Marketplace businesses are booming. AirBnB, Airtasker, Uber and marketplace matriarch Ebay are all variations of this model.

Setting up a marketplace is an attractive business prospect because as the operator, you can take a cut of all transactions occurring on the platform. Service based marketplaces, however, must first confront two key questions about their workers’ employment status:

  1. Is the service provider an employee or contractor of the marketplace operator? and
  2. Is the service provider an employee or contractor of the marketplace user?

As the recent Uber case in the United Kingdom (UK) demonstrates, service based marketplaces (i.e. platforms that connect users with people who offer services) are under scrutiny for the treatment of their service providers. This article focuses on the first question – whether service providers registering on a marketplace are an employee or contractor of the marketplace operator.

What Is The Difference Between An Employee And a Contractor?

The courts and the Fair Work Commission consider a number of factors when determining whether a worker is an employee or contractor. We set out some common differences in the table below.

 

Criteria Employee Independent Contractor
Hours Employees may have set hours (permanent full-time or permanent part-time), or they may be casual. Independent contractors decide on the hours to work to complete a task.
Pay Employers pay employees regularly (weekly, fortnightly or monthly). Independent contractors are paid based on their invoices rather than a set salary.
Tools Employer supplies the required tools and equipment. Contractors generally provide their own tools and equipment.
Liability Employees are not personally liable to the employer’s customers or clients, for work performed. The employer is responsible for any defects in thew work. An independent contractor is personally responsible to the customer or clients that they contract with, and will be liable if they do not perform their work with due care and skill.
Control Employer directs how an employee performs their work. An employee cannot subcontract someone else to perform their job. Contractor has discretion in how they perform their own work.
Superannuation Employer contributes to an employee’s nominated superannuation fund. Contractor pays their own superannuation.

How Does This Apply to Marketplace Operators?

If the platform hires the service provider directly, then the service provider could be an independent contractor or an employee of the marketplace platform. The business is not responsible for the worker’s entitlements if they are an independent contractor (e.g. annual leave, long service leave or sick pay). If you are found to have employed individuals as contractors rather than employees, you may need to back-pay thousands of dollars in unpaid entitlements.

If the work an individual performs is that of an employee, then regardless of what you call them, they are legally an employee of your business. There have been a number of recent high-profile cases and media surrounding the incorrect classification of employees as independent contractors in the sharing economy.

Are Uber Drivers Employees? 

In 2016, two Uber drivers Messrs Aslam and Farrar (claimants) took Uber BV, Uber London Ltd and Uber Britannia to the United Kingdom employment tribunal. The claimants argued that Uber wrongly classified them as independent contractors and that as employees, the company should pay them minimum wage, holiday pay and sick pay.   

The case is an example of a business attempting to disguise workers as independent contractors through legal language. The following reasons persuaded the Court that the claimants were employees rather than contractors.

Area of Control  Uber’s Actions
Recruitment Uber had control over the drivers the interviewed and recruited.
Key Information Uber controlled key information, including a passenger’s surname and contact details and excluded this information from the driver.
Performance Management  Uber essentially performance managed drivers through its rating system and would make decisions about pay, sometimes even without involving the affected driver.
Trips Uber required drivers to accept trips and enforced these requirements by logging off drivers who breached these requirements.
Route Uber set the default route and drivers faced penalties if they deviated from the route.

 

In essence, the Court found that the above factors meant that Uber had a significant degree of control over its drivers in how they performed the work. As we’ve discussed above, the level of control a business has over a worker is a strong indicator for determining that a worker is an employee. The Court decided that the workers were employees and Uber needed to provide employee benefits.

What are the Best Practices for Marketplace Operators?

If you are concerned that your service provider workers might be classified as employees and not contractors, it’s important to seek legal advice on the issue. Even if you call your workers ‘contractors’, how you treat the individual might suggest the person is an employee, for instance:

  • the worker cannot delegate another person to perform the work;
  • you control their hours of work; or
  • you provide the person’s tools.

If you incorrectly classify the worker, you could be liable to back-pay entitlements.

Key Takeaways

There is no single definition of an employee or independent contractor in Australia – rather, their classification depends on a number of factors. The UK Uber case demonstrated that a business couldn’t disguise an employment relationship through either legal documents or by simply calling a worker a name other than ’employee’. The decision depends on the facts. Marketplace operators should seek legal advice to clarify the status of individual workers who provide services in the marketplace.

***

If you have any questions or need assistance drafting the appropriate legal documents for workers on your platform, get in touch with our specialist employment lawyers on 1300 544 755.

Chloe Sevil
If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.
If you would like to receive a free fixed-fee quote for a legal matter, please get in touch using the form on this page.