Category: Publications

THE PRINCIPLE OF SANCTITY OF CONTRACT

THE PRINCIPLE OF SANCTITY OF CONTRACT 

By Constance Awoegbe (Associate)

XYZ Limited in a bid to raise capital to finance its project under a Risk Service Contract (RSC) increased its share capital and offered 70,000,000 million units of its shares to ABC Limited. XYZ Limited entered into a Shareholders Agreement and Subscription Agreement with ABC Limited through which it unconditionally and unequivocally transferred equitable rights and obligations to ABC Limited. As payment for the 70,000,000 million units of shares, ABC Limited was obligated to finance the Risk Service Contract and other obligations contained in the agreement between parties. Parties agreed that their right to rescind or vary the agreement would be subject to the prior written consent of ABC Limited. While ABC Limited was in the process of performing its obligations under the contract, XYZ Limited purported to transfer the same 70,000,000 units of shares it had earlier transferred to ABC Limited to another company without the consent of ABC Limited.

In the scenario above, the law contemplates that parties would adhere strictly to the terms and significant features of the contract given that contracts are written expressions of the free will of parties. In such circumstances, parties are prohibited from unilaterally altering contractual terms even where there is a real apprehension that one of the parties may have been at a disadvantage at the point of negotiating the terms of the contract. There are other remedies the disadvantaged parties may explore but certainly not such that would permit the party to unilaterally alter the terms of a valid contract.

GIG ECONOMY WORKERS: EMPLOYEES OR INDEPENDENT CONTRACTORS?

GIG ECONOMY WORKERS: EMPLOYEES OR INDEPENDENT CONTRACTORS?

 Gig economy refers to the use of temporary or freelance workers to perform jobs typically in the service sector.[1] It is characterized by flexibility, zero hour contracts, self-employment, workers paid for limited contracts, and people engaging in more than one job.[2] Examples of jobs in the gig economy include ridesharing, delivery driving, selling craft, consulting, freelance writing, photography, coding and programming etc.[3] The terms “gig workers and on-demand companies” are often used to refer to participants in the gig economy.

Although a gig worker is usually engaged under a contract for service and therefore referred to as an independent contractor which is a major attractive feature in the gig economy for employers as an independent contractor is not entitled to benefits provided for typical employees, many gig economy participants exhibit both the features of an employee and an independent contractor. Thus, the question as to whether a person is an independent contractor or an employee often arises because there is a thin line between the two concepts which often overlap.

This issue of classification has raised many concerns and the need to address these concerns is pertinent now more than ever especially in light of the boom in the gig economy post covid-19 in addition to other factors such as technology, decline in traditional manufacturing jobs, shift in the economy, tax/payment issues, unemployment, underemployment etc.

In fact, a study conducted using the online labour index of Oxford University shows that covid-19 has positively affected the gig economy by increasing the number of participants in the gig economy. The index thus suggests that policies should be made to support the gig economy because of its potential to keep the world going.[4] This suggestion re-echoes the call to extend certain benefits to participants in the gig economy which has been on the rise and there is no better time to evaluate the employment relationships obtainable in the gig economy than now.

Globally, the gig economy has been identified as an important and growing issue making it clear that in many countries, it is felt that the traditional model of what constitutes employment needs to be revisited in the light of the growth in gig works to avoid misclassification and also extend certain benefits to participants in the gig economy.

In the United States of America, different positions obtain depending on the State. In California, the policymakers passed a law known as the Assembly Bill 5 (AB 5) law in 2019 which enabled gig workers to enjoy the same benefits as employees but it was extremely challenged. Thus, it is not surprising that in November 2020, another law known as Proposition 22 was passed which reverses AB 5 and allowed gig workers to be classified as independent contractors rather than employees.[5]  In Tennessee, there is a similar trend as Tennessee lawmakers are currently considering legislation (HB 1978) that would classify gig workers as contractors and remove protections provided by worker’s compensation law and the Tennessee Employment Security Law.[6] This is a deviation from their present misclassification test that provides more of a balance between the interests of employers and workers. Some States are considering the similar legislation to Tennessee’s in this reclassification. In New Jersey, Governor Murphy signed a legislative package also referred to as “the misclassification package” on 20^th January 2020 to curb worker misclassification and control the gig economy.[7] This position still obtains in New Jersey. The Federal government is not left out as it has made efforts to redefine the gig economy while conferring benefits on it through legislation such as the America Rescue Plan and Protecting the Right to Organize Act (PRO) 2021.[8]

