Ross Crotty: Independent contractors a vulnerable group

Opinion

People seeking employment, particularly in current economic circumstances, can be persuaded to enter in to so-called contracts for services as opposed to employment agreements, so desperate are they for the work.

These contracts are proffered without the statutory obligation to be given time to seek advice, unlike the law relating to employment agreements, state the worker is not an employee, and purport to set up a GST invoicing system as if the worker was self-employed.

Prospective employees really should not agree to be categorised as an independent contractor unless they are genuinely prepared to run their own business, free from the restrictive control of an employer.

As the cases illustrate, whether the arrangement is a contract for or of services can require a close examination of the actual basis of the working relationship.

It can be a serious problem for workers who have, often without the benefit of advice, readily agreed to be called an independent contractor. They do not have the protections of the current employment laws. In particular they can be dismissed without justification, simply on notice. They have no paid holiday entitlements, other than as agreed. The same with sick or bereavement leave.

No wonder, when they fall out with the other party to the contract, they seek to use the employment regime to assist. But it may not avail them, as one of Judge Shaw's last cases in the Employment Court demonstrated.

Raewyn Tse claimed she was Cieffe (NZ) Limited's employee. The company said she was an independent contractor. How can you tell?

The law says that the Employment Court has to decide the issue on the basis of the intention of the parties, apply tests of control and integration, and the fundamental test of working on one's own account. That all comes from the Supreme Court in 2005 in the Three Foot Six Limited case.

The Supreme Court restored Judge Shaw's decision in the Employment Court that the real nature of James Bryson's relationship with Three Foot Six Limited was one of employment.

In July 2005 Ms Tse agreed to work for Cieffe part time for 20 hours per week at an hourly rate. They expressly agreed that she would invoice Cieffe as a contractor rather than be paid as an employee. After initially invoicing Cieffe through her company, from January 2006 she invoiced Cieffe in her own name for her "consultancy services".

In mid-2006 her hours increased to 40 per week. In April 2007 she signed a consultancy agreement with Cieffe which stated that she shall not be construed as an employee of Cieffe. Her contract was terminated in March 2008.

Judge Shaw held that, while there were some elements in the conduct of her employment which would not support a finding that she was self-employed, other factors including the statement by the parties in the consultancy agreement confirmed the nature of the relationship which had existed from the outset: a contract for services.

Consequently there was no jurisdiction to hear a personal grievance brought by Ms Tse.

By contrast, Bryson was able to bring his personal grievance, even though the written contract he signed with Three Foot Six Limited stated he was an independent contractor.

That was because there was significant control imposed by the contract over Bryson's work and how and when he did it, as an integral part of the business which was producing models for the production of "Lord of the Rings".

Apart from rendering invoices (prepared by Three Foot Six as a device to record the hours worked), he was not operating a business on his own account, and paid a regular wage based on an hourly rate. He worked continuously for over a year for one production with no outside work. He had no investment in plant or equipment and did not operate as a sole trader.

The Court emphasised that the decision was based solely on the individual circumstances of Bryson's employment and was not to be regarded as affecting the status of any other employee in the film industry.

* Ross Crotty is an Employment Law Special Counsel at Lowndes Associates.