As workers seek more freedom in how and when they work, the gig economy has become increasingly attractive to those seeking greater work-life balance. But gig work is often performed without the same safety nets and benefits of traditional employment, and consequently the classification of gig workers as employees or independent contractors has been a contentious issue which courts around the globe have had to grapple with.

Earlier last year, the Labour Tribunal of Hong Kong considered  whether there was an employment relationship between Zeek, a company which operates a food and parcel delivery platform, and six of their gig workers. The tribunal determined that the workers were indeed employees on the basis that Zeek had dominant control over the workers by managing and monitoring every aspect of their respective deliveries. Additionally, the Court found that the provision of company equipment, and the fact that the workers were not allowed to engage others to provide services were indicative of an employment relationship. However, a recent decision handed down by the District Court ruled that the Deliveroo rider was a contractor taking into account the terms of the written contract between the parties and the practical realities of the relationship. 

Facts

The former Deliveroo rider claimed to have sustained injuries to his right hand and clavicle from an accident in February 2022 while on the job. He subsequently made an application for employees’ compensation under the Employees’ Compensation Ordinance (Cap.282) (“ECO”).

Deliveroo applied to strike out the rider’s claim on the basis that: his application for employees’ compensation was frivolous and vexatious as he was not an employee of Deliveroo; and  that it was an abuse of process for the rider to seek employees’ compensation when he had already received the benefit of a voluntary insurance policy provided by Deliveroo to its riders on the basis that they were not employees.  

The Supplier Agreement 

The rider had entered into a Supplier Agreement with Deliveroo. The Supplier Agreement was a contract for service setting out the terms and conditions of the rider’s provision of services to Deliveroo as an independent contractor. The Supplier Agreement defined the parties’ own understanding of their relationship, describing the rider clearly as an independent contractor as opposed to an employee:

(a)The Rider was “…a supplier in business on [his] own account who wishes to arrange the provision of delivery services to Deliveroo…”  (Preamble A)

(b)“As a self-employed supplier you are responsible for accounting for and paying any tax and MPF contributions due in respect of sums payable to you under or in connection with this Agreement.” (Clause 4.5)

The Supplier Agreement also made it clear that the rider was not obliged to do any work for Deliveroo. Instead, the rider had significant freedom as to whether, when and how to provide the contracted delivery services to Deliveroo. The Supplier Agreement contained the following clauses: 

(a)“You are not obliged to do any work for Deliveroo, nor is Deliveroo obliged to make available any work to you. Throughout the term of this Agreement you are free to work for any other party including competitors of Deliveroo.”  (Clause 2.2) 

(b)“While logged into the App, you can decide whether to accept or reject any order offered to you and if you do not wish to receive offers of work at any time, you can use the “offline” status.” (Clause 2.4)

(c)“Any Delivery Fee offered to you will be communicated by Deliveroo. If you do not wish to accept the order for the Delivery Fee offered, you can reject the order.” (Clause 4.2)

(d)“When you choose to provide Services… you should complete the Services within a reasonable time period, using any route you determine to be safe and efficient…” (Clause 2.5.1)

(e)The rider was also“…free to supply the Services either personally or through someone else engaged by You in accordance with clause 8” (Preamble B) 

(f)Clause 8.1 provides: “Deliveroo recognises your right to engage others to provide the Services. You have the right, without the need to obtain Deliveroo’s prior approval, to arrange for another supplier to provide the Services (in whole or in part) on your behalf.

The Supplier Agreement also provided that the rider was personally responsible for providing the necessary equipment save for when he chose to exercise his right to engage a substitute. Clause 3.1 states that: “You will provide the equipment necessary to provide the Services including your own phone and vehicle”. There was no dispute that the rider used his own motorcycle and mobile phone in carrying out services under the Supplier Agreement. 

Deliveroo purchased a voluntary insurance policy, which was not compulsory ECO insurance, for its riders who “hold an active and valid rider supplier agreement with Deliveroo to undertake delivery services”. It was not disputed that the rider had made a claim for, and received, the maximum payout of HK$100,000 available under the policy. 

In consideration of the rider’s services, Deliveroo would pay him according to the number of delivery orders he accepted and completed. If the rider accepted and completed over 80% of the orders assigned to him in a week, he would receive a “boost fee” a multiplier of 1.3 times his fees. 

