March 17, 2020
GIG ECONOMY WORKERS: EMPLOYEES OR INDEPENDENT CONTRACTORS?[1]
INTRODUCTION
Gig economy is an economic activity that involves the use of temporary or freelance workers to perform jobs typically in the service sector.[2] In a gig economy, flexible jobs are commonplace and companies tend towards hiring independent contractors and freelancers instead of full-time employees.[3] In essence, it is where workers complete tasks on a project-by-project or client-by-client basis rather than regularly working for a single employer.[4] The gig economy is characterized by flexibility, zero hour contracts, self employment, workers paid for limited contracts, and people having more than one source of income.[5] Jobs in the gig economy include ridesharing [Uber, Bolt, Opay etc] which is now popular, delivery driving, selling craft, consulting, freelance writing, photography, coding and programming etc.[6] Participants in the gig economy are usually referred to as gig workers and on-demand companies. A gig worker has been defined to mean an independent contractor, online platform worker, contract firm worker, on-call worker and temporary worker.[7]
A working person is either an employee or an independent contractor. An employee is a person who works under a contract of employment and is under the control of the employer while an independent contractor is a person who contracts to do work or perform a service for another and retains total control over the means or methods used in doing the work or performing the service.[8] A gig worker is usually engaged under a contract for service. A contract for service is simply defined as an agreement whereby a person is engaged to carry out a specific assignment or project at the end of which the contract comes to an end. In such instance, a person so engaged is referred to as an independent contractor and not an employee of the person who engaged him/her. Nevertheless, the question of whether a person is an independent contractor or an employee often arises because there is a thin line between the two concepts which often overlap. Thus, the need for each employer/employee relationship to be determined based on the merits of each case. The Supreme Court of Nigeria, in Shena Security Co. Ltd v. Afropak (Nig.) Ltd & 2 Others,[9] laid down the following factors that should guide courts in determining which kind of contract the parties entered into –
- If payments are made by way of “wages” or “salaries”, this is indicative that the contract is one of service. If it is a contract for service, the independent contractor gets his payment by way of “fees”. In like manner, where payment is by way of commission only or on the completion of the job, that indicates that the contract is for service.
- Where the employer supplies the tools and other capital equipment, there is a strong likelihood that the contract is that of employment or of service. But where the person engaged has to invest and provide capital for the work to progress, it indicates that it is a contract for service.
- In a contract of service/employment, it is inconsistent for an employer to delegate his duties under the contract. Thus, where a contract allows a person to delegate his duties there under, it becomes a contract for services.
- Where the hours of work are not fixed, it is not a contract of employment/of service.
- It is not fatal to the existence of a contract of employment/of service that the work is not carried out on the employer’s premises. However, a contract which allows the work to be carried on outside the employer’s premises is more likely to be a contract for service.
- Where an office accommodation and a secretary are provided by the employer, it is a contract of service/of employment.
The growth of the gig economy has been necessitated by factors such as technology, decline in traditional manufacturing jobs, shift in the economy, tax/payment issues, unemployment, underemployment etc;[10] this growth has led to the need to evaluate the employment relationships obtainable in the gig economy.
CAN SOME GIG WORKERS IDEALLY BE CLASSIFIED AS TYPICAL INDEPENDENT CONTRACTORS?
