In­de­pen­dent con­trac­tor or em­ployee — what’s the dif­fer­ence?

Otago Daily Times - - BUSINESS & MONEY - DAVID SMIL­LIE David Smil­lie is a part­ner in the law firm Gall­away Cook Al­lan, Lawyers

VAR­I­OUS em­ploy­ment­re­lated cases have been mak­ing head­lines over the last few months and a re­cent news ar­ti­cle has shone a light on the dif­fi­cult work­ing con­di­tions many courier driv­ers face.

Courier driv­ers (many of whom are en­gaged as in­de­pen­dent con­trac­tors) spoke of long days, no breaks or hol­i­days, and fi­nan­cial penal­ties if they could not fin­ish all their de­liv­er­ies.

In­de­pen­dent con­trac­tors do not have the same rights and pro­tec­tions as em­ploy­ees, such as the right to the min­i­mum wage, rea­son­able rest and meal breaks, and paid hol­i­days.

In the­ory the trade­off for in­de­pen­dent con­trac­tors is greater con­trol and flex­i­bil­ity over how and when they work, whom they work for, how much they charge for their ser­vices and how much they can earn.

In prac­tice though, that is not al­ways the case.

First Union has now an­nounced it has be­gun pro­ceed­ings in the Em­ploy­ment Court to de­ter­mine if courier driv­ers are in fact ‘‘in­de­pen­dent con­trac­tors’’, or if they are in­stead re­ally em­ploy­ees.

Clearly, there is a great deal of wa­ter to go un­der that bridge yet, but the out­come of those pro­ceed­ings could have sig­nif­i­cant im­pli­ca­tions for the or­gan­i­sa­tions that en­gage courier driv­ers as in­de­pen­dent con­trac­tors.

The im­pli­ca­tions could ex­tend fur­ther — First Union has al­ready in­di­cated some truck driv­ers could be in the same boat.

Whether a worker is an em­ployee or an in­de­pen­dent con­trac­tor is not al­ways clear or straight­for­ward. There are wellestab­lished le­gal tests to help de­ter­mine the true na­ture of the re­la­tion­ship:

In­ten­tion: What did the par­ties in­tend? That can of­ten be worked out by re­fer­ring to the writ­ten agree­ment. In­ten­tion is rel­e­vant but doesn’t de­ter­mine the true na­ture of the re­la­tion­ship on its own.

Con­trol: The more con­trol a worker has over how and when they work and what work they do, the more likely they are to be an in­de­pen­dent con­trac­tor. The more con­trol ex­er­cised by an em­ployer over the what, how and when, the more likely the worker is to be an em­ployee.

In­te­gra­tion: How in­te­grated into the busi­ness is the worker, and how fun­da­men­tal are they to the op­er­a­tion of the busi­ness? The more in­te­grated a worker, the more likely they are to be an em­ployee.

Fun­da­men­tal/eco­nomic re­al­ity test: Is the worker in busi­ness on their own ac­count? A worker is more likely to be an in­de­pen­dent con­trac­tor if they:

Charge a fee / in­voice for their ser­vices.

Pay their own taxes and ACC levies.

Meet their own costs.

Take on a de­gree of fi­nan­cial risk.

Can get other work­ers to do the work they have agreed to do.

Pro­vide ser­vices to mul­ti­ple prin­ci­pals at the same time.

Advertise their ser­vices. Or­gan­i­sa­tions en­gag­ing an in­de­pen­dent con­trac­tor should be aware that, even though the par­ties might agree the re­la­tion­ship is one of prin­ci­pal and con­trac­tor, if the true na­ture of the re­la­tion­ship is ac­tu­ally an em­ploy­ment re­la­tion­ship, the or­gan­i­sa­tion will have min­i­mum em­ploy­ment obli­ga­tions to the worker (and is likely to have ar­rears to pay as well). This can be very costly — for ex­am­ple, a com­pany may find it­self li­able to pay sev­eral years of ac­crued hol­i­day pay.

Re­la­tion­ships can also change over time. For ex­am­ple, some­one who starts off as an in­de­pen­dent con­trac­tor might, over a num­ber of years, be in­te­grated into the busi­ness and end up be­ing no dif­fer­ent from an em­ployee.

Or­gan­i­sa­tions should there­fore reg­u­larly re­view their long­term re­la­tion­ships with in­de­pen­dent con­trac­tors and con­sider if the way the worker is be­ing en­gaged is still ap­pro­pri­ate.

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