Employee or contractor? Reality trumps titles for ERA conflicts

I have noticed a number of decisions coming through from the Employment Relations Authority that involve people claiming to have been dismissed when in fact they were not employees but independent contractors.

The latest that has come to my attention is a Christchurch case, where Company X advertised a role as a marketing supervisor in its tannery. An applicant, Ms B, was offered the job and was presented with an individual employment agreement. Company X said that although she was offered the role as an employee, Ms B asked if instead her own company could be engaged. She proposed that she would work through her company so she could take advantage of tax losses that her company had previously sustained.

Company X said that Ms B could undertake the role via her company as an independent contractor so long as invoices did not total more than $45,000 gross per annum, which was the gross salary offered to Ms B as a potential employee. Ms B agreed and neither party signed the individual employment agreement. No other written contract was entered into. Company X was invoiced monthly.

The engagement commenced September 2013 and on January 29 2014 was terminated. Ms B claimed to the Employment Relations Authority that she was unjustifiably dismissed, also claiming unpaid holiday pay. Company X said that she was never an employee and was always an independent contractor.

The issue to be determined by the authority member was whether Ms B fell within the definition of an employee. If she was not an employee, the authority had no jurisdiction to determine her claim.

It is important that employers understand that the court will look beyond what the relationship is called by the parties and consider the true nature of the relationship. So you can call someone an independent contractor, but if the relationship is one of employment then they will be deemed an employee. This gets employers into trouble if they terminate the relationship like a normal contract.

To decide if what the true nature of the relationship is, the court will consider:

1. The written or oral terms of the contract

2. Any divergence from those terms and conditions

3. How the relationship operated in practice

4. Features of control and integration

5. Whether the contracted person has been working on their own account (this is the fundamental test) 6. Industry practice The authority member concluded that the real nature of the relationship was a contract for services. Significantly, the authority member was of the view that Ms B understood that the relationship between her and company X was not one of an employer/employee. Significant also was that Ms B had initiated the independent contracting arrangements (often it is the other way around, and employers try to use the independent contract arrangements to ‘‘get out of’’ obligations such as holiday pay and sick leave).

Ms B was unsuccessful in her claim.

Mary-Jane Thomas is a partner at Preston Russell Law. She is always interested in ideas for articles. Email mary-jane.thomas@prlaw.co.nz for contact.