Important Case Contractor or Employee – Dukesons Business Law - Employment Lawyer – Business Lawyer

May 2020

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

Yet more on the employment law front - an important case that highlights key issues in determining whether a worker is a contactor or an employee. The case was decided on its facts but will almost certainly motivate some contractors to challenge their status e.g. workers for courier and similar companies.

In the Leota case, a courier driver engaged as a contractor was found to be an employee. Essentially, it was held that the principal had such a degree of control over the way in which the worker worked that they couldn’t be said to be an employee. Additionally, though the worker was meant to be in business on their own account as a courier, the reality was that they had no business of their own. This latter issue may not always have been in focus when the contractor-employee issue has been considered but is likely to be a key consideration moving forward.

Even where parties are initially happy to call their relationship one of principal and contractor, the worker may later become disillusioned and seek to argue that they are in reality an employee. Such a finding, some years down the track, can have significantly adverse financial consequences for the principal, all the more if several contractors should be regarded as employees.

The legal tests that are applied by lawyers and by the courts look deceptively simple on paper. The following statement from the Chief Employment Court Judge in Leota also sounds simple enough:

An employee works for the employer, within the employer’s business, to enable the employer’s interests to be met. An independent contractor is an entrepreneur, providing their labour to others in pursuit of gains for their own entrepreneurial enterprise.

However, it’s often difficult to determine with certainty which side of the line the matter falls. For example, just what degree of control pushes the matter over the line? To what degree does the worker need to be integrated into the principal’s business to be deemed to be an employee? Many cases can be borderline.

Where a business has contractors doing the same work in the same way as employees, the only material difference being the some are called contractors and some are called employees, there’s every chance that if the contractors take issue, they will be deemed to be employees. On the other hand, workers who are highly skilled and for that reason and for other reasons e.g. they operate through a company, may be more clearly seen to be in business on their own account and therefore, as contractors.

Accordingly, businesses who want to engage workers as contractors rather than as employees need to do so with their eyes open. The law assumes an unequal bargaining relationship between employer and employee, that favours the employer, and doesn’t seek to make it easy for an employer to avoid employment law consequences. If the main driver is to avoid the application of employment law, which is often the case, there’s a real risk in some cases that this will backfire. Even if a worker wants to be a contractor at the outset, this won’t prevent them later from asserting that they are in reality an employee.

An interesting parting point of interest – is would appear that Freightways was sufficiently concerned about the potential outcome of the case that it was granted leave to appear and be heard as intervener.

Just a reminder - in my last blog, I suggested that prudent employers should consider including appropriate clauses in their template agreements to deal with unexpected significantly disruptive events like pandemics. Even if the templates contain these types of clauses, they may require re-drafting.

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