fixed hours or report to a physical workplace, the reality of their economic dependency on Uber and the company’s extensive control over their work pointed towards an employment relationship. This interpretation marks a significant departure from earlier rulings and could influence future cases involving gig economy workers across various industries.
The ruling has also caught the attention of political leaders and unions, who see it as a potential catalyst for legislative change. Unions have welcomed the decision, arguing that it could pave the way for broader protections for gig workers, many of whom they believe have been unfairly classified as contractors to avoid the costs associated with employee entitlements. The case has intensified calls for the government to introduce clearer legislation that better reflects the realities of the gig economy.
However, the political landscape remains uncertain. With Uber signalling its intention to appeal the decision, the final outcome may be decided by higher courts, potentially even the Supreme Court. The ongoing legal battles are likely to keep the issue in the spotlight and could lead to significant changes in employment law, depending on how the appeals process unfolds.
Business Community’s Concerns Over Rising Costs and Operational Challenges
The ruling has not been welcomed by everyone. Within the business community, there is growing concern about the potential ramifications of reclassifying gig workers as employees. Many business owners fear that the decision could lead to increased costs and operational challenges, particularly for companies that rely heavily on the flexibility and cost-effectiveness of the contractor model.
Gary Collins, a business owner in the gig economy, voiced his concerns in a recent interview. “If this ruling was to flow through to the wider sector, it would have huge ramifications,” he said. “All contractors would be deemed as employees, which means businesses would have to bear the additional costs of employee benefits, such as holidays, sick leave, and ACC.
“If this ruling was to flow through to the wider sector, it would have huge ramifications. All contractors would be deemed as employees. Therefore, the business has to allow for these extra costs, i.e. four weeks holidays, eleven stat days, ten-plus sick days – essentially two months [of leave] and ACC costs.” He added, “So if a contractor was earning $1000 per week on average, that would now become about $800 for the same amount of work, but they do get the days off.”
Collins also warned that the ruling could discourage companies from hiring new employees or could even lead to job cuts. “We would probably have to let some of the existing staff go based on their performance,” he said. “And the contractors, now employees, would be required to turn up at a specific time and stay until a specified time. And during that time, they might encounter more ‘managing’ to ensure they meet their targets.”
The financial impact on businesses could be significant. Under New Zealand law, employees are entitled to a range of benefits, including the minimum wage, paid leave, and the ability to bring personal grievance claims. For companies like Uber, which operate on slim margins and rely on a large pool of contractors to meet fluctuating demand, these additional costs could threaten the viability of their business models. The fear is that other industries that utilise independent contractors—such as courier services, construction, and home care—could also be affected if the ruling sets a precedent.
The Future of the Gig Economy in New Zealand
The potential ripple effects of the Rasier Operations BV v E Tū Inc ruling extend far beyond Uber. The case has put the spotlight on the broader gig economy in New Zealand, raising questions about the sustainability of business models that rely on contractor arrangements. As gig work becomes increasingly prevalent, with more industries embracing flexible, short-term contracts, the debate over worker classification is likely to intensify.
A key concern for businesses is the risk of legal challenges. The court’s ruling has highlighted the precarious nature of contractor classifications, particularly in industries where companies exert significant control over workers. If more gig workers are reclassified as employees, companies could face penalties, backpay obligations, and reputational damage. This could deter new businesses from entering the market or lead to the exit of existing players, particularly multinational companies that might see New Zealand’s regulatory environment as increasingly hostile.
Brandon Jackson, General Manager of Growth Sectors at the Bank of New Zealand, noted that the gig economy’s appeal lies in its flexibility, both for workers and businesses. He said last year, “There are definitely benefits to creating such a marketplace. It means more work for people who want to have control over their life and want to work when they want.” However, critics are concerned that the increasing scrutiny and potential reclassification of gig workers could undermine this flexibility, leading to a more rigid and less dynamic labour market. If the flexibility that attracts both workers and businesses to the gig economy is eroded, some argue we could see a decline in the sector’s growth and innovation.
A Victory for the Unions
While the business community has expressed concerns, unions and worker advocates have hailed the ruling as a significant victory for worker rights. E Tū, the union that brought the case on behalf of the Uber drivers, argued that the decision is a step towards fairer treatment for gig workers, who they believe have been exploited by companies seeking to minimise labour costs.
E Tū believe that too many workers in the gig economy have been misclassified as independent contractors, denying them basic rights and protections. They hope that this ruling sends a strong message that companies cannot simply reclassify workers to avoid their legal obligations and that it will lead to broader changes across the industry.
The union’s victory is also seen as part of a broader global trend towards greater protection for gig workers. In recent years, courts in the UK, Australia, and the United States have issued similar rulings, recognising gig workers as employees entitled to minimum wage, paid leave, and other benefits. These decisions have prompted calls for legislative reforms to address the unique challenges posed by the gig economy.
In New Zealand, the government has already signalled its interest in addressing these issues. The Tripartite Working Group on Better Protections for Contractors recommended in 2021 that judicial determinations on employment status should apply to other workers performing similar work. If implemented, this recommendation could significantly expand the impact of the Rasier Operations BV v E Tū Inc ruling, affecting thousands of workers across various industries.
Uncertainty Ahead as Companies May Be Forced to Adapt
As the dust settles on the Employment Court’s decision, businesses and workers are left grappling with the uncertainty of what comes next. With Uber planning to appeal the ruling, the final outcome remains unclear. However, the case has already highlighted the need for businesses to reassess their contractor arrangements and consider the potential legal risks.
For many companies, the ruling could prompt strategic adaptations. Some businesses may have to restructure their workforce to minimise legal risks, perhaps by diversifying their employment strategies or renegotiating contractual terms with gig workers. Others may decide to exit the market altogether, particularly if the costs of compliance outweigh the benefits of operating in the gig economy.
Many business owners who utilise contractors are disgruntled by the decision and are looking to Parliament to step in and create new legislation allowing gig work to continue as it has. “I think it’s ludicrous for the Unions to get involved in something where both parties, contractors and the employer, are happy with the arrangement,“ said Gary Collins, “Parliament should allow contractors to be contractors. Both parties are fully aware of all the obligations prior to signing any agreement.”
As the implications of this week’s judgment continue to unfold, businesses will face the challenge of navigating the changing regulatory environment while maintaining the flexibility and innovation that have made the gig sector so successful.
For now, both businesses and workers must prepare for the possibility of a more regulated and less flexible gig economy. As the case moves through the appeals process, all eyes will be on the courts and Parliament to see how they will shape the future of contract work in New Zealand.