Employee or independent contractor?

The recent case of A Labour Inspector v Southern Taxis Limited (Christchurch) highlights the importance for business owners to ensure that they have correctly identified the nature of their ‘employees’ role. If you have characterised a worker as an independent contractor when the real nature of the relationship is employer/employee, you could be liable to pay them significant arrears in wages, holiday pay and other employee entitlements, as well as face financial penalties.

The investigating Labour Inspector alleged that Southern Taxis had been acting in contravention of several Employment laws such as the Employment Relations Act and the Holidays Act. The investigator claimed that Southern Taxis had failed to provide written employment agreements, maintain time records, pay minimum wage and holiday pay.

Southern Taxis argued that the drivers were independent contractors, not employees. Because of this, Southern Taxis had not provided them with the benefits that employees were entitled to.

Section 6 of the Employment Relations Act contains the legal tests which are applied to decide whether someone is actually an employee or not.  These tests are:

1. the intention of the parties (what did the parties intend when they entered the contract?)
2. the control test (does the employer have control over the worker ie specifying the employee’s hours of work?)
3. the integration test (is the worker actually integrated into the business?)
4. the fundamental test (is the worker actually operating as a business or an employee?)

In this case, the Authority determined that the drivers were in fact and in law, employees.

This was because:

• While there was some flexibility in the job, Southern Taxis still dictated when they worked and what shifts needed covering.
• All the drivers had been independent contractors before and knew what the difference looked like.
• One driver requested Holiday pay and sick leave, and another driver requested ACC payments.
• None of the drivers assumed any of the same risk, or the sharing of profits or losses.
• Southern Taxis issued its drivers with payslips. 

Southern Taxis had to pay arrears to the drivers in the sum of $97,753.05, based on an assessment of minimum wages for all hours worked and holiday pay owed.

The case is currently in front of the Employments Authority to decide if Southern Taxis will pay penalties for its breaches.

Some key things to consider as an employer, employee or contractor:

• When considering engaging a person as an employee or independent contractor, employers need to consider whether or not the contract accurately reflects the real nature of the relationship.  It is important to remember that if your contract does not accurately reflect the real nature of the relationship, a Court could later find that the worker is really an employee even though he/she has signed an independent contractor’s agreement.  As an employer you could be liable for overdue payments including holiday and other benefits.
• Just because there is no written employment agreement does not mean that an employee loses their legal entitlements. 
• Our firm can provide the following services:
  • Advice to employers, employees or contractors at the outset to discuss which contract may be most appropriate.
  • Drafting employment agreements
  • Drafting independent contractor agreements
  • Reviewing draft or current contracts and advise on amendments that will protect your interests
  • Assisting either party in a dispute regarding entitlements under either an employment agreement or independent contractor agreements.
  • Representation in the Employment Relations Authority or relevant Court

For any enquiries please contact Turner Hopkins.