The Final Report of the Education and Workforce Committee reported back on the Employment Relations Amendment Bill in December last year which proposes changes to provide greater certainty around whether a worker is a contractor or an employee.
One of the key aims of the Bill is to provide greater certainty around whether a worker is a contractor or an employee — an issue that often leads to disputes over minimum statutory entitlements such as holiday pay. This was also the key consideration in the recent Raiser Operations v E Tū Incorporated decision, on which we drafted an article that can be accessed here. That decision has come to be colloquially known as the Uber decision.
Contractor or Employee?
This is a common question. A business believes it has engaged a contractor, while the worker claims they are actually an employee and therefore entitled to sick leave, annual leave, and holiday pay. Employees, unlike contractors, are able to raise personal grievances should an employment dispute arise and this represents significant exposure for businesses. It’s important to get it right.
Under the current law, the courts focus on the real nature of the working relationship, not just what the contract says. All relevant factors are considered, including the parties’ intentions, the level of control exercised, how integrated the worker is within the business, and the economic reality of the arrangement. The key principle is ‘substance over form’.
As a result, even if a contract labels someone as an “independent contractor”, they may still be legally found to be an employee based on how the relationship operates in practice. This was illustrated in the Uber decision where the four Uber drivers were found to be employees rather than contractors, despite the contracts stating otherwise.
What is changing?
The Bill proposes a new “gateway test”. If the gateway criteria are satisfied, the relationship will be treated as contracting without the need for the kind of detailed factual analysis seen in the Uber case. Only if the test is not met will the courts apply the existing “real nature of the relationship” analysis.
In general terms, the gateway test requires for a contracting relationship to be valid:
- the written contract clearly states the worker is a contractor;
- the worker can work for others;
- the worker controls their availability;
- the worker can subcontract the work;
- the arrangement cannot be terminated simply because the worker refuses extra tasks; and
- the worker has had a reasonable opportunity to seek independent advice.
Other key changes in the Bill
The Bill also proposes:
- changes to personal grievance remedies, with greater weight given to employee conduct. Remedies may be reduced or denied where an employee’s misconduct or contribution played a role in the circumstances giving rise to the grievance; and
- a $200,000 income threshold, above which employees cannot bring unjustified dismissal claims; and
- removal of the 30-day rule. Employers and new employees will be able to agree on individual employment terms from day one, even where a collective agreement applies, without the current requirement to follow collective terms for the first 30 days.
What does this mean for businesses?
These proposed amendments represent a likely shift in employment law in favour of employers. The overall aim of the government is to increase labour market flexibility, reduce compliance costs and uncertainty, and provide clearer rules for businesses when engaging workers.
However, until the Bill is enacted, the current law, including the principles confirmed in the Uber decision, continues to apply.
If you engage contractors or are reviewing your workforce arrangements, early legal advice can help reduce risk and avoid costly disputes. Our employment law specialists can provide clear, practical advice tailored to your circumstances and assist you in managing contractor and employment relationships with confidence.