The above poser is pertinent because many gig economy participants exhibit both the features of an employee and an independent contractor and one major attractive feature in the gig economy for employers is the removal of the burden that comes with the provision of benefits such as pensions, paid leave, health insurance etc., which employers would have to provide for typical employees. This has raised many concerns because with the rapid growth of gig economy and its workers engaging in gig economy jobs full time, the call to extend certain benefits to gig workers is on the rise. In an effort to appease their workers, platforms are experimenting with additional incentives for contract workers. But these perks are still a far cry from the health-care and retirement benefits that companies traditionally offer their full-time employees.[11]
Globally, the gig economy has been identified as an important and growing issue making it clear that in many countries, it is felt that the traditional model of what constitutes employment needs to be revisited in the light of the growth in gig works to avoid misclassification and some countries are already carrying out reviews and putting mechanism in place to address this issue of misclassification.[12]
In the United States of America, different States are making different moves on this issue. In California, a Bill which changed the status of gig workers to employees was passed;[13] this was despite the challenges brought against the Bill.[14] The Bill codified a 2018 California Supreme Court decision[15] that established a three-part test known as the “ABC test”, to determine whether a worker is an independent contractor or an employee, eligible for minimum wage, unemployment and workers’ compensation, health care benefits, and other traditional protections. According to the test, a worker is only considered an independent contractor if she/he is not under the control or direction of a company while working and if she/he performs work that is “outside the usual course” of the company’s business. Workers for app-based companies often set their own schedules but the companies also tend to control their workers by setting fares and commissions, monitoring performance through customer rating, and pushing them to work in specific areas based on in-app incentives. Also, the workers’ tasks—driving, delivering meals—are core to the companies’ business models.[16] Although some ride sharing companies with Uber at the forefront are challenging the law, Uber made major changes to its app in California to make it more compliant with the law.[17] Labour experts expect the Bill to prompt similar efforts in other states and cities and so far it has as States such as New York, Illinois, Oregon, Washington and Wisconsin seem to be making a move either to adopt or mirror California ABC test.[18] Meanwhile in Tennessee,[19] a new flexible misclassification test that provides more of a balance between the interests of employers and workers was developed and it is to be implemented starting January 2020 to determine whether a worker is a contractor or an employee. This test known as the classic 20-factor test overturned the more hard and fast approach previously taken by Tennessee courts that required an examination of only six factors. It has been noted that one important thing about the 20-factor test as opposed to California ABC test is that the factors are flexible and a wide varieties of businesses can be structured in a way that is legally compliant with the test thereby providing good balance and encouraging innovation and growth in the State. This is unlike the ABC test that provides little consideration for businesses. In New Jersey, Governor Murphy signed a legislative package also referred to as “the misclassification package” on 20th January 2020 to curb worker misclassification and control the gig economy.[20] As an overview, the package of six new laws will penalize employers in the state who are intentionally misclassifying employees; allow stop-work orders to be issued against employers violating state wage, benefit and tax laws; permit the Department of Labor (DOL) to post information identifying individuals in violation of state wage, benefit and tax laws; require employers to post notices describing misclassification; allow tax data sharing between the New Jersey Department of Treasury and the DOL; and hold labor contractors and employers in the state equally liable for evading tax laws.[21]
In the United Kingdom, a working person can be classified as an “employee”, a “worker” or “self employed”. A worker has been defined to mean an individual who has entered into or works under, or, where the employment has ceased, worked under (a) a contract of employment; or (b) any other contract, whether express or implied and, if it is express, whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.[22] A worker is entitled to certain but limited employment rights.[23] The UK Supreme Court in Pimlico Plumbers Ltd & anor v Smith[24] analysed the agreement between Gray Smith and Pimlico Plumbers in order to determine the employment status of Smith who was engaged by Pimlico Plumbers as “self employed in business on your own account” but was subject to various requirements. The Supreme Court disallowed the appeal of Pimlico and upheld the decision of the Employment Appeal Tribunal that Smith is a worker under limb (b) of the definition of a worker. Although, this judgment did not mention gig economy, it brought to light the grey area surrounding the employment status of gig economy workers.[25] Nevertheless, the complex employment law issues associated with the “gig” economy were highlighted by the recent UK Employment Tribunal [ET] decision in Aslam and others v Uber BV and others ET/2202550/15.