The Ministry of Business, Innovation and Employment (MBIE) is looking at reclassifying contractors and, if imposed, this could change the contractor landscape.

MBIE recently released a discussion document, Better Protections for Contractors, seeking public feedback on MBIE's proposed options to address its concerns of misclassification of employees as "independent contractors," and workers who are in the "grey zone" between employees and contractors. For some time, there has been talk of a third category of "dependent contractors" and MBIE is exploring this as a part of its discussion document.

The paper proposes 11 options for change to introduce some statutory rights and entitlements, and enhanced protections for some workers in current contractor arrangements.

However, most of these options, if implemented, could significantly limit the parties' freedom of contract, create even more confusion as to the parties' rights and obligations, and increase costs for businesses and the taxpayer. Most of these proposed changes, if adopted, could also lead to unintended consequences for your organisation. Contractors, too, could have their benefits and flexibility of self-employment greatly impacted.

MBIE's proposed 11 options for change are briefly summarised below.

Options to Deter Misclassification of Employees as Contractors

Option 1: Increase proactive targeting by Labour Inspectors to detect non-compliance. This will allow Labour Inspectors to actively look for exploitation of workers, including investigating and challenging organisations' conduct.

Option 2: Give Labour Inspectors the ability to decide workers' employment status. In addition to their investigative powers, Labour Inspectors would be able to decide whether a worker is an employee or a contractor, either at the request of the worker or, possibly, at the Labour Inspector's own initiative.

Option 3: Introduce penalties for misrepresenting an employment relationship as a contracting arrangement. Currently, organisations are only liable for unpaid statutory minimum entitlements in cases of any misclassification. This option would create an additional penalty for organisations who misclassify employees as contractors. In its present version, this option would impose penalties on firms even where the misclassification was due to a genuine mistake or confusion by the parties.

Options to Make It Easier for Workers to Access a Determination of Their Employment Status

Option 4: Introduce disclosure requirements for firms when hiring contractors. Under this option, organisations would be required to advise contractors, upon hiring them, as to what their legal obligations are (such as making their own PAYE, ACC, and KiwiSaver payments), and that they have a right to seek legal advice prior to accepting the contract for services. The Government could create a standard disclosure form for use by the organisations.

Option 5: Reduce costs for workers seeking employment status determination. This option would waive or reduce the application fees related to employment status determination in the Employment Relations Authority and/or the Employment Court to make these classifications more accessible.

Option 6: Put the burden of proving a worker is a contractor on firms. Ordinarily, in an employment status determination matter, the worker would need to prove that they are an employee. This option would, instead, require the organisation to prove that the worker is a contractor and not an employee.

Option 7: Extend the application of employment status determinations to workers in fundamentally similar circumstances. At present, any decision about employment status determination only applies to workers who are parties in the particular case. This option would extend the application of such a decision to contractors who are engaged on substantially similar terms (as the worker who has been found to be misclassified) by the same business.

Options to Change Who Is an Employee under New Zealand Law

Option 8: Define some occupations of workers as employees. This option would require that workers in certain occupations are deemed employees, which would preclude classifying such workers as contractors. However, this option leaves open the possibility of an opt-out for some workers.

Option 9: Change the tests used by courts to determine employment status to include vulnerable contractors. In addition to the four tests that courts use to determine a worker's employment status, this option seeks to adopt a new test that would examine factors such as the degree of economic dependence between a worker and an organisation, bargaining power imbalance, or how much risk is passed onto the worker. This option also considers the modification of the existing intention test.

Options to Enhance Protections for Contractors Without Making Them Employees

Option 10: Extend the right to bargain collectively to some contractors. Presently, contractors cannot bargain collectively, unless they are granted an authorisation to do so on a case-by-case basis. This option would extend the collective bargaining right to contractors without the need for such authorisation.

Option 11: Create a new category of workers with some employment rights and protections. In addition to employees and contractors, this option would create a third category of workers (such as "dependent contractors"), which would grant these workers some rights and protections under employment law, including minimum wage, paid leave, collective bargaining, and protection against unfair dismissal. Classification into this category could be at the workers' request.

As can be seen, these options, if implemented, would change the substance of many existing contractor arrangements. We recommend that you consider these options in light of your own operations and the arrangements that you have in place.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.