The rider contended that in determining whether his status was an employee or a contractor, the scope of analysis should not be confined to the Supplier Agreement but instead extended to the “practical realities” and “actual day-to-day work”, which Deliveroo took no issue with. 

The applicable legal principles 

Section 5(1) of the ECO imposes liability on the “employer” to pay compensation "if in any employment, personal injury by accident arising out of and in the course of the employment is caused to an employee”. Section 2(1) of the ECO defines an "employee” as "any person who has … entered into or works under a contract of service or apprenticeship with an employer in any employment, whether by way of manual labour, clerical work or otherwise, and whether the contract is express or implied, is oral or in writing”. Thus, for the rider to claim for employees’ compensation under the ECO, he must first establish and satisfy the court that he was an employee.

In determining whether there was an employment relationship between the rider and Deliveroo, the court applied the “overall evaluative-impressionistic approach” and considered the following 11 indicia laid out in the landmark decision of the Court of Final Appeal in Poon Chau Nam v Yim Siu Cheung (2007) 10 HKCFAR 156.

The analysis of the relationship between the rider and Deliveroo 

Indica 1: Level of control 

On the facts, the court found that Deliveroo had exercised a low degree of control over the rider. Whilst the rider had to log on to Deliveroo’s online platform (“Rider App”) to provide services, the rider had complete control over whether to log on in the first place and if he decided to log on whether to accept an order or not. If he decided to take up the order, he was free to change his mind and unassign himself from the order that he had initially accepted.  He also had the freedom to choose the area in which he wanted to deliver the services. The use of the Deliveroo’s Rider App and the tracking function did not limit his freedom to decide whether to work and how to work. 

The rider argued that rejecting orders would lead to the loss of the "boost fees" bonus. The court was however not convinced by this argument, noting that the rider was not required to earn the “boost fees” bonus. Considering the commercial realities, it would be normal for Deliveroo to apply predefined formulas when calculating how much the rider should receive. 

In contrast, in the case of Zeek, the tribunal found that Zeek had exercised a substantial degree of control over its delivery workers. The routes fixed and delivery schedules were determined by Zeek. Zeek’s delivery workers had their delivery routes and their start times monitored and could not log out of Zeek’s digital platform at will. If they refused orders, they would also be sanctioned.  

Indica 2: Provision of equipment 

It was undisputed that the rider used his own mobile phone and motorcycle to provide services to Deliveroo. The rider contended that Deliveroo’s provision of the Rider App constituted the provision of equipment. The court was however not convinced by this argument, distinguishing Deliveroo’s Rider App from the traditional meaning of “equipment”. In case law, equipment generally refers to tangible items that involve significant costs. At present, the costs of allowing the rider to download and log into Rider’s App was negligible. The rider had a choice, but was not required, to purchase Deliveroo’s rider kit, which consisted of a thermal bag, a T-shirt and a jacket bearing Deliveroo’s logo, at his own expense. Deliveroo provided evidence, showing that the rider had purchased his rider kit. 

Despite similar facts in the Zeek’s case, the tribunal reached a completely different conclusion. Like Deliveroo, Zeek’s workers were required to provide their own transportation tools and phones. Zeek also provided an online platform, which the delivery workers used to accept orders. The online platform allowed customers to place orders and calculate fees. The tribunal determined that the online platform was the most crucial tool that was provided to the delivery workers to provide services for Zeek.

Indicia 3 and 8: The rider’s ability to delegate work, engage in other work, and compete with Deliveroo 

The court recognised that employees are unlikely to be able to delegate their responsibilities to a third party, whereas independent contractors can frequently do so. Such freedom strongly contradicts the concept of the employer’s control and the basic obligation of an employee to do the work personally. The rider’s sole contention was that he never exercised his rights to delegate or compete under the Supplier Agreement. The court however agreed with Deliveroo that whether he chose to exercise his rights to delegate or compete was irrelevant. What mattered was that he had the freedom to do so. 

Whilst Zeek’s delivery workers were allowed to find “assistants” for their jobs, they were prohibited from subcontracting their work, driving another person’s vehicles for work or sharing their work accounts with others. In that case, this was a powerful factor pointing to an employment relationship. 

