Contractor or Employee: that is the question

On 28 November 2017, the Consumer Council recommended in its report[1]  to the government that it should open up the e-hailing market and legalise  e-hailing taxi services by progressively issuing licences and permits to the service providers, the vehicles and the drivers. Members of the legislative Council also urged the government to regulate these e-hailing services by issuing licences to platform providers. These calls came as a result of the rapid emergence of online ride-sharing services in Hong Kong, and the failure of the Hong Kong courts to deter people from joining the industry. The issue of e-hailing drivers is just the tip of an iceberg. The fact is, the rising gig economy, which causes rapid transformation in many new industry sectors, has given rise to a number of potential employment issues.

Gig Economy

In recent years, more people in Hong Kong are taking up on-demand jobs through app-based platforms or smartphone applications. According to surveys conducted by the Hong Kong Census and Statistics Department, there was a total of 524,000 flexible workers in Hong Kong in 2015.[2] The 2016 Hays Asia Salary Guide, which surveyed over 3,000 employers in various locations across the region, revealed that 54 percent of the employers in Hong Kong have hired flexible workers in the past year.

The flexible employment practices and freelance work in the gig economy embrace the selling of goods and services using internet platforms to match consumers and service providers. For example, the provision of taxi services through Uber; the delivery of restaurant food using Deliveroo; and the provision of accommodation through Airbnb, etc. Do these platform providers really know whether the flexible workers who are hired as contractors may in fact be classified as employees, and therefore entitled to rights and benefits under the employment law in Hong Kong?

The UK landmark ruling on Uber

Uber drivers are not self-employed contractors but are employed “workers”, entitled to paid leave and national minimum wage. Such was the recent decision by The UK Employment Appeal Tribunal (EAT).[3]

It may be too early to say what implications this landmark decision (UK ruling) may have on e-hailing drivers in Hong Kong. Nevertheless, questions such as whether workers in the gig economy should be regarded as “employee” or “self-employed contractor” under Hong Kong employment law, and whether the Hong Kong employment legislations should be amended in order to cope with the rapid growing gig economy, are no longer remote but are now around the corner.

In the UK Uber case, the EAT after having looked at the arrangement between Uber and the drivers and the reality of the situation e.g. Uber required the drivers to accept trips and cancellation would amount to a breach of the agreement between the drivers and Uber; drivers could not exchange contact details with passengers; drivers had to accept the terms and fare set by Uber; and Uber handled complaints etc., held that because of the level of control exerted by Uber over how the drivers perform their works, there was a “worker” [4] contract between Uber and the drivers. The drivers are therefore entitled to paid leave and national minimum wage.

A different regime?

The term “employee” is defined by the Hong Kong Employment Ordinance (EO). However, unlike the UK Employment Rights Act 1966 (ERA), the EO does not provide definition for the term “worker”. As it now stands, the EO applies to “every employee engaged under a contract of employment, to an employer of such employee and to a contract of employment between such employer and employee”[5]. All employees covered by the EO, irrespective of their hours of work, are entitled to basic protection including payment of wages and statutory holidays, etc. Employees who are employed under a continuous contract are further entitled to rest days, paid annual leave, sick leave, severance payment and long service payment, etc.

Given that the UK ruling acknowledges workers are entitled to statutory protection under the UK employment law, will the term “employee” under the EO be wide enough to cover workers in the gig economy, conferring on them the same or similar protection and benefits as employees working here in Hong Kong? If not wide enough, then are they independent/self-employed contractors?

At the moment, whether an individual is properly categorised as an employee or an independent contractor is one of substance over form, and the Hong Kong courts will differentiate between the two by looking at all relevant factors. Apart from the degree of control exercised by the employer, other indicia include working time and method; ownership and provision of work equipment; tools and materials; responsibilities in insurance and tax; bearing of financial risk over business; whether the person is carrying on business on his own account with investment and management responsibilities; whether the person is properly regarded as part of the employer’s organisation; and whether the person is free to hire helpers to assist in the work, etc. Ultimately in every case, it would be the overall impression, having regard to these indicia, which will determine if the relationship was one of employment or not.

In the UK Uber case, the EAT held that the Uber drivers were effectively workers within the definition of “worker” under section 230(3)(b) of the ERA which means “an individual who has entered into or works under… any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”. A close comparison of the two definitions (that is, for worker and employee) suggests that the existing definition of “employee” under the EO may not be wide enough to cover workers classified under the ERA.

What’s next for Hong Kong?

With the legislators’ calls on the government to regulate the e-hailing services and the Consumer Council’s recommendation urging the government to adopt a forward-looking strategy by embracing and legalising the e-hailing services, the government is under pressure to review the existing employment laws to ensure that Hong Kong is able to keep pace with this fast growing new business model. The categorisation of flexible workers in the gig economy is an evolving area of the law which is still uncertain in Hong Kong. While the ERA regulates the rights of gig economy workers, the definition of “employee” in the EO is clearly not as wide.

Gig economy companies engaging flexible workers in Hong Kong may, sooner than later, need to confront the inevitable question – are these workers, independent contractors, or employees? It is also only a matter of time that such pertinent question will have to be answered by the Hong Kong Labour Tribunal and courts.

Employers are therefore reminded to proactively review their existing labour arrangements to ensure their workers are properly and correctly classified. Employers should also keep abreast of this area of the law to avoid the adverse consequences of misclassification.

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钟咏雪

合伙人 | 商业事务 | 雇佣与退休金

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