LG Insights

The UK UBER decision: A timely reminder for Councils to review individuals engaged as “contractors”

At a glance

• A recent UK decision involving Uber, is another timely reminder of the importance of Councils ensuring that the “contractors” it engages are correctly categorized.
• “Contractor” arrangements in SA,  particularly those with individuals contracting through an ABN, are being subject to increased scrutiny by both workers and regulators.
• A well-drafted, user friendly independent contractor agreement that focuses on the actual arrangements in place with the individual, will be critical to compliance moving forward.

The recent decision involving Uber, in the United Kingdom, is yet another timely reminder of the importance of Councils ensuring that the “contractors” it engages are correctly categorized.

This exercise is particularly important for those contractors that are engaged as an individual with an ABN (not through a Pty Ltd or trust).

The Decision

The Court, Uber’s final avenue of appeal, unanimously dismissed Uber's appeal. The Court found that the drivers were “workers” whilst transporting their passengers and when they were logged in to the App.

Uber has long asserted that it is effectively a “booking agent” connecting passengers with self-employed contractors to provide transport. Why was Uber then unsuccessful in persuading the Court that Uber drivers were genuine independent contractors?

In brief terms, the Court found that:

• Uber sets the fares, which in turn dictates the driver’s income;
• the contract (between Uber and driver) was prepared by Uber and, in practice, was not up for negotiation;
• Uber is able to terminate the driver’s engagement if their star rating drops too low; and
• Uber is able to unilaterally penalise drivers that reject too many rides.

Balancing all of the relevant factors, the Court found that Uber drivers ought to be “deemed” workers, despite the contracts in place stating the exact opposite.

Relevance to Councils

How is this decision relevant to South Australian councils? In simple terms:

• It is yet another high profile decision in which a purported “independent contractor” relationship has been deemed otherwise by a Court or regulatory body; and
• “Contractor” arrangements in South Australia, particularly those with individuals contracting through an ABN, are being subject to increased scrutiny by both workers and regulators.

Correctly Classifying Contractors in South Australia

If this is all so complex, how do Councils ensure they are getting this right? Unfortunately, it is easier said than done. The laws that potentially “deem” a contractor an employee are complex and varied.

The legal test (as to whether an individual is correctly a contractor) varies depending on the particular entitlement or obligation under scrutiny. The common “tests” (relevant to Councils in South Australia) are those provided for in the laws (or the common law) that regulate:

• entitlements to wages and entitlements under an award or an EBA;
• entitlements to (and compliance with) superannuation;
• compliance for Payroll tax purposes;
• compliance for ATO and PAYG purposes; and
• workers compensation.

In addition to there being five different “deeming” tests, certain entitlements are more readily available than others. For example, people often underestimate how frequently superannuation is payable because of how the arrangement works in practice.

Contractor or Employee – Misconceptions

As a result of this legal complexity, confusion and misconceptions (around the engagement of individual contractors) are rife. For example, did you know that:

• An ABN and/or trading name, by itself, does not afford a Council any protection, nor does it make someone a contractor? An ABN is not a separate entity. Even if your contractor has an ABN, in the absence of that ABN being for a separate corporate entity you are still contracting with them as an individual.
• Superannuation is often payable to individual contractors? If you pay an individual under a contract that is wholly or principally for the person's labour (which is often the case) you have to pay super contributions for them.
• Whether a contractor engages with you as an individual or through a corporate entity is one of the most important “risk factors”? This is because, in simple terms, you can’t employ a company.
• The fact it is often the contractor (and not Council) who insisted they be engaged that way for their own reasons (often paying less tax) does not matter? Unfortunately, for the employer or principal, if or when the ATO or Revenue SA come knocking, the contractor’s insistence is not a defence.

What should you do if these misconceptions apply to you or your workplace?

We do not raise these concerns to unnecessary alarm. Many employers have sophisticated systems in place to ensure ongoing compliance with these considerations. Even if your workplace could do with some improvement in this space, future compliance is entirely manageable with the right training, education and tailored advice.

Further, a well-drafted, user friendly independent contractor agreement that focuses on the actual arrangements in place with the individual, will be critical to compliance moving forward. Similarly, easy to use “engaging a contractor” checklists can quickly assist those in your Council who are tasked with making (or reviewing) these assessments. 

Our specialist Local Government Employment, Safety and Workers Compensation Team have significant experience in this area. If this article has caused you any concerns, please contact one of our team members listed below, to have a confidential no-obligation discussion to determine how we may be able to assist.