Employee or Contractor – Employment Lawyer Auckland – Dukesons Business Law

May 2017

TRICKY QUESTION - EMPLOYEE OR CONTRACTOR – EMPLOYMENT LAWYER AUCKLAND – DUKESONS BUSINESS LAW

This Blog isn't legal advice – if you need legal advice on any employment law issue or on any business law or commercial law issue, please contact me. I'm a business lawyer in Auckland who provides advice on company law issues and on a wide range of business law or commercial law issues.

It isn’t as simple as many employers think to determine whether or not a worker is an employee or a contractor. Employers are often surprised to learn that just entering into a contractor agreement won’t mean that the worker is a contractor and not an employee.

The Employment Relations Act requires the real nature of the working relationship to be considered. The fact that the parties have given it a label isn’t conclusive. Moreover, I’ve had several situations where, as in the case below, the parties have had a long standing working relationship and after many years, a contractor has asserted that they are an employee. Often, this occurs when something happens that the worker doesnt like and they decide that it would suit them better if they were to be an employee.

In Hutchings v Fourth Estate Holdings (2012) Limited (“NBR”), after something like 20 years, H alleged that he was an employee, following termination by NBR of the working relationship.

H had originally been taken on by a predecessor of NBR. There wasn’t anything in writing that detailed the nature of the relationship. NBR had assumed that H was a contractor. There was plenty of evidence to support this assumption including that H did work as a contractor for one of NBR’s other publications and for other unrelated parties.

There were some factors that muddied the mix, which will often be the case. For example, H had a NBR business card. Also, he didn’t like paper work and didn’t want to deal with tax. So, when he was originally engaged by a predecessor of NBR, it was agreed that IR 12 forms would be completed (with NBR deducting PAYE). H and his lawyer sought to make a great deal out of these matters, especially the IR 12 forms.

However, the evidence, including from other contractors and employees of NBR, clearly showed that H was a contractor. The IR 12 forms were just one part of the overall equation and it was clear that they had been put into place for tax considerations, not for employment considerations. When the Employment Relations Authority (ERA) applied the usual tests, the only possible conclusion was that H was a contractor.

As I mentioned when interviewed by NBR about the case, there are lessons to be learned from the case, and from other cases involving the same issue. For example, if a business is purchased, the purchaser shouldn’t just assume that existing workers who will be taken on and who are described as contractors are in fact contractors. Due diligence should be undertaken to ascertain the correct status of the workers. In any event, new contracts should be entered into with all workers and a proper assessment made at the time whether a worker will be a contractor or employee. Having to deal with potential and actual litigation later isn’t desirable.

If an employer wants to take on a worker as a contractor, they should get good legal advice. Sometimes, the legal tests that are applied will enable a lawyer to give very clear advice as to whether a worker would be an employee or a contractor but sometimes, giving clear advice will be difficult. Thats because law isnt like arithmetic and even experts can disagree on what the legal position is. Our leading case in this area of law went all the way to the Supreme Court.

If the legal advice is that the worker would be deemed to be a contractor or is likely to be deemed a contractor and the employer doesn’t like the advice, their choice would be to enter into a contractor relationship regardless and hope for the best or to face up to the situation and take the worker on as an employee.

I disclose that I act for NBR in relation to employment law matters and that I acted for NBR in relation to Hutchings case.

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