[26] The Tribunal decided that the drivers in question were not self-employed independent contractors and were in fact workers within the meaning of the Employment Rights Act 1996 and, were therefore entitled to the benefit of workers’ rights, such as paid annual leave, the national minimum wage, rest breaks and pension contributions. The Tribunal based its decision on a number of factors, including the fact that Uber interviews and recruits drivers; Uber sets a default route; Uber imposes numerous conditions on drivers and instructs them as to how to do their work; and the fare is fixed. The Tribunal found that the level of control exercised by Uber over its drivers could not be reconciled with a finding that the drivers are independent contractors and that the contractual arrangements between Uber and its drivers did not accord with the reality of the relationship. This decision of the tribunal was upheld by the UK Employment Appeals Tribunal [EAT]. Dismissing the appeal[27], the EAT held that the relationship could not be characterized by the written agreements. It found that the reality of the situation was that drivers were incorporated into Uber’s business. The EAT agreed with the ET’s conclusion that there was a contract between Uber and its drivers whereby the drivers personally undertook work for Uber as part of its business. The EAT observed that Uber drivers were subject to arrangements and controls such as penalties for cancelling trips once accepted, a requirement to be in the relevant territory when switching on the app and being “able and willing to accept assignments”. These factors, it found, indicated that the drivers did not work on their own behalf in a direct contractual relationship with passengers. Uber has however, expressed its intention to appeal to the Court of Appeal as its request to bypass the Court of Appeal to the Supreme Court was denied.[28]
In ireland, the ‘worker’ category does not exist.[29] The individual is either an employee or self-employed. The issue of the employment status of gig economy workers in Ireland was first addressed by the High Court on 20th December 2019 in Karshan (Midlands) Limited trading as Domino’s Pizza v Revenue Commissioners[30] and the court decided against the company operating a Domino’s franchise in respect of its appeal over the employment status of its delivery drivers.[31] Whether the Courts would classify workers operating within the gig economy as employees, thereby according them full employment rights is for the future to tell. Each case will be determined based on its own merits. If the Courts do not classify such workers as employees, no alternative protection exists. It has been suggested that a ‘worker’ category should be introduced in Ireland. If this hybrid status was introduced, it could afford those working in the gig economy some protection.[32]
In India,[33] a draft Code on Social Security 2019 recently published by the Ministry of Labour and Employment, introduced the concept of gig workers to Indian Labour Law and contemplates social security schemes for gig workers with regard to: Life and disability cover, health and maternity benefits, old age protection and any other benefits as may be determined by the government. Although the code envisages social security schemes for gig workers, it does not classify them as employees. Unlike the recent law passed in California, which treats gig workers as regular employees, the Indian code does not seek to equate gig workers with employees, but merely provides that such workers may be provided with social security benefits as determined by the government.
In Australia, the issue of the employment status of gig economy workers has been raised in the two cases against Uber for unfair dismissal remedy under Section 394 of the Fair Work Act 2009. The cases are Mr. Michail Kaseris v Rasier Pacific V.O.F[34] and Janaka Namal Pallage v Rasier Pacific Pty Ltd.[35] It was held in both cases that the applicants were not employees but independent contractors and thus, not covered under unfair dismissal remedy. This was after considering the relevant indicators of an employment relationship and the Commission was of the opinion that the overwhelming weight points to the other way but recognized the need for the development of laws to refine traditional notions of employment or broaden protection to participants in the gig economy.
In Brazil, the issue of the employment status of gig workers has been going on for a while.[37] Lawsuits have been brought against Uber in Brazilian Labour Courts, all seeking for the classification of Uber drivers as employees. Different decisions have been taken by Labour Courts in the first instance in different States of Brazil. However, on appeal, the Superior Court of Justice, Brazil’s second highest Court ruled that Uber drivers were independent Contractors.[38] It was the first time a Brazilian superior court has ruled on the issue, setting an interpretation likely to influence future court decisions related to similar apps.It is clear that the Australian court recognizes the need for the evolution of the employment law to meet up with the evolving nature of the gig economy. In fact, the Victorian Government[36] established an inquiry into the on-demand workforce otherwise known as the gig economy. The inquiry considered the nature, extent and impact of on-demand work in Victoria and the arrangements governing that work; workplace relations, work health and safety, superannuation, taxation and accident compensation matters. It also investigated the status of people working with online platforms and whether gig economy contracting arrangements are being used to avoid workplace laws and other statutory obligations. The outcomes from the inquiry could have significant implications. For example, one area that the inquiry considered is whether the existing common law tests that differentiate between employees and independent contractors are sufficient, given the many gig economy businesses that have been established over recent years.