Indicia 4 and 5: Whether the rider had financial risk and could profit from sound management

Independent contractors typically bear financial risk and have the opportunity to profit from their own management decision. The court found that the rider had assumed the financial risk whilst providing services to Deliveroo, as he had to arrange and maintain his own motorcycle and to pay for related expenses, such as petrol, the price of which would fluctuate. On the other hand, if the rider did more rounds of delivery through efficient time management, taking shorter routes or avoiding congested areas when making deliveries, he would have the opportunity to profit from his sound management. 

In contrast, the tribunal in the Zeek’s case determined that the fixed payment based on the volume of completed jobs was fundamentally no different from a salesman who earned a commission, and the lack of financial risk assumed by its delivery workers suggested an employment relationship. Further, the delivery workers had no opportunity to profit from the sound management in the performance of their tasks, which suggested the existence of an employment relationship. 

Indicia 6: The rider’s investment / management responsibility

The court was satisfied that the rider made management and investment decisions in respect of his own business of operating as a driver, as he had a choice to accept orders and to manage the time of his work. The rider also had the responsibility to pay for his own equipment.

On the other hand, the tribunal found that Zeek’s delivery workers operated strictly under the company’s direction, without making any investments or being able to manage their time. 

Indicia 7: Whether the rider was an integral part of Deliveroo’s business

The key issue here was the extent to which the rider was integrated into Deliveroo’s business organisation. The rider submitted that he was “encouraged” to use Deliveroo’s branded equipment, making him appear as part of the organisation. The court however held that this argument lacked any merits. On the facts, the rider was not “encouraged” to use Deliveroo’s branded equipment, and even if he had been “encouraged”, this was not sufficient to point to an employment relationship, as the rider was not required to do so.  

Zeek’s delivery workers were however required to wear uniforms, enabling customers to easily identify them when collecting and delivering packages. 

Indicia 9: The rider and Deliveroo had agreed to the terms of the Supplier Agreement

Considering the terms of the Supplier Agreement, the court was satisfied that there was nothing in the Supplier Agreement that suggested the existence of an employment relationship. On the contrary, the terms of the Supplier Agreement clearly indicated a contractor relationship existed. 

Indicia 10: Tax and insurance 

The court noted that the rider was responsible for his own tax returns and MPF contributions.  Deliveroo did purchase the insurance policy, but this was voluntary and was not compelled by law. Whilst this indica was relevant, the court took the view that it was not a decisive factor. 

Similarly, Zeek’s workers were responsible for their own tax returns and MPF contributions. Zeek however did not provide any accident insurance coverage for its workers. 

Indicia 11: Structure of the trade and industry standard

Finally, the rider attempted to argue that the status of platform workers is an evolving area, both commercially and legally. There is no industry standard or usual structure of the trade which can provide substantial guidance, as each case must be judged on its own facts.  Deliveroo submitted that that recent court rulings across various jurisdictions had not established a clear trend on whether such workers were to be classified as employees. The court agreed with Deliveroo, noting that the facts of the Zeek case were clearly distinguishable from the present case. 

Having analysed the 11 indica, the court concluded that the rider was an independent contractor. The rider’s argument that he was an employee was not sustainable, and his application was struck out on the grounds of being frivolous and vexatious alone. Regarding the second ground, that the application was an abuse of the court process, the court agreed that the rider was estopped by convention and should not be allowed to pursue Deliveroo for payment of employees’ compensation where he has received the benefit of payments under the voluntary insurance policy through accepting that he was engaged as a contractor. Deliveroo successfully struck out the rider’s application on both grounds. 

Points worth noting for employers 

Even though Zeek and Deliveroo are both digital platform companies that engage gig workers, the outcomes of their legal battles could not be more different. Zeek was ordered to pay the 6 gig workers outstanding wages, payment in lieu of notice, paid annual leave and statutory holidays. On the other hand, Deliveroo successfully struck out the former rider’s application with costs of the entire proceedings awarded to them.  The court’s ruling on Deliveroo’s case highlights the complexities and nuances in classifying gig workers. Although each case will turn to its own facts and will be assessed by the court on a case-by-case basis, employers must carefully define the nature of their relationship with workers in their service contracts. The extent of control which they will exercise over their workers is a key issue as well as considering where the financial risk lies in the relationship. Properly considering these issues, documenting them and putting in place appropriate arrangements can help mitigate legal risks of a misclassification of the worker’s status.

If you require any assistance with service contracts, or if you wish to review your company’s policies on independent contractors, please feel free to reach out to a member of our team.  

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