In the first series of Employment Essentials, we explore key topics in employment law including employee/independent classification, employer health and safety obligations, Privacy Act requests and breaches, and restructuring processes.
Episode One: Independent Contractors
Please note this is a transcript version of a video, which you can view here.
In New Zealand, being an employee gives people some important rights under the Employment Relations Act. This includes the right to raise and pursue a personal grievance, and have access to a suite of minimum entitlements.
However, if you're an independent contractor, you don't get those same protections and entitlements under the Act. Instead, your rights will depend on the terms you've agreed to in your contract.
This makes the question of employment status an important one.
With new ways of working being driven by technological change, how we determine the question of employment status is being put to the test.
Determining employment status
Currently, the way we determine someone's employment status is outlined in section six of the Employment Relations Act. But the details of how that section applies comes from case law.
The Court of Appeal has now decided that the process to determine employment status should be broken into two stages.
Stage one: Involves identifying the parties' mutual rights and obligations as a matter of reality. To do this, you need to assess the written and oral terms of the contract between the parties and then consider how the relationship operated in practice. The courts will then consider the common intention of both parties, looking at it objectively based on their dealings.
Stage two: Is about determining whether those rights and obligations amount to a contract of employment. That involves applying a series of well-established common law tests to the circumstances of the case. These tests are referred to as the "control test", the "integration test" and the "fundamental test". These are used to determine whether traditional markers of employment are present in a working relationship.
- The control test looks at how much control the alleged employer has over the individual, including regarding how work is performed;
- The integration test investigates whether the work the employee does is fundamental to the alleged employer's business and whether the individual is 'part and parcel' of the organisation; and
- The fundamental test looks at whether the individual is in business on their own account.
Unsurprisingly, these tests have received considerable attention from the courts in the last few years. This has impacted various industries including courier drivers, catering workers, Uber drivers and even the residents of Gloriavale.
Legislative changes
The Government has clearly recognised some of the challenges in determining employment status, especially with today's modern work arrangements.
Workplace Relations and Safety Minister, Brooke van Velden, recently announced that she intended to amend the Employment Relations Act to bring greater certainty for independent contractors and businesses.
To further this aim, the Government has proposed introducing a new "gateway test" which, if satisfied, would mean that an individual is an independent contractor and would be unable to challenge their status. If they do not satisfy the gateway test, the current 'real nature of the relationship' test continues to apply.
Under the gateway test, a person will be an independent contractor if:
- there is a written agreement with the worker, specifying they are an independent contractor;
- the business does not restrict the worker from working for another business (including competitors);
- the business does not require the worker to be available to work at specific times or for a minimum number of hours, or alternatively, the worker is not prevented from subcontracting the work; and
- the business does not terminate the contract if the worker does not accept an additional task or engagement.
An ongoing issue
With a Bill expected in 2025, we aren't likely to see any imminent changes from the existing test and there are many details which have yet to be addressed. For now, we expect this issue to continue to be on the radar for businesses with contractor workforces.
Coming up in this series…
Thanks for joining us for the first episode of our Employment Essentials series. Join us next episode where we'll be talking about health and safety.