Is your contractor really an employee? A gateway test is on the horizon

You may have read in the media over recent months about the case taken against Uber where 4 drivers who were engaged as contractors were held by the courts to in fact be employees. An appeal by Uber was dismissed upon appeal.

More details on this case here.

This decision looked to provide further clarity on how the courts will assess whether a contractor is, in all but name, in fact an employee.

To create clarity on this matter, government is proposing a new gateway test through an amendment to the Employment Relations Act.   This gateway test would be used by the Employment Relations Authority when facing a claim by a worker that they are an employee, not a contractor.  A worker may wish to raise such a claim if the believe they are, in all but name, an employee and have missed out on minimum employment rights, for example, minimum wage, annual leave, and all other benefits afforded to employees.

what does this mean?

If the new test is adopted it would mean if you had a contractor who challenged the nature of the working relationship, you'd need to show:

▪ a written contractor agreement was in place
▪ the worker was not restricted from working for others
▪ the contractor is not restricted to working set times, days or for a minimum period OR they can subcontract the work
▪ the business cannot terminate the contract if the worker does not accept any additional tasks

If any of these tests are not met, then the Employment Relation Authority would apply the existing “real nature of the employment relationship” test found in section 6 of the Employment Relations Act, which would also take account of existing case law, such as the Uber case.

what should you do?

This is still at the proposal stage, but it’s worth taking note of it if you currently engage contractors.  At present, there are a number of industries where engaging contractors is the norm, however, it would be unlikely that a challenge would stand up to either the current test OR the proposed new gateway test. 

If a challenge was to be successful this could be extremely costly to a business as they may be liable to make payments for annual leave, any shortfall of the minimum wage, any unpaid taxes to the IRD and any awards made for actions taken (e.g. in dismissal) that do not meet employment law standards.  And that’s not to mention the costs of engaging advice, time out of the business, and stress.  If you find yourself in this position, claiming that “everyone else does it” would have no mitigating effect. 

Help!!

If that sounded complicated, you’re not alone!

For practical advice about how to apply the rules to your business, contact the team at EASI NZ!

Utilising our experience and expertise, together we can find a tailored solution to best meet your individual business needs, reduce your liabilities, and comply with Employment Law.

So perhaps it’s time to reflect – are my contractors really contractors?