In the United Kingdom, a working person can be classified as an “employee”, a “worker” or “self-employed”. A worker is entitled to certain but limited employment rights. The complex employment law issues associated with the gig economy were highlighted by the UK Employment Tribunal [ET] decision in Aslam and others v Uber BV and others ET/2202550/15. The Tribunal decided that the drivers in question were not self-employed independent contractors and were in fact workers within the meaning of the Employment Rights Act 1996 and, were therefore entitled to the benefit of workers’ rights, such as paid annual leave, the national minimum wage, rest breaks and pension contributions. The Tribunal found that the level of control exercised by Uber over its drivers could not be reconciled with a finding that the drivers are independent contractors and that the contractual arrangements between Uber and its drivers did not accord with the reality of the relationship. This decision of the tribunal was upheld by the UK Employment Appeals Tribunal. Upon further appeal all through to the Supreme Court, the decision was also upheld.[9]

In Ireland, the ‘worker’ category does not exist. The individual is either an employee or self-employed. The issue of the employment status of gig economy workers in Ireland was first addressed by the High Court on 20^th December 2019 in Karshan (Midlands) Limited trading as Domino’s Pizza v Revenue Commissioners[10] and the court decided against the company operating a Domino’s franchise in respect of its appeal over the employment status of its delivery drivers. Whether the Courts would classify workers operating within the gig economy as employees, thereby according them full employment rights is for the future to tell. Each case will be determined based on its own merits. With the judgment delivered by the UK Supreme Court, there has been clamour for the Irish government to create an employment status for gig workers however, the government has no such plan.[11]         

In India, the gig economy is growing massively but it still remains largely informal. Although the government may have provided social security benefits for gig workers under the Code on Social Security 2020, this does not address the challenges faced by gig workers in terms of other employment benefits because there has been no formal classification of participants in the gig economy in India.[12]

In Brazil, the issue of the employment status of gig workers has been going on for a while.[14] Lawsuits have been brought against Uber in Brazilian Labour Courts, all seeking for the classification of Uber drivers as employees. Different decisions have been taken by Labour Courts in the first instance in different States of Brazil. However, on appeal, the Superior Court of Justice, Brazil’s second highest Court ruled that Uber drivers were independent Contractors. It was the first time a Brazilian superior court has ruled on the issue, setting an interpretation likely to influence future court decisions related to similar apps.[15]

In France, although a Bill which was intended to create an employment status for participants in the gig economy failed,[16] the Court of Cassation which is one of the courts of last resort in France has ruled that an Uber driver’s relationship with Uber is a subordinating relationship thereby making his contractual relationship with Uber an employment contract. According to the Court, the control that Uber exercises over its drivers by setting fare prices, imposing routes and determining the condition of the transport service offered by the drivers show that they are not independent contractors but employees.[17] This is the second time a decision has been given in favour of a gig economy worker, the first being in favour of a delivery person who was declared an employee of the delivery company.[18] These decisions will no doubt have a positive impact on the gig economy in France.

Nigeria is not left out as the gig economy is steadily growing in the country especially in the light of the unemployment/underemployment rate in the country. Nevertheless, the classification of gig workers in Nigeria remains stagnant. The case of Oladapo Olatunji & Anor (Representing themselves and other Uber and Taxify Drivers in Nigeria in a Class Action) v. Uber Technologies System Nigeria Limited & 2 Ors[19] presented an opportunity for the National Industrial Court of Nigeria; the Court with the exclusive jurisdiction to adjudicate on Labour and Labour related matters, to address the status of Uber drivers under the Labour law. Unfortunately, the Court dismissed the case because the claimants were unable to prove their case as they didn’t furnish sufficient evidence that will aid the resolution of the case. However, the Court recognized that forms of work have changed and the traditional or orthodox distinctions between the worker/employee and the employer no longer exists or have been stretched to absurd limits. But all of these cannot be determined if there are no facts upon which the inquiry can be done as is the case in the instant suit.  Therefore, there is need for a judicial pronouncement on this issue or a legislative intervention.

