Contract Law: Proposal over contractors would spell big changes
Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Monday 1 October.
THE Labour-led Government signaled that within the first 12 months it would introduce statutory support and legal rights for dependent contractors ‘‘who are effectively workers under the control of an employer, but who do not receive the legal protections that are currently provided to employees under the law’’.
The Employment Relations Act already provides a means for establishing the correct status of a ‘‘worker’’. Labour’s proposal seems to deem contractors with only one client to be an employee of that client.
If the proposal goes ahead, industries with large numbers of self-employed contractors will likely experience significant changes. Essentially, implementation of minimum workers standards for contractors will result in the requirement to pay those individuals minimum wage rates as well as meeting obligations such as holiday pay and sick leave.
In New Zealand, gig economy companies such as Uber and other on-demand app-based service providers are changing the way in which we work. Agile business models call for a business to be able to draw resource on an ‘‘as and when required’’ basis. Many individuals are no longer satisfied with working full-time for one employer. The high fixed cost of labour is forcing organisations to allocate tasks to the most efficient resource.
New Zealand businesses are at present forced to choose between an employment model with minimum entitlements or an independent contractor model with restrictions on the degree to which the worker can be controlled or integrated.
The United Kingdom has taken a different approach. The workforce is split into three categories: employee, worker and independent contractor. The ‘‘worker’’ category has a reduced set of minimum protections including minimum wage, paid holidays, sick leave, rest breaks and protection from unlawful discrimination. However, ‘‘workers’’ do not receive unfair dismissal rights or redundancy pay. In late 2017 Uber drivers were found to be ‘‘workers’’ rather than ‘‘independent contractors’’.
Our courts have more recently indicated a willingness to apply the traditional tests in new ways in order to protect vulnerable workers. The Employment Court found that independent contractors of labour hire company Solutions Personnel Limited were, in fact, employees of the end-user client, LSG Sky Chefs. Even though the individuals had signed independent contractor agreements, the court found that the individuals were highly integrated into the business and were therefore employees.
At present before the Employment Court is a case brought by First Union to determine whether courier drivers are independent contractors or employees. If the court decides courier drivers are employees, this could have a widespread flow-on effect for jobs such as truck driving and in the construction industry where many builders are contracted. It could also spill over to the gig economy.
A recent Employment Relations Authority decision involving Southern Taxis Limited highlights the difficulties in determining whether a worker is an employee or a contractor. The case was brought by the Labour Inspector alleging that Southern Taxis failed to provide employment agreements, maintain wage and time records, pay minimum wages, pay holiday pay and keep holiday records. Southern Taxis argued that they had no obligations to do any of these things as their workers were contractors.
However, the authority found that the five workers were in fact employees and calculated Southern Taxis’ liability as being $97,753.
Southern Taxis provided the drivers with fully maintained vehicles to use, for which all expenses were paid. They were not charged a depot fee and had no control over fare settings or takings. They received payslips, had PAYE deducted and did not file their own tax returns. They were not invoiced by Southern Taxis for ACC levies.
The drivers were on a roster which was prepared by Southern Taxis. Uniforms were provided to the drivers. The drivers logged on and off Southern Taxis’ computerised system, were monitored by GPS, checked with dispatch before taking jobs, notified breaks which were recorded by dispatch and recorded times and jobs in their logbooks.
The Labour Inspector argued the drivers were ‘‘part and parcel’’ of Southern Taxis. Southern Taxis had several important contractual obligations, including with the Southern District Health Board and Dunedin Airport, which required it to provide regular services. The drivers were rostered to work and directed to be available during certain hours to meet those obligations. The Labour Inspector said the drivers were not in business on their own account.
Southern Taxis, however, said it had a long-standing practice of engaging independent contractors and the drivers were engaged on commission only. Southern Taxis also said it exercised only limited control over drivers and did not direct them in such a way as to increase their fare yield and that the practice of commission-only drivers was common within the taxi industry.
Southern Taxis acknowledged it exercised a measure of control over the drivers but said this was because of the requirements of its Taxi Services Licence and in the interests of maintaining its brand.
The case will continue before the Employment Relations Authority. It is still to be determined whether Southern Taxis is liable for penalties for contraventions of relevant legislation.
Southern Taxis ceased trading but remains in the hands of its directors. The Employment Relations Authority also needs to determine whether the directors are joined to the proceedings in their personal capacities and become liable for the amounts ordered.
If the Government’s proposals proceed, then independent contractors who are actually controlled and have little autonomy will be provided with greater support and legal rights. Exactly what that looks like remains to be seen.
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