For over a century, common and civil law countries have traditionally divided workers into employees and independent contractors. This dichotomy has existed in North America, Europe, Australia and Africa.
Whereas employees had rights recognized and protected under law, independent contractors were self-employed and had the freedom that goes with that designation particularly in relation to taxation. However, independent contractors had no employment protection.
How then does the law differentiate between an employee and an independent contractor? In fact, the legal test is very similar across Europe, North America, Africa and even Asia. If an individual has to work fixed hours, had tools provided by their employer, were controlled and supervised in the way in which they carried out their work, they were employees. If the worker could set their own hours and could determine when and how they worked, were simply given a task and an objective to fulfill, were not supervised, had to provide their own equipment and did not work from a fixed location, the worker was likely to be regarded as an independent contractor.
The differentiation has social security implications. Being an employer brings protection against unfair and unreasonable dismissal, the rights to minimum paid vacation each year and assistance if injured during work hours. On the other hand, tax is automatically deducted by the employer at source. Independent contractors are paid gross and are able to claim more deductions than the average employee.
This dichotomy is now under threat in the modern technological world.
Uber is the best known example of a neutral technological platform which allows consumers to find each other and do business. In this model, workers are consuming the service of the platform. Each side may rate the other. In the case of Uber, it is a taxi service. However, there are many other examples whereby a huge range of services are made available to consumers who are looking for assistance in their day-to-day lives such as the swift delivery of quality meals, laundry services, domestic cleaning services and odd job assistance. Mobile phone apps make it easy for consumers to find these services that are available virtually instantaneously upon the press of a button.
These models increasingly do not fit into the traditional dichotomy of employment or independent contracting. Those promoting the neutral technological platform make it very clear that their operatives are not employees or contractors. They have no social security, taxation or insurance entitlements. In a number of US States, there have been different legislative responses. Some States, like Georgia, Pennsylvania, Colorado, Indiana, Texas, New York and Illinois, categorize Uber drivers as independent contractors. California, on the other hand, categorizes Uber drivers as employees. This will have significant financial implications for that State as there are approximately 50,000 Uber drivers in California alone.
Obviously, businesses would prefer to provide modern technological services via independent contractors rather than employees. There are a number of ways to achieve this:
The service provider should be able to charge a flexible fee. The more fees are charged at a fixed fee or predetermined rate by the technology platform, the greater will be the risk that the workers will be employees.
Are the service providers able to compete with each other for business? If they are, they are more likely to be independent contractors.
Can the service providers provide their own hours?
Do the service providers have branded equipment to perform their services? If they do, they are more likely to be employees.
Is the service being provided via a uniform and police model? The more flexible it is, the less risk there will be that the providers are employees.
A good rule for the platform provider is to follow the marketplace and let others provide the service as much as possible the way they wish to do it. Allowing feedback and the setting of minimum rules of conduct, for example, security or cleanliness will still allow the provider to argue that the workers are contractors not employees.
More importantly, the law is having difficulty grappling with another example of high technology. The traditional distinction between employee and independent contractor fits unhappily in the modern digital economy.
For this reason, lawyers are starting to talk of a new category of worker. Proponents of this shift argue that the law should recognize work which provides freedom for individuals to work when they want, where they want, and as they want to which reflects the need for flexibility so essential in modern life. Others warn of a serious erosion in the protection of workers’ rights.
In the United States and Europe, lawyers talk of a new category of worker called the “dependent contractor”. Such a concept already exists in Germany and Sweden. Such “dependent contractors” or “facilitated contractors” could be described as workers who are free to choose what work to offer and what work to accept. The neutral technological platform is facilitating their ability to sell their service or their labour.
Such a new worker categorization may be a way of being able to find more work for casual workers and those who want to embrace the freedom that technology platforms offer.
In Victoria, the State Government has decided that Uber drivers are to be the subject of legislative regulation. This will come at the cost of deregulating the traditional taxi industry in that State. The details of the new legislation have not yet been released and the relevant Government spokespeople admit that it will be “difficult”. It will, however, be interesting to see whether the legislation adopts the third path of dependent facilitated contracting which is starting to emerge already in the United States and Europe.
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