CONCLUSION AND RECOMMENDATION

It is clear from the above analysis that the regulation of the gig economy is imperative; not just as it affects gig economy workers but also on demand companies that make use of them as its impact on the society cannot be overlooked. The key word that resonates in determining the employment status of gig economy workers is “control”. A careful consideration of the terms of engagement of some gig workers especially those in the ride-sharing companies shows that they cannot be ideally called independent contractors but employees. For instance, provision of transportation services using an online platform forms the main business of ride-sharing companies and these companies hold out their drivers as competent drivers as they carry out inspections and require that the drivers meet some set standards. These companies also exert other control such as price fixing, the policy of going cashless etc.

It is trite that Equity looks at the substance and not the form. The form of engagement of some gig economy workers may qualify them to be called independent contractors but the substance of the contract and terms therein shows that they are actually employees and as such they are entitled to benefits accruing to employees.

There is no doubt that there is a need to review the employment law and employment related Laws in Nigeria and an overhaul of the employment system carried out. With the evolution and rapid growth of gig economy, this issue of overhaul becomes very crucial. Globally, the economy is rapidly changing and there is need to keep pace with the challenges such change has introduced otherwise Nigeria will risk being left far behind.

A legal or regulatory framework to control and regulate the gig economy is now pertinent.

Having a regulatory framework governing the gig economy will help immensely in the area of generating revenue through taxation. With such framework, the questions of whom to tax and how to recover the assessed amount can be easily answered. As employees, personal income tax can be deducted at source.

On the other hand, it has been suggested that portable benefits which will move with a freelance worker can be introduced. Employers could pay a certain percentage towards universal benefits for all works that they commission, regardless of the nature of their contract with the worker. This would enable independent workers to accumulate and manage their benefits, and eventually acquire a safety net like that of a full-time contracted employee.

In view of all these, it is imperative that when a person is engaged for a service, the agreement made should be carefully worded to avoid misclassification.

[1] https://www.merriam-webster.com/dictionary/gig%20economy assessed on 21/09/2021.

[2] Tejvan Pettinger, the gig economy available at https://www.economicshelp.org/blog/24205/labour-markets/the-gig-economy/ assessed on 21/09/2021.

[3] Kyriaki Raouna, 16 Best Gig Economy Jobs available at https://www.careeraddict.com/gig-economy-jobs assessed     on 21/09/2021.

[4] Muhammad Umar, Yan Xu & Sultan Sikandar Mirza, The impact of covid-19 on the gig economy, available at https://www.tandfonline.com/doi/full/10.1080/1331677X.2020.1862688 assessed on 21/09/2021.

[5] Taylor Hersch, California’s gig economy survives, available at  https://chamberbusinessnews.com/2021/02/10/gigeconomy/  assessed on 21/09/2021.

[6] Working in the gig economy? protection may be eliminated in TN, available at https://www.thunder1320.com/news/working-in-the-gig-economy-protections-may-be-eliminated-in-tn/ assessed on 21/09/2021.

[7] Greenbaum, Rowe, Smith & Davis LLP, Governor Murphy signs Legislative Package designed to curb gig economy; omits controversial Bill proposing revision of ABC test available on https://www.lexology.com/library/detail.aspx?g=309e140a-f85d-486a-96a5-d2ef3d0aa4c7&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2020-02-04&utm_term= assessed on 21/09/2021.

[8] Megan Knowlton Balne and Michael G. Greenfield, independent contractor status:  is it a good gig for workers? Available at https://www.law.com/njlawjournal/2021/03/31/independent-contractor-status-is-it-a-good-gig/?slreturn=20210821072603 assessed on 21/09/2021.

