Contractor or Employee? Significant changes in worker rights and classification

Article written by Catherine Pendleton and Clare Devine

The legal distinction between a contractor and employee is changing. Recently there have been a number of significant Employment Court decisions shaping the law in this area.

Courier Drivers

In May last year, the Employment Court ruled that Mr Leota, a courier driver at Parcel Express, was in fact an employee despite being classified as a contractor by the company.   She was found to be controlled by the company in terms of hours worked and mode of working.

Uber Drivers

Then in December the Court considered the status of an Uber driver in New Zealand.  The Court reviewed the recent decisions in Australia and the UK Supreme Court in which Uber drivers were found to be in reality employees.  However in New Zealand, the Court considered the Uber driver met the test of contractor primarily because he had control and flexibility over his working hours and mode of working.

Builders

Just recently in March 2021, an independent contractor builder for three years challenged his status and the Court accepted the real nature of the relationship was that of employee. The fact that he had expressly agreed to be an independent contractor, and had signed a contract to that effect, did not determine his true status.  They key relevant factors were that he had no other business and he worked strictly under the company’s control.

Each case clearly turns on its own facts. However, these cases and others indicate an overall trend that the Courts are more willing to make a declaration of worker status that is contrary to the written agreement and industry practice.

The characteristics of employment versus contracting

Essentially, a contractor works for their own business, while an employee works for someone else’s business. There are a number of factors businesses should think about if they are unsure whether a worker is an employee or employer, for example:

• Do we have a written agreement and what does it say?
• Does the worker have a high degree of freedom over when, where and how they work?
• Does the worker use their own tools?
• Does the worker do more ‘one off projects’, or are they a key part of our ongoing operations?
• Does any business goodwill go to the worker or the company?

Employer protections

Initial contract: For their own protection, we recommend businesses hiring workers consider which contract is most suitable (employment versus independent contractor) before offering work.  Our team can provide advice for your business based on the nature of the job and the business context.

Changes to the relationship over time: It may well be that a worker starts off as an independent contractor, but over time becomes more akin to an employee.  The business can discuss the changes with the worker and update the contract to reflect the true nature of the relationship.

Risks for the employer: If an independent contractor is declared to be an employee,  then the business may be liable for having to back-pay significant leave and other entitlements, and potentially penalties. An employee status also enables the worker to raise a personal grievance, minimum wage entitlements, and the right to bargain collectively.  Our team can provide advice in respect of the legal tests in this area and risks to the business.

Further developments: The Ministry of Business, Innovation and Employment is currently considering a number of proposals to increase protections for vulnerable workers. One of these proposals is to change the definition of employee under New Zealand law, given the recent case law developments.

Our Workplace Solutions team provides advice to businesses on contract or agreements and employment agreements, as well as a range of other employment and workplace matters.