In France, the Court of Cassation which is one of the courts of last resort in France has recently ruled that an Uber driver’s relationship with Uber is a subordinating relationship thereby making his contractual relationship with Uber an employment contract. According to the Court, the control that Uber exercises over its drivers by setting fare prices, imposing routes and determining the condition of the transport service offered by the drivers show that they are not independent contractors but employees.[39] This is the second time a decision has been given in favour of a gig economy worker, the first being in favour of a delivery person who was declared an employee of the delivery company.[40] These decisions will no doubt have a positive impact on the gig economy in France.
Nigeria is not left out as the gig economy is steadily growing in the country especially in the light of the unemployment/underemployment rate in the country. Under the Nigerian Labour Law, Section 91 of the Labour Act[41] has defined a worker to mean any person who has entered into or works under a contract with an employer, whether the contract is for manual labour or clerical work or is expressed or implied or oral or written, and whether it is a contract of service or a contract personally to execute any work or labour. Oladapo Olatunji & Anor (Representing themselves and other Uber and Taxify Drivers in Nigeria in a Class Action) v. Uber Technologies System Nigeria Limited & 2 Ors[42] presented an opportunity for the National Industrial Court of Nigeria,[43] the Court with the exclusive jurisdiction to adjudicate on Labour and Labour related matters, to address the status of Uber drivers under the Labour law. The claimants brought an action against Uber imploring the Court to declare that the drivers working for Uber are employees of Uber under section 91 of the Labour Act by virtue of the nature of Uber’s control over them. Unfortunately, the Court dismissed the case because the claimants were unable to prove their case as they didn’t furnish sufficient evidence that will aid the resolution of the case. However, the Court recognized that forms of work have changed and the traditional or orthodox distinctions between the worker/employee and the employer no longer exists or have been stretched to absurd limits. But all of this cannot be determined if there are no facts upon which the inquiry can be done as is in the above case. Therefore, there is need for a judicial pronouncement on this issue or a legislative intervention.
CONCLUSION AND RECOMMENDATION
It is clear from the above analysis that the regulation of the gig economy is imperative; not just as it affects gig economy workers but also on demand companies that make use of them as its impact on the society cannot be overlooked. The key word that resonates in determining the employment status of gig economy workers is “control”. A careful consideration of the terms of engagement of some gig workers especially those in the ride-hailing companies shows that they cannot be ideally called independent contractors but employees. For instance, provision of transportation services using an online platform forms the main business of ride-hailing companies and these companies hold out their drivers as competent drivers as they carry out inspections and require that the drivers meet some set standards. These companies also exert other control such as price fixing, the policy of going cashless etc. It is trite law that Equity looks at the substance and not the form. The form of engagement of some gig economy workers may qualify them to be called independent contractors but the substance of the contract and terms therein shows that they are actually employees and as such they are entitled to benefits accruing to employees.
There is no doubt that there is a need to review the employment law and employment related Laws[44] in Nigeria and an overhaul of the employment system carried out. With the evolution and rapid growth of gig economy, this issue of overhaul becomes very crucial. Globally, the economy is rapidly changing and there is need to keep pace with the challenges such change has introduced otherwise Nigeria will risk being left far behind. A legal or regulatory framework to control and regulate the gig economy is now pertinent. A look at the meaning of a worker under the Nigerian Law shows that it is similarly to the meaning of a worker under English Law but the definition under English Law is broader. Also, a worker under limb (b) of the English Law has certain, but limited employment rights unlike a worker under limb (b) of the Nigerian Law. It is suggested that Nigeria can extend its definition of who a worker is under limb (b) of its definition so as to confer certain employment rights. In addition, the test to determine employment relationship can be reviewed to accommodate the gig economy.
Having a regulatory framework governing the gig economy will help immensely in the area of generating revenue through taxation. This is because with such framework, the questions of whom to tax and how to recover the assessed amount can be easily answered. As employees, personal income tax can be deducted at source.