[9] https://www.supremecourt.uk/cases/docs/uksc-2019-0029-judgment.pdf assessed on 21/09/2021.

[10] [2019] IEHC 894

[11] Colin Gleeson, Government has no plans to create new employment status for gig workers, available at https://www.irishtimes.com/business/work/government-has-no-plans-to-create-new-employment-status-for-gig-workers-1.4495989 assessed on 21/09/2021.

[12] How gig economy is becoming mainstream in India, available at https://www.tribuneindia.com/news/jobs-careers/how-gig-economy-is-becoming-mainstream-in-india-240369 assessed on 23/09/2021.

[13] Almee Chanthadavong, Not Acceptable says Senate Committee of Australia’s gig economy working conditions, available at https://www.zdnet.com/article/not-acceptable-says-senate-committee-of-australias-gig-economy-working-conditions/ assessed on 23/09/2021.

[14] Renan Bernardi Kalil, Backgrounder: Employment Status of gig workers in Brazil available at https://onlabor.org/guest-post-brazil-and-the-gig-economy/ assessed on 23/09/2021.

[15] Reuters, Brazil Court rules Uber drivers are freelancers, not employees available at https://www.reuters.com/article/us-uber-brazil/brazil-court-rules-uber-drivers-are-freelancers-not-employees-idUSKCN1VP315 assessed on 23/09/2021.

[16] France: Bill intended to create new status for platform economy workers defeated in Senate, available at https://www.loc.gov/item/global-legal-monitor/2020-07-02/france-bill-intended-to-create-new-status-for-platform-economy-workers-defeated-in-senate/ assessed on 23/09/2021.

[17] PYMNTS, France’s Highest Court says Uber Drivers are Employees available on https://www.pymnts.com/gig-economy/2020/france-court-ruling-uber-driver-employee/ assessed on 23/09/2021.

[18] LINEE, in France, is a driver or delivery person paid via a digital platform considered an employee of the company? Available on https://lineenetwork.org/france-driver-delivery-person-employee-uber-take-eat-easy/ assessed on 23/09/2021.

[19] Suit No. NICN/LA/546/2017, judgment delivered on 4 December 2018; per Kanyip J. available at https://judgement.nicnadr.gov.ng/details.php?id=3075 assessed on 23/09/21.

HIGHLIGHTS ON THE EMERGENCY ECONOMIC STIMULUS BILL, 2020**

By Michael Ezeh and Latifat Moradeyo (Associates)

Although, the primary target of the COVID 19 pandemic is public health, its impact on the global economies is quite calamitous and unprecedented. Business process functions across most industries are severely deterred due to the immense pressure resulting from the effects of the Covid-19 pandemic, therefore, many multinationals, complex and business-critical services running a global scale as well as the Micro, Small and Medium Enterprises (MSMEs)  must be reassessed to meet the realities of our time. Countries around the world have put in place monetary and fiscal measures to cushion the hardship of the deadly virus on businesses, individuals, and households.

In a bid to cushion the effect of the COVID- 19 pandemic,  the House of Representatives on the 24^th March, 2020 passed the Emergency Economic Stimulus Bill, 2020 (“the Bill”). According to Section 1 of the Bill, the objectives of the Bill are as follows:

1. To provide temporary relief to companies and individuals and alleviate the adverse financial consequences of a slowdown in economic activities as a result of Covid-19;
2. To protect the employment status of Nigerians who might otherwise become unemployed;
3. To provide a moratorium on mortgage obligations for individuals;
4. To eliminate additional fiscal bottleneck on the importation of medical equipment, medicines, personal protection equipment, etc.; and
5. To cater to the general wellbeing of Nigerians pending the eradication of the pandemic and a return to economic stability.

The Bill provides for three relief which are; reduction of income tax liability of an employer, waiver of import duty on medicines and medical goods and deferral of mortgage payments to the Federal Mortgage Bank of Nigeria for a fixed term.

(more…)