trendz - our client newsletter

august 2005

employee v contractor: are you what you think you are?

For years people have been successfully circumventing the employment laws by hiring contractors rather than employees. Or have they?

In Mr Bryson's situation, his employment contract classified him as a contractor, the IRD classified him as a contractor, his invoices to his employer classified him as a contractor and even the Court of Appeal classified him as a contractor. But in Bryson v Three Foot Six the Supreme Court confirmed the Employment Court’s finding that Mr Bryson was an employee. If these factors aren't enough to make Mr Bryson a contractor then what is?

The Supreme Court considered all of the following factors determinative of the real nature of the employment relationship:

• The written and oral terms of the contract;

• The operation of the employment relationship in practice;

• The company's level of control over the person (the 'control test');

• The person's level of integration in the company (the 'integration test');

• Whether the person's was effectively working on the own account or on the company's account (the 'fundamental test'); and

• Industry practice.
  

After careful deliberation, the Supreme Court decided the issue of whether the person is an employee or a contractor is not a question of law but a question of fact and degree, which should be considered on a case-by-case basis.Therefore , an appellant court (in this case the Court of Appeal) is acting outside its jurisdiction if it overturns the court of first instance's decision as to whether the person is an employee or a contractor.

As a consequence, the Supreme Court held they could not consider whether each of the above-mentioned factors pointed towards an employee or a contractor. However they could look at whether the Employment Court correctly followed procedure by taking into consideration all relevant factors and not taking into consideration factors which were not.

The Supreme Court's judgment has created uncertainty aroundthe true status of employees and contractors:

• Whether or not the minimum standards of employment law applies to the employment relationship;

• Whether or not the employer can be held accountable for the failure to meet such standards;

• Whether or not employers are bound by onerous compliance requirements such as OSH;

• Whether or not holiday pay is applicable;

• Whether or not PAYE is applicable;

• Whether or not tax returns are correct;

• Whether or not company financial records are correct;
  

Consequently, employees, contractors and employers now face the risk of having a third party deem their relationship to be something they did not think it was, which can have catastrophic, wide-reaching effects on businesses and people alike.

If you're concerned about you or your business being affected by these risks or would like further advice please contact us at Barbara Buckett and Associates or visit our discussion group.

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Disclaimer: This article is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. Please refer to our Legal Notices.

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