On the other hand, it has been suggested that portable benefits which will move with a freelance worker can be introduced.[45] Employers could pay a certain percentage towards universal benefits for all works that they commission, regardless of the nature of their contract with the worker. This would enable independent workers to accumulate and manage their benefits, and eventually acquire a safety net like that of a full-time contracted employee.[46] Stock can be taken of which benefits workers will value the most and effective policies designed that will encourage platforms to offer them. But such policies should ensure that the benefits are portable and can move with the worker.[47]
In view of all these, it is imperative that when a person is engaged for a service, the agreement made should be carefully worded to avoid misclassification.
[1]Ruth Nwankwo, Associate at Kevin Martin Ogwemoh Legal. She can be reached at r.nwankwo@kmo.legal; Chibueze Muobuikwu, Senior Associate at Kevin Martin Ogwemoh Legal. He can be reached at c.muobuikwu@kmo.legal
[2] https://www.merriam-webster.com/dictionary/gig%20economy assessed on 14/01/2020.
[3] Jim Chappelow, Gig Economy available at https://www.investopedia.com/terms/g/gig-economy.asp assessed on 23/01/2020.
[4]Tom Spiggle, Right of Workers in the Gig Economy available at https://www.spigglelaw.com/employment-blog/the-rights-of-workers-in-the-gig-economy-part-1/ assessed on 23/01/2020.
[5] Tejvan Pettinger, the gig economy available at https://www.economicshelp.org/blog/24205/labour-markets/the-gig-economy/ assessed on 14/01/2020.
[6] Kyriaki Raouna, 16 Best Gig Economy Jobs available at https://www.careeraddict.com/gig-economy-jobs assessed on 14/01/2020.
[7] https://en.wikipedia.org/wiki/Gig_worker#cite_note-1 Alvarez, Matt ”5 Things You Need to Know About the Gig Economy”gigworx.com assessed on 14/01/2020.
[8] Legal definition of independent contractor available at https://www.merriam-webster.com/dictionary/independent%20contractor assessed on 12/03/2020.
[9] [2008] 18 NWLR (Pt. 1118) 77 SC; [2008] 4 – 5 SC (Pt. II) 117.
[10] Tejvan Pettinger, the gig economy available at https://www.economicshelp.org/blog/24205/labour-markets/the-gig-economy/ assessed 14/01/2020.
[11] David Porteous & Olda Morawcznski, How the gig economy could help power Africa’s growth available at https://www.weforum.org/agenda/2019/06/africa-s-gig-opportunity assessed on 14/01/2020.
[12] Lus Laboris, The global impact of the gig economy available at https://www.lexology.com/library/detail.aspx?g=d3f3de59-5209-4309-83a4-23871785da41 assessed at 15/01/2020.
[13]Aarlan Marshall, In California gig workers are about to become Employees available at https://www.wired.com/story/california-gig-workers-become-employees/ assessed on 15/01/2020.
[14]Evan Symon, Uber and Packmate file suit against California over imminent AB 5 Law available at https://californiaglobe.com/section-2/uber-and-postmates-file-suit-against-california-over-imminent-ab-5-law/ assessed on 20/01/2020.
[15] On April 30, 2018, the California Supreme Court issued a unanimous decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex) available at https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB5 assessed on 20/01/2020.
[16] Ibid.
[17] Evan Symon, Uber changes App to comply with AB 5 California available at https://californiaglobe.com/section-2/uber-makes-ab-5-compliant-changes-to-their-app/ assessed on 20/01/2020.
[18] Richard Meneghello, Could 2020 be the year of the California Copycats? Other States line up to consider Misclassification Statutes available at https://www.fisherphillips.com/gig-employer/could-2020-be-the-year-of-the assessed on 24/01/2020.
[19] Fisher Philips, As other States throw up roadblocks, Tennessee makes changes to boost gig economy available at https://www.lexology.com/library/detail.aspx?g=f824142c-f6a5-4f12-94c2-1b90a1dd82ce assessed 24/01/2020.
[20] Greenbaum, Rowe, Smith & Davis LLP, Governor Murphy signs Legislative Package designed to curb gig economy; omits controversial Bill proposing revision of ABC test available on https://www.lexology.com/library/detail.aspx?g=309e140a-f85d-486a-96a5-d2ef3d0aa4c7&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2020-02-04&utm_term= assessed on 04/02/2020.
[21] Ibid.
