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Employment and Migration Blog

What is Uber and how did they get so competitive?

Posted by Lisa Qiu on 15 Oct 2015

If you’re ever stuck for conversation with your taxi driver, simply ask them how they feel about Uber and I’m sure you’ll start up a lively one. Protests by taxi drivers in Melbourne earlier this month indicate that the tensions between Uber and taxi drivers are certainly heating up.

We’ve all heard of Uber – a taxi-like booking service that’s (according to some) more convenient than an actual taxi booking service. You type in where you want to go, the Uber app tells you where the nearest Uber driver is, you hop in, and away you go. The fare is often cheaper than a taxi (though as fares are demand-driven, they can be eye-watering at peak times) but have you ever wondered how they keep their general costs so low?

Four Uber drivers in California are running a class action, arguing that they were not truly “contractors”, as Uber’s arrangements with them appear to be,  but were in fact employees of Uber and should therefore have been remunerated as employees - which would have included payment of expenses related to vehicle maintenance, such as petrol and repairs.

In Australia, of course, the distinction between employment and contracting has significant consequences for entitlements to paid annual, sick and long service leave; award conditions; and superannuation. Contracting may enable greater flexibility and reduce on-costs, therefore making the contracted business highly competitive. 

Is this perhaps the way Uber has become so strikingly competitive in such a short period of time?

The Fair Work Act prohibits “sham contracting” – a superficial arrangement where the employer misrepresents to its workers that they are contractors and not employees. This raises the issue of how you identify genuine contracting from an employment relationship.

Determining whether a particular individual is a contractor or employee is notoriously difficult. The legal analysis depends on a variety of factors, such as whether the “employer” has actual control over the worker and the way in which they perform their tasks, whether the worker is his or her own boss or “really” works for the business to which they’re providing services, whether the worker has the freedom to contract their services to others, and whether the worker supplies their own equipment and uniform. It’s often far from clear what factors the courts will place more emphasis on in any given scenario.

If you don’t get the legal relationship right, and if you are in fact engaging in a sham contracting arrangement (whether this was your intention or not), there are penalties to be paid under the Fair Work Act, not to mention the claims for unpaid employee entitlements that you may receive from your workers.

The Californian case is yet to be decided. It will be interesting to see, as the struggle between old-economy taxis and new-economy Uber heats up, whether the sham contracting angle is taken up by the Fair Work Ombudsman or by disgruntled Uber drivers here.

If you’re unsure of whether your workers are contractors or employees, you should contact our Employment Law Team to discuss the true legal nature of your working arrangement, and steps to protect your interests against the risks of an argument over contractor/employee status:

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