Renewed focus on nature of employment relationships

18 Jun 20

Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Thursday 18 June.

The various levels of the COVID-19 lockdown brought challenges to New Zealand businesses. There have also been a number of lessons. Annual leave accruals proved to be both a blessing and a liability. Employment agreements proved to be just that— agreements between two parties, requiring both parties to agree to any variation. Many businesses are now focused on rebuilding, if not reinventing themselves. As they do so, it is timely to consider the range of options available for structuring working relationships.

One option is a contractor rather than an employment relationship. As the gig economy becomes more prevalent, the line between contractors and employees is becoming increasingly blurred. Many contractors do the same work as employees, often working alongside them without any of the rights or benefits afforded to their colleagues. A discussion document was released in November 2019 (Better Protections For Contractors). The discussion document followed the announcement of a new employment model for screen workers in June 2019. The concern is that some contractors, particularly dependent contractors, are vulnerable in the workplace. Some contractors find themselves reliant on one employer for all their income, with no flexibility or power to negotiate better conditions.

A number of countries are taking steps to ensure the benefits of innovation and growth do not come at the expense of workers’ pay and conditions. The Labour Government has voiced a similar commitment. The discussion document and recent decisions of the Employment Court suggest that contractor relationships may not allow businesses to avoid the traditional responsibilities that attach to an employment relationship. As the Chief Judge of the Employment Court said recently in the decision of Leota v Parcel Express Ltd: “Employee status is an important issue. It provides gateway access to a range of statutory entitlements, including minimum wages and holiday pay, redundancy, parental leave, KiwiSaver contributions, and the personal grievance procedures and remedies provided for under the Employment Relations Act 2000 (the Act). It also provides a gateway to accessing other rights, such as the right to collectively bargain”.

The Chief Judge emphasised that whether a particular worker is an employee or a contractor is an intensely fact-specific inquiry. There is no presumption that whole categories of workers are independent contractors. The nub of the matter is that an employee works for the employer, within the employer’s business to enable the employer’s interests to be met. An independent contractor is an entrepreneur, providing their labour to others in pursuit of gains for their own entrepreneurial enterprise. “Stripped back to its fundamentals, the essential issue in a case such as this is whether the worker serves their own business or someone else’s business”. While Mr Leota signed a contractor agreement which described him as a contractor, there were a number of factors which indicated that he was an employee. These included that he worked exclusively for Parcel Express and was guaranteed a minimum income for doing so; that in reality he could not grow his own business or customer base or pursue other opportunities; that he was obliged to find a substitute driver for any period he wished to take leave; and that he worked a delivery area with boundaries assigned by Parcel Express. A high level of control was exerted by Parcel Express over Mr Leota’s work and despite the signed contractor agreement, the court found that he was an employee and therefore was entitled to the full range of statutory entitlements provided for by the Holidays Act, Employment Relations Act, Parental Leave and Employment Protection Act, Minimum Wages Act and KiwiSaver Act.

In another recent decision the Employment Court confirmed earlier Employment Relations Authority decisions regarding Southern Taxis Ltd. The Labour Inspector alleged Southern Taxis failed to provide employment agreements; maintain wage and time records; pay minimum wages; pay holiday pay and keep holiday records. Southern Taxis unsuccessfully argued that they had no obligation to any of these things as their workers were contractors. While the court agreed with the calculations made by the Labour Inspector for Holidays Act entitlements, rest break entitlements and minimum wage arrears, the Court stopped short of finding the two directors personally liable for those unpaid entitlements, as well as for penalties. While some businesses may look to “ring fence” their labour risk by engaging contractors, it appears that the court is increasingly prepared to find that such arrangements are in the nature of an employment relationship. For those that are not, it seems that the Government intends to take steps to ensure that genuine contractors are provided better protection.

For more information contact:

John Farrow