[22] Halsbury’s Laws of England, Fourth Edition, paragraph 159 at page 198; Section 230(3) of the Employment Rights Act 1996.
[23]Employment Status available at https://www.gov.uk/employment-status/worker assessed on 27/01/2020.
[24] [2018] UKSC 29.
[25] Jeremy White, The gig economy in Court-Implication for Employers available at https://www.lexology.com/blog/2018/07/the-gig-economy-in-court-implications-for-employers assessed on 27/01/2020.
[26] McCann Fitzgerald, The UK Employment Tribunal Uber Ruling: what does it mean for the gig economy? available at https://www.lexology.com/library/detail.aspx?g=8d141ed6-38f9-4fcd-9576-b745e616a21a assessed on 15/01/2020.
[27] William Fry, Brakes on Uber Appeal to Supreme Court following confirmation of worker status available at https://www.lexology.com/library/detail.aspx?g=34a1257c-6224-4c8d-a12c-a53eec5b1233 assessed on 15/01/2020.
[28] Ibid.
[29] Ibid.
[30] [2019] IEHC 894.
[31] A & L Goodbody, High Court rules on employment status of delivery drivers available at https://www.lexology.com/library/detail.aspx?g=309e140a-f85d-486a-96a5-d2ef3d0aa4c7&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2020-02-04&utm_term= assessed on 04/02/2020.
[32] William Fry, Brakes on Uber Appeal to Supreme Court following confirmation of worker status available at https://www.lexology.com/library/detail.aspx?g=34a1257c-6224-4c8d-a12c-a53eec5b1233 assessed on 15/01/2020.
[33] Shardul Amarchand Mangaldsa & Co, Regulating India’s gig economy available at https://www.lexology.com/library/detail.aspx?g=026c8a29-e4c1-4a2d-b63d-3d63453348e1 assessed on 15/01/2020.
[34] (U2017/9452)[2017]FWC 6610.
[35] (U2017/13448)[2018] FWC 2579.
[36] https://www.aigroup.com.au/policy-and-research/wr-policy/on-demand-workforce/ assessed on 15/01/2020.
[37] Renan Bernardi Kalil, Backgrounder: Employment Status of gig workers in Brazil available at https://onlabor.org/guest-post-brazil-and-the-gig-economy/ assessed on 06/02/2020.
[38] Reuters, Brazil Court rules Uber drivers are freelancers, not employees available at https://www.reuters.com/article/us-uber-brazil/brazil-court-rules-uber-drivers-are-freelancers-not-employees-idUSKCN1VP315 assessed on 06/02/2020.
[39] PYMNTS, France’s Highest Court says Uber Drivers are Employees available on https://www.pymnts.com/gig-economy/2020/france-court-ruling-uber-driver-employee/ assessed on 05/03/2020.
[40] LINEE, in France, is a driver or delivery person paid via a digital platform considered an employee of the company? Available on https://lineenetwork.org/france-driver-delivery-person-employee-uber-take-eat-easy/ assessed on 18/03/2020.
[41] CAP LI, LFN, 2004.
[42]Suit No. NICN/LA/546/2017, judgment delivered on 4 December 2018; per Kanyip J. available at https://judgement.nicnadr.gov.ng/details.php?id=3075; https://businessday.ng/opinion/article/uber-and-competition-regulation-in-nigerias-ride-hailing-economy-1/ assessed on 16/01/2020.
[43] Section 254C (1) of the Constitution(Third Alteration) Amendment Act 2010; Section 7 of the National Industrial Court Act.
[44] Labour Act Cap L1 LFN 2004; Pension Reform Act 2014; Employees’ Compensation Act 2010 etc.
[45] Robert Maxim & Mark Muro, Rethinking worker benefits for an economy influx available at https://www.brookings.edu/blog/the-avenue/2018/03/29/rethinking-worker-benefits-for-an-economy-in-flux/ assessed on 16/01/2020.
[46] David Porteous & Olda Morawcznski, How the gig economy could help power Africa’s growth available at https://www.weforum.org/agenda/2019/06/africa-s-gig-opportunity assessed on 16/01/2020.
[47] Ibid.
