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Contractor or employee? It’s not always clear

July 3, 2020

In Summary

A recent decision of the Employment Court demonstrates that no matter what parties may have agreed initially, a supposed independent contractor may be considered an employee if they don’t enjoy independence and autonomy, and if they’re closely integrated with the business paying them.

It’s a reminder to be careful in how you approach these relationships.

Talk with us to find out where you stand, and to help firm up the nature of those relationships.

Is a courier an employee, or an independent contractor?

If you’re not in the courier business, the question might not seem to have much relevance.

But if you employ contractors in any industry, or you’re a contractor yourself, the result of a recent Employment Court decision might end up affecting you – or at least serve as a reminder to act carefully.

The case, Leota v Parcel Express, saw the Court hold that the plaintiff courier driver was an employee of the respondent company, even though the driver had signed on to work as a contractor.

The major significance is that employees receive rights and benefits that contractors do not. Think holiday and leave entitlements, sick leave, minimum rates of pay, KiwiSaver contributions and so on. There’s a good summary of all this at Employment New Zealand.

So does that mean if you’re a business employing contractors, you’ll now need to provide all that? Or if you’re a contractor, you’ll be entitled to those extra rights and benefits?

Not quite.

How do you know if someone is a contractor or an employee?

There are several legal tests.

Intention

What did each party intend going into the relationship? If you say you’re hiring someone as a contractor, or you go into work as a contractor, then it might seem fairly clear-cut. But while this is all relevant, it’s not enough. Other practical factors can override the intention.

Control vs Independence

Contractors have more independence in how they work than employees, and businesses exert greater control over employees than contractors. So the level of control versus independence will help determine if someone is an employee or a contractor.

Integration Test

How much is the supposed contractor a part of the business? If they’re close and vital, then it becomes less likely that they’re a contractor.

Fundamental/Economic Reality Test

The ways contractors get paid, and the ways they handle their finances, are very different to employees. The biggest difference is that they invoice and handle their own taxes. And they’re more likely to be invoicing other businesses at the same time.

So why did the Court hold that a courier who had signed on as a contractor was an employee?

The case: a contractor with little independence

Leota had signed a contract that said he was a contractor, so it would seem the intent was that he was a contractor. He bought his own van, so that would suggest some independence and economic reality that fits more with a contractor.

But then there was a lot more that suggested that independence wasn’t so strong.

  • English is his second language and he was recruited via his church. It seemed he may not have understood the agreement fully.
  • He had to have his van sign-written with the company branding at his own expense, and wasn’t allowed to display anything else on the van.
  • The company assigned his run, over which he had no say.
  • He had to organise a relief driver if he was away from work.
  • He was required to attend in-house briefings.
  • On termination of contract, he was prohibited from having any involvement in competitors’ businesses for six months within a 100-kilometre radius of the Auckland Central Business District.

The Court noted:

Despite being described as “his own boss”, Mr Leota did not exercise any real degree of autonomy over his work with Parcel Express. Rather, Parcel Express exercised a significant degree of direction and control over Mr Leota’s day-to-day work – what, when, where, how and by whom.

And concluded:

Every worker in New Zealand has the statutory right to seek a declaration as to whether they are an employee. If they are found to be an employee they are entitled to the protections and benefits that go with that status. 

The inquiry is intensely factual and much will depend on the individual facts of each individual case. 

In assessing where on the spectrum a case sits, the Court will closely scrutinise a range of factors, weighing them in the analytical mix, with the ultimate purpose of determining the real nature of the relationship.

In this case, the real nature of the relationship was that of employer and employee.

So what does this mean for everyone else?

The Court made it clear that the judgment did not mean that all courier drivers are employees, nor for that matter contractors in any other industry.

But it showed that the “individual facts” of each case can see a supposed contractor declared an employee. It’ll come back to those tests, no matter the original intention:

  • Control vs Independence
  • Integration
  • Fundamental/Economic Reality

If you employ the services of people you think are independent contractors, be careful the level of restrictions you place on the relationship, and what you require of the supposed contractor. Too much, and the relationship may be more likely to be one of employer and employee.

If you think you’re operating as an independent contractor, but you find that you have a high degree of control exerted over you, you may be able to successfully seek a declaration that in reality, you’re an employee—and therefore entitled to extra rights and benefits.

Either way, we can help you get an idea of where you stand, and help you firm up the nature of your relationships. Get in touch today to make sure you can be confident in what you’re doing.

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