Vlad Purgaric
As an employer, it pays to be familiar with the different obligations you have to employees and to contractors — and the potential costs of getting this wrong.
An employee is someone employed on a “contract of service” (more commonly called an employment agreement). This person will have all of the usual rights that you would expect in employment — entitlement to annual leave, sick leave, etc — and the right to take a personal grievance against their employer when they feel they have been treated unfairly in their work.
A contractor on the other hand is engaged to provide specific services under a “contract for services” (or more commonly, a “contracting agreement”). Contractors aren't covered by most employment-related laws — including leave entitlements, personal grievances, employer Kiwisaver contributions, etc.
Given these important differences, it is likely of little surprise to readers to find that on occasion, a contractor might take their employer to court to seek a determination that they are not in fact a contractor, but an employee. And if their claim is successful, then the newly determined employee generally also seeks the entitlements that they have missed out on — particularly leave entitlements which can be claimed back as far as six years.
A recent high-profile Employment Court case in New Zealand has played out this scenario. Four drivers working for the company Uber (or one of their subsidiaries) as “contractors” took the company to court, and were successful in obtaining a judgement in their favour — ie, that they were in fact employees.
The Employment Court findings were specific to these four employees only. However, you can likely imagine the level of concern that the company would have at the potential exposure they may have to back-pay claims as a result.
Having a signed agreement in place is not sufficient to protect you from a contractor claiming that they are in fact an employee. The Employment Relations Authority (and Employment Court) have the powers to make binding determinations based on a series of tests which are briefly outlined below:
1. Intention Test
Usually this is a simple review of the written agreement between the parties.
2. Control vs Independence
The greater the level of control exercised by the employer, the more likely the relationship is to be that of employment.
3. Integration Test
Usually, a contractor's work is only a supplementary part of the employer's business — ie, the more integrated and reliant an employer is on a contractor, the more likely the relationship is one of employment.
4. Fundamental/Economic Reality Test
A contractor is a person in business on their own account — therefore this test considers the total situation of the work relationship.
Note, Uber has indicated it will appeal the recent judgement.
If you contract people in your business, it is important that you periodically review the relationship to ensure you are treating it appropriately; and seek advice if you have any concerns. For advice or guidance, contact me on
■ Vlad is a human resources and employment relations consultant with Business Central, which provides professional advice on employment and health & safety issues for organisations of all sizes and sectors.