Employee vs Independent Contractor: The Times They Are a-Changin’

Working as an independent contractor affords a lot of flexibility around how, when and where work is performed, and for how much. At least theoretically. We have begun to see a trend where so-called independent contractors are employees in all but name. As a result, they are precluded from the flexibility afforded to true independent contractors, but they also fail to receive the associated benefits and protections of employment, such as holiday pay, leave entitlements, KiwiSaver contributions, the ability to bargain collectively and raise personal grievances.

Leota v Parcel Express Limited

The Employment Court (the Court) has begun to place increased scrutiny on independent contractor arrangements. In May 2020 the Employment Court, in a landmark decision, found courier driver Mika Leota to be an employee. This is despite Mr Leota having signed an agreement stating he was an independent contractor, and industry practice suggesting courier drivers are predominantly independent contractors. The Court found in practice the real nature of the relationship was employment and Mr Leota was particularly vulnerable.

The Chief Judge was clear her judgment related only to Mr Leota’s status (not that of the entire courier driver profession), as determining the real nature of a working relationship is an ‘intensely factual situation’, which depends on the individual’s particular circumstances. However, this case is indicative of the shifting attitudes towards determining the true nature of independent contracting arrangements.

Barry v CI Builders Limited

A second landmark decision (where the employment status of a worker in an industry traditionally regarded as contractor-dominant) was recently handed down by the Employment Court, in Barry v CI Builders Limited. The Employment Court’s decision, delivered by the Chief Judge, found the real nature of the relationship was one of employment, despite a mutual intention existing at the start of the relationship that Mr Barry would be an independent contractor. This case is a poignant reminder that simply labelling a worker as an independent contract will not necessarily mean they are one. Factors of control, integration, consistency and regularity of work meant that in practice, Mr Barry was an employee.

Overseas Developments

This developing trend is seen in both the gig worker and construction industries, where traditionally a large proportion of the workers have been engaged as independent contractors. This trend is not only being seen in New Zealand. The Supreme Court of the United Kingdom recently unanimously held Uber drivers are ‘workers’, not independent contractors. This hybrid category between independent contractor and employee entitles them to the minimum wage and holiday pay, but not all employment benefits (this is specific to UK law and not currently law in New Zealand). A similar decision was upheld in March 2020 by France’s top court in respect of an Uber driver. The Fair Work Commission in Australia recently held a Deliveroo driver was an employee, not an independent contractor. A common theme in these cases was an assessment of the individuals’ ability in practice to be in operation on their own account. A limitation on the individuals’ ability to build their own clientele, set prices, negotiate terms with suppliers and generate goodwill for themselves precluded a finding of an independent contractor relationship.

New Zealand Impact

In the wake of these overseas developments, E tū and FIRST (Finance, Industrial, Retail, Stores and Transport) unions are now jointly seeking a determination from the Employment Court that Uber drivers (who they say are misclassified as independent contractors) are in fact employees. FIRST Union is separately taking a class action on behalf of 15 courier drivers who work for NZ Post.

The last time this issue came before the Court in Arachchige v Rasier New Zealand Limited (delivered in December 2020), the Employment Court held Mr Arachchige was not an employee, but rather, his agreement with Uber was more akin to a service agreement, and in practice the relationship was one of independent contractor and principal, because Mr Arachchige:

  • determined how long he undertook services;
  • provided all the necessary equipment and tools to undertake the work;
  • was responsible for his own tax obligations; and
  • could determine what vehicle to use, when he would carry out the work and where he would do so.

However, the recent case law both in New Zealand and abroad, and the incoming Screen Industry Workers Bill 2020 (which provides greater protections and minimum terms to contractors performing screen production work), indicates a changing attitude and could mean these fresh applications to the Court may be decided differently.

We are also awaiting the recommendations from the Government’s tripartite working group which was set up in 2020 to consider public consultation and make recommendations on better protecting vulnerable contractors. It may be the case New Zealand shifts toward a model similar to the United Kingdom and creates a distinct third category of worker, which recognises dependent contractors as a hybrid between employees and independent contractors.

Next Steps

We are likely on the precipice of seeing an increasing number of challenges to the nature of independent contracting arrangements. If you are currently engaging workers under a contract for services, particularly for prolonged periods, it is important to regularly consider how the relationship is operating in practice. The case law is clear: just because a contract says someone is an independent contractor, does not mean the Authority or the Court will agree.

We will watch with interest to see how these developments continue to shape New Zealand’s employment landscape.