Changes to the Employment Relations Act have been announced which are intended to make it easier to determine whether a worker is an employee or a contractor, but in reality, will simply add an additional layer of confusion, without making any significant difference.
The proposed new gateway test is a set of four criteria, which if met, mean that the worker will be considered to be a contractor. The intention is that businesses and the authority can apply these four criteria in the first instance and come up with a quick and clear answer.
The problem is, though, if the worker is not deemed to be a contractor through this method, the existing legal test still applies. In other words this is not a replacement test, it is an addition to the existing law.
In practice it will make little difference because the new criteria are so obvious that workers who meet these would nearly always be regarded as contractors in any event. It is the ones that do not fall neatly into these criteria which create the “lack of “clarity” that Workplace Relations Minister Brooke Van Velden is seeking to eliminate.
This is clear from looking at the existing and proposed tests.
Under the new test the four criteria that must be met are;
- There is a written agreement that specifies the worker is an independent contractor; and
- The worker is not restricted from working for others; and
- The worker is not required to be available to work at certain times, days or for a minimum period, or can sub-contract the work; and
- The business does not terminate the agreement for not accepting an additional task.
It is highly likely that any worker who met these criteria would be regarded as a contractor under the current law as there is a high degree of flexibility built into the criteria as to when and how the worker undertakes the work.
In contrast, the existing legal test is far less clear. It is stated in the Employment Relations Act as requiring an assessment of the “real nature of the relationship”. The lack of prescription has led to the Courts developing their own tests for determining this.
Firstly, the terms of the contract itself are just one factor, and the Courts will look behind the words if they do not reflect the reality of the relationship. In the recent case involving Uber drivers the Court of Appeal dismissed the written agreement as being “window dressing” and said;
“Uber has structured the overall relationship, and reserved to itself powers of unilateral control over the various documents with contractual force and over the day to day operation of the relationship, in a manner and to an extent that render ineffective many of the rights that appear to be reserved to drivers on the face of the agreement.”
The other factors that have been deemed relevant include the degree of control exerted over when and how the work is performed, whether the work is an integral or core part of the business, whether the work can be sub contracted or delegated to others, and whether the worker has the opportunity to make a profit or loss such that they could be said to be in business on their own account.
In another case involving courier drivers, the Court described the distinction as follows;
“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”.
It would be fair to say that in recent years the Employment Court has adopted a broad interpretation of who might be regarded as an employee, based on an overarching view that workers should not be easily denied the protection of employment laws. These cases have extended from Uber drivers and courier drivers to real estate agents, builders, and members of the Gloriavale community, amongst others.
This “creep” has resulted in criticism from business groups that the existing legal tests are too broad and/or the court is taking them too far. In turn, this appears to be what the Government is reacting to in introducing the new test. However, if the intent is to reign in the expansion of the definition of “employee”, or at least to provide greater certainty, simply stating the obvious will not likely achieve this.
Originally published in The Post
