Employee or contractor… are your working arrangements sound?

Employee or contractor…

are your working arrangements sound?

This question has been raised afresh following a recent Employment Court case, Barry v CI Builders Limited, where the “contractor” builder was held to be an employee, despite the parties’ written agreement to the contrary.

This is the latest in a line of cases, across a range of industries where traditionally working arrangements have predominantly been contractor relationships, including taxi and courier drivers. It signals that more challenges to construction and building contractor relationships will happen, and a closer look at these arrangements is crucial to ensuring your business is not next in the case law line up.

There is also a Government review of contractor relationships, with a view to setting minimum entitlements for these, as happens with employment relationships. Simply labelling a worker an independent contractor, even with an agreement that says this, does not prevent the worker challenging their relationship and arguing the “real nature” is one of employment. To determine the real nature of the working relationship here, the Court will take into account the following factors, in addition to the agreement: • Who controls the way the work is performed, so far as there is a scope for that control? • Is the worker integrated into the company? • Is the worker required to wear a uniform and/or display material that associates them with the company? • Does the worker supply and maintain any tools or equipment? • Is the worker paid according to task completion, rather than receiving wages based on time worked? • Does the worker bear any risk of loss, or conversely have any chance of making a profit from the job? • Is the worker free to work for others at the same time? • Can the worker subcontract the work or delegate performance to others? • Is tax deducted from the workers’ pay on payment? • Does any business goodwill accrue, and to who? • Does the worker receive paid holidays or sick leave? Here, the Court held that Mr Barry: • worked under the strict direction and control of the company; • had no flexibility in terms of his work patterns; • was integrated into the company’s operations; • was unable to work for others as he worked full-time and had little time or energy to work for others; and • did not invoice the company which was unlike others who did contract work for the company. In summary, Mr Barry was not operating a business on his own account but was providing a service to the company and working for it, and its interests. Where a worker successfully challenges their employment status, as here, they then have access to all employee related entitlements including sick and other kinds of leave, holiday pay, minimum wage payments, for up to six years which is the claim limitation period, and personal grievance claim rights. Penalties may also apply.

Directors of a company can also be held personally liable for these entitlements in some circumstances, as happened in A Labour Inspector v Southern Taxis Limited, decided by the Court of Appeal recently.

In this case, former directors of the company were personally liable for payment of almost $80,000 for unpaid wages, holidays and rest breaks, after the company stopped trading and had no means to pay the awards.

Aside from the risk of employment claims, the Inland Revenue Department may determine that a contractor is working as an employee and that their income should have been taxed accordingly. Penalties may apply here too.

What does this mean for employers? These case examples highlight that there are risks with engaging someone as an independent contractor in that the nature of the relationship can be challenged regardless of what the agreement says. If a contractor succeeds in arguing they are an employee, they become entitled to minimum employment rights including potentially significant backpay for leave and holidays. Building and construction employers are well advised to review their contractual arrangements and make sure these fit the relationships they have with workers, so that they can stand up to challenge. For further advice, the team at Copeland Ashcroft Workplace Lawyers can help – give us a call on 0800 354 821 for a free 15-minute consultation. You can also find a raft of resources on our website at www.coplandashcroft.co.nz, from articles on legal updates to e-resources covering a range of workplace law topics. Disclaimer: We remind you that while this article provides commentary on employment law, health and safety and immigration topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.

Kate Ashcroft, Partner, of Copeland Ashcroft Workplace Lawyers. Copeland Ashcroft Workplace Lawyers operate the NZCB Employment helpline and providing specialist advice, representation and support across employment, immigration and health and safety law, to businesses throughout New Zealand. Why us? We know what works, and partner with you to achieve the results you want. www.copelandashcroft.co.nz