Your rights when independent contract is employment

A recent Employment Court case outcome is a reminder that builders who are on an independent contract – yet are treated like workers – have the same rights as employees  

It’s a situation which has come up repeatedly in Employment Court hearings: people working in various industries – from construction to hospitality – are working for years on an independent contract and only finding out that they should legally be regarded as an employee after they are sacked or made redundant.

A recent Employment Court decision has brought attention to the building and construction industry this time, with the employment court finding in favour of Auckland builder Ted*, who challenged his independent contractor status while working for Building Company 1* (BC1).

As noted by the Auckland District Law Society, Ted was treated as an independent contractor for three years while carrying out building work for the company.

When he was dismissed, Ted went to court to seek a declaration that he was an employee of BC1, so he could pursue an unjustified dismissal case against the company. BC1 tried to say Ted was not eligible to do so as he was not an employee.

Precedent set

Employment Court Chief Judge Christina Inglis disagreed, ruling in Ted’s favour in June, bringing a clear judgement about the legal test for contractor versus employed, as well as a judgement about how section 6 of the Employment Relations Act is to be applied.

She found that Ted’s duties, hours and expectations were all set up as employment, despite being labelled as ‘independent contractor’, due to the following:

• BC1 had the right to exercise detailed control over the way the builder’s work was performed.
• The builder was integrated into the organisation.
• Given the builder’s hours at BC1 and his childcare arrangements, it was unrealistic for him to work for others.
• The builder could not subcontract or delegate work to others.
• Tax was deducted from the builder’s pay at source.
• The builder did not supply his own tools; he did not bear risk of loss in the business or, conversely, have the chance of making a profit;
• The business goodwill accrued to the employer.

BC1 has also claimed a Covid-19 subsidy for the builder, although in court BC1’s representative said this was a mistake.

Problem engrained in NZ

According to employment lawyer Garry Pollak, up to 20% of New Zealand workers – often concentrated in industries such as building, transport, cleaning, security and other services – could be employed on contracts similar to those of Ted.

“Employers do it to dodge the unions and to avoid paying normal employee benefits such as holidays, sick pay, maternity leave and even, at times, the minimum wage,” Pollak told reporter Diana Clement. “As contractors, these workers cannot raise a personal grievance against their employer if they believe they’ve been unfairly dismissed.”

Pollak cautioned that enhanced sick leave and a new Matariki public holiday may worsen pressures on supposed independent contractors who are actually employees. Pollak said Inland Revenue should assist people like Barry because they should be paying PAYE tax.

Pollak told Clement the judgement “is a lesson to those in the building industry that you can’t avoid employment obligations by simply labelling somebody an independent contractor”.

Under Construction has resources to help employers, employees and contractors understand their rights while working in the NZ building and construction industry

Please utilise the following resources:

• Contractor or Employee?
• Employment relationships (obligations, minimum responsibilities and rights).
• Employment law in Covid bubble.

*Names have been changed.