Where hiring an independent contractor goes wrong

Where hiring an independent contractor goes wrong

Uber Eats and apps like it have become a familiar stop on many phones today. Hungry Panda is the mandarin version of one of these food delivery apps allowing native mandarin speakers to easily order food in authentic Chinese terms. 

Hungry Panda operates by engaging food delivery drivers as independent contractors who accept jobs via an app (a model colloquially referred to as the ‘Uber model.’) Mr Wang was one of these drivers until Mr Wang received a complaint from one of the restaurants Hungry Panda services. As a result, Hungry Panda terminated Mr Wang’s contract. Mr Wang raised a personal grievance arguing he believed he was an employee, and this was an unjustified dismissal. 

Mr Wang was successful. 

The Wang v Hungry Panda judgment highlights four incorrect assumptions employers have when hiring an independent contractor:

Its about understanding as well as terms:

The first assumption employers often make is that a clearly drafted agreement with the words, independent contractor and a clause that spells out this should not be thought of as an employment relationship is sufficient to dispel any employment notion.

However, the Hungry Panda decision says otherwise. The Member considered Mr Wang’s grasp of the English language noting that more should have been done to explain the distinction between an independent contractor and employee in a language Mr Wang could understand. 

The Authority also noted that Hungry Panda should have given Mr Wang time to take the agreement away and get advice. 

Key takeaway #1: Employers should focus on creating as much understanding of the important terms in the agreement as possible as well as spelling it out in the contract. 

Employers can control the results but they can’t control the method:

The next mistake employers make is that they assume they can fully specify how, where, and when, contractors complete their work as well as what work they complete.

While working at Hungry Panda, Mr Wang would have to deliver meals within 60 minutes of a customer placing their order and would only be able to work during restaurant hours. Furthermore, jobs were allocated to him by Hungry Panda meaning they could decide what areas Mr Wang worked. 

The Authority notes that the nature of Hungry Panda’s business model only allows for a light touch of control by Mr Wang and a ‘remote control’ structure in Hungry Panda’s favour.  

Although employers are allowed to direct contractors to some degree as to how they want work completed, the more this is done, the more likely the arrangement is really one of employment.

Key takeaway #2: Employers should focus on the results of the work desired rather than how they want the work to be completed. 

Contractors need to ‘look’ different to employees:

The third assumption employers have is that because the contractor isn’t in a uniform or bandying around any signage they won’t be thought of as employees.

Hungry Panda operates as a behind-the-scenes IT platform meaning its actual employees are dispatchers or programmers. For Hungry Panda delivery drivers are the only public face of the company. Because of this, to the lay observer, a delivery driver is an employee of Hungry Panda, not an individual operating on their own account.

The Authority found this a persuasive consideration when finding an employment relationship existed for Mr Wang.

Key takeaway #3: The employer should clearly demark the difference between an employee and contractor in the lay observer’s eye.

Contractors that act like ‘contractors’ are safer to engage:

The fourth mistake employers make is assuming all independent contractors are made equally.

Mr Wang owned no plant and equipment besides his car. There was no opportunity for him to garner goodwill for his own benefit. He did not contract with any other companies. He did not set the price for Hungry Panda to pay. Mr Wang was in all respects an individual offering his labour, not an entrepreneur. 

This is opposed to a delivery driver who operates providing delivery services to several companies.

Key takeaway #4: The more the individual you are contracting with is acting like a company the less likely the arrangement will be found to be one of employment. 

 

If you would like to discuss whether hiring an independent contractor or hiring an employee is appropriate for you, please get in touch with the Watermark team directly. We are happy to advise you.

Jonathan Charlton (Senior Solicitor/Practice Manager) and Isaac Proctor (Law Clerk)