The Gig Economy’s benefits and risks

Gillian Service outlines the latest development in the labour market and questions whether New Zealand’s existing laws are fit for purpose in this rapidly changing employment landscape.

The Gig Economy is a quickly developing labour market that is defined by short-term contracts or freelance work (as opposed to permanent jobs). Workers in a Gig Economy get paid for the “gigs” they do, such as a food delivery or a car journey as opposed to a regular salary or wage. 

The UK Office of National Statistics reports that in the UK alone the Gig Economy has over five million workers and is projected to increase its worth from an estimated £0.4 billion in 2015 to £9 billion by 2025.

In response to concerns of worker exploitation as permanent work becomes more precarious in the rise of the Gig Economy, the UK Government has launched an enquiry into the future of the world of work and workers’ rights. Working conditions at a number of high profile UK companies, including Uber, Deliveroo and Asos are being scrutinised following challenges by gig workers to their contractual status and the UK enquiry has brought issues of work and workers’ rights to the fore, both in the UK and globally. 

As the Gig Economy gains momentum and New Zealand businesses start to employ individuals on short term contracts (‘gigs’), the issue will undoubtedly find its way onto the New Zealand Government’s radar.

The UK Employment Tribunal’s findings in a recent Uber case highlighted the risks that businesses face when operating a Gig Economy workforce. The case concerned a (successful) challenge by Uber drivers to their contractor status and the Employment Tribunal found that drivers had rights to minimum entitlements under local employment laws.

While Uber has been granted the right to appeal the decision, regardless of this outcome businesses in New Zealand who rely on a similar ‘contractor’ model may be at risk of comparable findings being made in the New Zealand courts. This is because the current legal framework in New Zealand permits a similar outcome if the facts align. Judges may set aside the written agreement if the real nature of the relationship in practice is different to that which is documented between the parties. 

While the ‘network of independent contractors’ is only one model, the Uber decision shows that it can be difficult for businesses to achieve the balance between flexibility, autonomy and limitation of financial risk while maintaining control over working practices.

The demand for independent workers will continue to grow as digital businesses or those needing specialised skills become more common, and workers are looking for greater flexibility in the roles they accept.

The benefits for businesses include being able to focus on core operations and use contractors when additional services or particular expertise is required. Contractors can also be more engaged as they apply their particular expertise in return for flexibility, good remuneration and tax advantages. These arrangements can boost productivity. While businesses, consumers and (some) contractors are experiencing the benefits of the Gig Economy, it remains open to abuse by organisations. 

Areas of exposure when operating in the Gig Economy include a lack of job security and little to no recourse to a legal framework that protects the gig worker’s position.
There are increasing reports in global media of companies using a contractor model to exploit cheap labour, especially in more labour intensive industries in which contractors are not in a position to negotiate their own contracts or remuneration. This has led to some contractors working long (potentially unsustainable) hours and are ultimately paid less than minimum wage. It is not uncommon for such contracts to include penalty clauses where, if a contractor cannot work for illness or other reasons, the company charges the contractor for the cost of finding a replacement.

Abusing this model will give rise to legal challenges for business who exploit the model, as well as those who wish to rely on it. These challenges will be both to businesses’ reputations and also legal challenges (such as the one brought by Uber drivers in the UK) by way of status disputes. 

While these issues will not stifle the Gig Economy in New Zealand, it does raise the question of whether existing laws are fit for purpose in this rapidly changing employment landscape.

Gillian Service is an internationally recognised employment law specialist, with significant experience practicing in top tier law firms in New Zealand, Scotland and England. Gillian leads the Auckland employment law practice at MinterEllisonRuddWatts.