A recent case in the United States of America involving the transport company Uber has raised more questions for businesses that utilise the services of independent contractors.
The case, Douglas O’Connor et al v. Uber Technologies Inc, U.S. District Court, Northern District of California, No. 13-3826 is currently contemplating whether Uber drivers, which Uber treats as independent contractors, are actually “employees”.
In the case, California District Court Judge Edward Chen ruled last week in San Francisco that a legal action brought by four Uber drivers claiming they were employees rather than contractors, should be allowed to proceed as a class action. This potentially opens the door for any driver who has driven for Uber in California since 2009 to join the proceedings against Uber. In his judgment in the case so far, Judge Chen said the onus would be on Uber to “disprove an employment relationship” existed with the drivers, with the key issue being the company’s level of control over how the drivers worked.
Uber in Australia hopes to have 20,000 drivers working as contractors by this time next year, but this case may raise serious concerns as to how these drivers might be characterised here.
Independent contractors v employees in Australia
There is no single criterion that conclusively determines if a person is an employee or an independent contractor. Various features of the relationship between the business and the worker are assessed including:
- Does the organisation have control over the way tasks are performed?
- Does the organisation supply tools and equipment or is it supplied by the worker?
- Are there standard hours worked?
- What is the level of integration with the worker and the workplace?
- Is the worker paid on completion of a task or paid wages?
- Can the worker work for other organisations at the same time?
- Can the worker subcontract parts of the work?
- How do the parties characterise their relationship?
- Who pay costs like tax, workers’ compensation and superannuation?
- Does the worker carry out work under their own name or a business name?
Why does it matter?
Mischaracterising an employee as an independent contractor, and then treating them as such, may require the principal, who is actually an employer, to retrospectively make up any rights or entitlements due to the employee. This may involve considerable expense for an employer.
Equally important, however, is the possibility that the principal, or employer, may be pursued under the Fair Work Act 2009 (Cth) for sham contracting. An employer engaging in such conduct may be exposed to significant fines, as well as declarations of unlawful conduct that may affect existing or future government contracts.