Is Uber sham contracting?

by Victoria Bruce19 May 2016
Ride-sharing giant Uber is facing a class action law suit from drivers in the US for engaging them as contractors instead of employees, saving the company some US$730 million in the process.

The Silicon Valley giant, which is worth around $80 billion, could also face backlash from its Australian drivers if they can prove their employment arrangement classifies them as employees, says employment lawyer Simon Clayer.

US court documents revealed that since 2009, Uber has saved around $730 million by not reimbursing the on-the-job expenses of its drivers in California and Massachusetts.

This figure, calculated by the law firm representing the drivers is based on $700 million for vehicle use and $30 million for phones.

Uber and smaller rival Lyft are facing lawsuits from drivers who say they should be engaged as employees and therefore entitled to reimbursement for expenses, including petrol and vehicle maintenance, which they currently pay themselves.

Uber calls its drivers as 'driver partners' and considers them contractors under employment law.

However, Clayer, Senior Associate with HopgoodGanim, says employers should be wary of the potential to misclassify workers and the associated legal risks.

“Mischaracterising an employee as a contractor can occur across any industry, but is more common in the service delivery sectors, including occupations such as drivers,” he told HC Online.

Clayer says independent contractors have different rights and obligations when compared with employees.

“Generally, independent contractors decide how to carry out the work and what expertise is needed, have their own insurance, work for a set period of time or on a specific project, pay their own super, tax and GST, submit an invoice for work completed, and do not get paid leave,” he says.

“An employee works in your business and is part of your business, whereas a contractor is running their own business,” he says.

“Employees perform work under the employer’s direction on an ongoing basis, work set hours, bear no financial risk, is entitled to super, have income tax deducted, and are entitled to leave.”

Employers who intentionally or mistakenly engage workers as contractors when in fact they should be considered employees can expose themselves to costly penalties for sham contracting, Clayer says.

“Sham contracting is not simply ‘mischaracterising’ a person as a contractor rather than an employee – it involves a deliberate or reckless intention to treat an employee as a contractor,” he says.

He says section 357 of the Fair Work Act 2009 (Act) states it is illegal for an employer to misrepresent an employment relationship or employment offer as a contracting arrangement. 

“It is also illegal to dismiss, or threaten to dismiss, an employee with the main purpose of re-hiring that person as a contractor to do much the same work,” Clayer says.

“This is called sham contracting and is sometimes deliberately done by an employer to avoid employee entitlement responsibilities.  It may also be mistakenly done by employers who do not understand their legal obligations,”

If the Courts find a person who was engaged under a sham contract, the business may be liable for a maximum penalty of $54,000.00 per contravention of the Act.

Australian Uber drivers are banding together to fight for fairer working conditions, according to the Ride Share Driver’s Association of Australia, which has signed up over 60 paid members in the last month, Fairfax Media reported.

However, an Uber spokesperson told Fairfax the company was unavailable for comment. 

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  • by JAD 6/01/2017 1:55:45 AM

    I don't understand why drivers are demanding more fairer working conditions when they are paid 75% of the fee paid by the customers. If you were running your own business that relies on many many contractors providing the services, how are you supposed to pay for all of their expenses, entitlements and insurance premiums when they are only getting a small portion of the payment and the driver is getting most of it?

    Shouldn't the decision factor in the pricing arrangement (% allocation between both parties)? Basically what these drivers are saying is, I don't like the Uber business model and I would prefer to be paid less but have Uber sort out my entitlements and pay my petrol etc. That's just not how the business model works. It's an innovative way of providing a service to benefit the community, if you don't like it then don't sign their contract!

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