Prime Minister Chris Hipkins has frozen a long-running law reform package intended to address the issue of workers being misclassified as contractors and thus denied basic rights and protections under employment law.

Hipkins announced the decision as part of his second policy purge, which also included binning the clean car upgrade programme, narrowing the scope of highway speed reductions, and canning a proposed bottle return programme.

He claimed the Government was “deferring” consultation on a new legal test to determine who is a contractor and who is an employee because of the “significant” implications of last year’s Employment Court ruling that four Uber drivers were employees  He said the Government was putting the work on hold until “all appeals of the case are heard”.

Given that “all appeals” of the high-stakes Uber case may well take years and reach the Supreme Court – as did the landmark 2005 case of James Bryson, a Lord of the Rings model-maker – Hipkins’ explanation for sidelining the reform doesn’t pass the sniff test. Far more likely is the concern that any significant employment law reform, in conjunction with the first Fair Pay Agreements grinding their way through the system, will invite attack from a business lobby he wants to appease.

The union movement, which has fought a rearguard action for decades against the creep of “self-employment” into sectors such as transport, building and cleaning, had no prior notice that the reform package was being tossed aside.

Michael Wood, the Minister of Employment Relations and Safety, had initially promised to release a proposal for public consultation by the end of last year. However his office has repeatedly insisted that despite the delays, the work was ongoing, telling Newsroom as recently as early February that the Government was finalising a set of proposals for consultation.

While Hipkins claims the policy clear-out is to enable the Government to focus on “bread and butter” issues, Council of Trade Unions secretary Melissa Ansell-Bridges points out that bread and butter is at the heart of the concerns of vulnerable contractors. “Many contractors in New Zealand end up earning well below the minimum wage,” she said. “That is an unacceptable and untenable situation, especially in the midst of a cost-of-living crisis.”

The practice of low-paid workers being treated as self-employed contractors is widespread across the courier, residential construction, silviculture and cleaning sectors. Contractors in these industries are commonly entirely dependent on one “client”, are barred from working for others, and have their hours and other aspects of their work controlled entirely by the company they work for. It’s not uncommon for the “client” to write the invoices for the worker, or for there to be no invoicing at all.

Because they are treated as self-employed, they miss out on basic employment rights, including the minimum wage, annual leave, sick leave, Kiwisaver contributions and legal redress for unjustified dismissal.

The situation facing dependent contractors has been extensively explored through legal challenges, including the recent cases of courier driver Mika Leota and builder Ross Barry, both of whom were found by the Employment Court to be employees, and not contractors as claimed by the companies they worked for.

A tripartite working group, which included Business New Zealand, the Council of Trade Unions and government officials, reached strong consensus early last year on the situation facing dependent contractors. The group’s final report to Wood acknowledged that “unlawful classification practices” occurred, and that the Employment Relations Act needed to be reformed to create a much clearer distinction between workers “genuinely in business” on their own account, and those who were not self-employed in any meaningful sense.

The report found the contractor model was “entrenched” across many businesses, to the point that employment models were “rarely used”. Workers in these industries had no choice but to sign on as contractors and work without the protection of basic rights.

The tripartite group found that in sectors such as the courier industry and residential construction there was a “systemic power imbalance” that workers were unable to challenge.

It found many contracting arrangements had the effect of transferring business risks from the hiring company to the worker, without adequate compensation for those risks. For instance, courier drivers were required to pay to replace goods that were rejected by the recipients, and contractors in the building industry often had contracts that allowed work to be cancelled or withdrawn without any compensation. Workers were often drawn into contracting arrangements without being given the full picture of costs and benefits.

In many cases there was no negotiation between “client” and “contractor”, with companies using standard-form contracts that “disproportionately favoured the hiring entity”, the tripartite group found. One-sided contracts were common, with clauses allowing the hiring company to terminate without cause, unilaterally alter the terms of contract, and force the worker to purchase supplies from the company.

A survey of contractors by the Ministry of Business Innovation and Employment found three-quarters were dependent on a single “client” company. The survey, carried out in 2019-2020, found 84 percent of courier drivers worked more than 45 hours a week but more than half didn’t make enough money to meet their everyday needs. Of the rideshare drivers surveyed, 56 percent didn’t make enough to meet everyday needs; and among cleaning contractors, 35 percent didn’t make enough to cover everyday needs.

Extremely low pay and dangerously long hours of work is also a theme in the long-running issue of courier drivers with the UAE-based company Aramex, as reported by Newsroom.

The situation of two Aramex workers who filed legal action with the Employment Relations Authority seeking to be classified as employees also illustrates the failings of the current legal set-up. Even though the workers would highly likely have met the key legal tests to be deemed employees – the key factors being the level of control exerted by the hiring company and the extent to which the workers are integrated into the firm – they withdrew their action after receiving payouts from Aramex.

Unless another worker lines up to mount an equivalent challenge, the company is at liberty to continue treating all its drivers as contractors.

Under the law as it stands there are no guardrails protecting workers from being treated as contractors. It’s up to them to either leave and find another source of income (not easy when, in many cases, they have invested in franchises and vehicles, and where contracting is standard practice across their industry), or find the wherewithal to mount a legal challenge.

It’s understood that Wood’s preferred approach to reform was to introduce a new legal test that would focus on whether a worker was really in business for themselves, and which would have introduced a presumption that workers in certain sectors were employees, with the onus being on the business to prove otherwise.

Despite the central role played by Business New Zealand’s Paul Mackay in the tripartite working group, Hipkins would have been well aware that this would have offered little protection against a backlash against Wood’s proposal – particularly from critical sectors like transport and construction in which the contractor model is firmly and widely embedded.

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