Lawyers are questioning exactly how legislation to prevent contractors from challenging their employment status could be applied, given the multitude of contracts already entered into.
In the coming weeks the public is expected to know more about what the Government’s plans are for contractor law reform.
The Workplace Relations Minister Brooke van Velden said more details about the work programme would be released soon.
“I’ll be releasing more details about the specific work programme in the coming weeks. I expect to have a lot of work with the priorities over these next three years but you can be absolutely assured the work is going to be underway soon.”
Van Velden has promised to give businesses and workers certainty about the nature of their relationship.
“I have asked my officials for advice on policy options to increase certainty in contracting relationships,” she told the Auckland Business Chamber earlier this month.
“I want to achieve certainty for contracting parties, so that their intent when entering into a contract for services is upheld.”
The National-Act coalition agreement is far more straightforward:
“Contractors who have explicitly signed up for a contracting arrangement can’t challenge their employment status in the Employment Court,” the deal reads.
However, Dentons Kensington Swan partner Charlotte Parkhill said the promise had generated a lot of discussion in the legal sector about how exactly such a piece of legislation might be drafted.
“Because usually when legislation is passed it’s forward-looking only, it doesn’t have retrospective effects. So if that was the case with this legislation it wouldn’t really fix what the Government wants to fix, which is the uncertainty.
“Because all those contracts that are still out there would still be subject to challenge if it wasn’t backwards-looking so the Government is going to have to give that some thought.
She said it was problematic for legislation to affect things that had already happened.
“Like a contract that’s already been entered into … that would be unusual.”
A number of cases have so far been before the courts to challenge the employment status of a person.
Last year Gloriavale ‘volunteers’ were found to be employees; in 2020, courier driver Mika Leota was found to be an employee not a contractor – despite signing an agreement that he was a contractor – and last year four Uber drivers were deemed also to be employees of the ride-share company.
In all cases the determination focused on the “real nature” of the relationship.
A development of the case law has seen a ‘four test’ approach to ascertaining whether someone is a contractor or an employee, and looks at the intentions of the parties, the level of control, the economic realities of the deal and how integrated the worker has become to the company.
The Act Party campaigned on these changes and before the election said they were necessary because businesses were afraid to offer contractors benefits that may lead them to believe their status was more akin to an employee.
It called the Uber decision “the most egregious example of a rogue Employment Court decision”.
The Uber case was appealed and heard in the Court of Appeal last week, with the decision reserved.
Lawyers argued the level of control Uber had over the drivers was not significant, that drivers knew what they were getting into and any benefits or incentives offered were not a form of control either.
Act’s policy document makes mention of “independent contractors” being unable to challenge their status, but nothing on “dependent contractors”.
It said there must be a written agreement confirming this, the person must be given sufficient information and an adequate opportunity to seek advice before entering into the contract, and the person must be able to work for other businesses, including competitors.
Workers could take action if these rules were breached.
Parkhill said it was not totally clear what a change in legislation could mean for the pending judgment.
“Obviously, if the judgment is contrary to the legislation … then the legislation overrides it but it depends on what the court finds as well.
“If we hear from the Court of Appeal, and then let’s say, five days after that new legislation comes out, the question is whether it would have retrospective effect or not.”
She said the legislation could work but would need to be exceptionally well-drafted with regard to who it applied to and whether it would be retrospective, and it would need to contain exceptions for exploitation.
“The legislation would work if everybody were a great ethical business that implemented that law in a very ethical way … but we all know that probably won’t happen.
“The issue with a wide-ranging piece of legislation like that, as you know, some of the cases that have come before the chief [Employment Court] judge have involved vulnerable workers. Think about Gloriavale, what a travesty that would have been if they had called those women and men contractors and they had no rights … that just defies belief.
“For me, the Government is going to be very careful when it drafts that there are exceptions.”
She said that could potentially include an income threshold, a requirement for legal advice to be offered if entering into a contractor agreement or a plain English clause.
“I’m just throwing words out here, but say someone earning $120,000 a year cannot challenge the contractual status, for example, because chances are they have got some sort of knowledge about what they’re entering into, they’ve got the money to pay for a lawyer, all that kind of stuff.
“Whereas somebody who’s earning just above or even below the minimum wage, it is a little bit of a nonsense to say that person can go and get legal advice … and what if they’re a new migrant? They won’t really know what they’re getting into.”
James Fuller, chief executive of Hnry, a company that does taxes for freelancers and contractors, said the pay rate appeared to be the sticking point for contractors who challenged their status.
“The problem we’re trying to solve here is the subset of self-employed people who are working in the gig economy and a subset of those that derive all of their income from one particular platform and the subset of those that consider themselves to be dependent.
“Those are the people who are most vulnerable to being paid under the minimum wage, which is why quite a few of them are now starting to say, ‘well hang on, we don’t earn income from anywhere else, we’re not able to set our prices, perhaps we are effectively employees’.”
He said broad-brush legislative change was not the solution to a nuanced problem, for a relatively small number of self-employed workers.
“The difficulty we have is that often, particularly from government, [contractors] just get swept up into this one big, amorphous blob, that they can try and run a policy lens over rather than being very specific.”
He said if anything should be legislated for it could be fair pay rates no matter what type of contractor someone was.
“The right way to solve this problem is actually to ensure there are minimum wage rates or equivalent wage rates for people in those dependent positions who are at the lower end of the income spectrum anyway, and therefore deserve the most amount of support rather than cutting them off from any opportunity to raise themselves up the income scale.”
