We have already discussed at length the obvious impacts on employment in a recession. But what happens to people who are not employees?

Unlike employees, independent contractors do not have the right to raise a personal grievance – they are limited to what is stated in their contract. However, when an independent contractor believes they have been hard done by, the ability to challenge their status and argue that they are an employee is often an attractive option.

Independent contractors have a right to challenge their status to argue that they are actually an employee. The consequence being that, if successful, they are then afforded the rights of an employee, including the ability to sue for unfair dismissals and Holidays Act 2003 entitlements.

It is quite common for a contractor to later argue that they are in fact an employee. To do this they rely either on the fact that the contractor relationship was a sham (ie it did not represent the true nature of the relationship at the outset) or the subsequent conduct of the parties has changed the relationship from that of a contractor to an employee.

In assessing whether a worker is an employee or a contractor, the following are relevant:

  • The degree of control that the business has over the worker (or the level of independence that the worker has).
  • Whether the worker operated as an integral part of the business.
  • The economic reality of whether the worker is in business of her or his own account. For example, are they paid on the basis of an invoice? Do they take responsibility for their own tax issues? Do they contract through a company? Are they paid more on the basis of their status? Do they have the ability to contract with others?

Most contractor relationships start with a written agreement which confirms the contractor status of the relationship. The contract will usually record that it is the intention of the parties that the relationship not be that of employer and employee. This is not determinative but will be considered along with the manner in which the parties have dealt with each other during the relationship.

This does not mean that the Employment Relations Authority or Employment Court does not respect the intention of the parties, or their freedom to contract in whatever manner they wish. In fact, the Employment Court has recently ruled in favour of a finding against an employment relationship in Tse v Cieffe (NZ) Limited WC4/09 [2009] NZEmpC 23. In this decision the Court recognised that in some circumstances there will be elements of the parties' conduct which might point to an employment relationship. These must be weighed against the intention of the parties as stated in the contract and the balance of their conduct which was consistent with the contractor relationship. In that instance the Court was confident that the status should remain one of contractor, even though some aspects of the conduct were also consistent with an employee/employer relationship.

This case reinforces the importance of clear agreements between contracting parties at the outset. More importantly it confirms that irrespective of the written terms of an agreement, the way in which the relationship is managed on a day to day basis can be determinative.

If the relationship cannot be managed in a manner consistent with contractor status then consideration should be given to whether or not an appropriate employment agreement should be entered into. Whatever relationship is ultimately settled on, it needs to be monitored on an ongoing basis to ensure that the way it is managed remains consistent with the intention of the parties.

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