Contractor or employee? The fallout from Leota

By Diana Clement

Courier drivers are rejoicing about a key Employment Court decision that, they say, clarifies their status as employees rather than independent contractors. “Praise be to Allah, Mr Pollak. Thank you for finally giving us a voice,” one of the many said in a call to employment lawyer Garry Pollak following the court’s judgment in Leota v Parcel Express.

The decision – that Mika Leota is an employee of Parcel Express rather than a contractor despite paperwork he signed to that effect – opens the way for other courier drivers to challenge their status in order to gain full employment rights.

Although Chief Employment Court Judge Christina Inglis has been clear that her decision relates specifically to Leota’s circumstances, many lawyers are hailing it as a test case.

The decision will make it easier for anyone feeling he or she is being unfairly categorised as an independent contractor to seek legal redress.

And Pollak has another “contractor” case in his sights. He is acting for an Uber driver who’s seeking to test his status though his claim before the Employment Court has been delayed by the Covid-19 lockdown. The court will decide similar issues to those in Leota. “The question will be whether or not an Uber driver is truly running a business,” Pollak says.

Uber cases are being heard all around the world. In some countries such as the UK there is a third category of worker called a dependent contractor. Even so, dependent contractors are still entitled to minimum standards. New Zealand has s 6 of the Employment Relations Act 2000 (ERA) rather than a middle ground, Pollak says.

For Leota, it has been a long road, reaching right back to the Employment Contracts Act 1991 which led to an explosion of workers labelled as contractors. Since the landmark Cunningham v TNT case in 1993, tens of thousands of New Zealand workers, including courier drivers, security guards, and even actors playing Hobbits, regularly sign agreements that class them contractors, meaning they have few of the rights of employees.

At the centre of the Leota case is s 6. This addresses the meaning of the word “employee” but, in spite of a plethora of cases seeking to test the definitions of “contractor” and “employee”, it had not been fully tested for courier drivers until now, says Auckland barrister Catherine Stewart, the convenor of ADLS’ Employment Law Committee.

Stewart adds that in making her decision, Chief Judge Inglis drew on the Supreme Court’s discussion in Bryson v Three Foot Six Limited (No 2) in deciding how s 6 should be interpreted, particularly in relation to matters that should be taken into account to determine the real nature of the relationship.

The facts

Samoan-born Mika Leota, represented by Garry Pollak & Co, was described in court as vulnerable and naïve. He was recruited at church in 2018 to become a courier driver for South Auckland-based Parcel Express. Leota signed an agreement which referred to him as an independent contractor.

The court heard how Leota had to purchase his own van and pay to have it sign-written. He had to use a route determined by the company and take no more than 20 days’ holiday a year. There were several other restrictions that more closely resembled the conditions of an employment contract than a contracting arrangement, the court heard. Leota’s work with Parcel Express was eventually terminated after a disagreement and eventually, with the help of legal aid, he had his day in court.

An employee?

The chief judge noted the Leota case does not mean all courier drivers in New Zealand are employees. “It makes a declaration of Mr Leota’s status only.” But it is seen by many lawyers, courier drivers, union representatives and others as just that: precedent setting.

“It’s a very salutary reminder that simply because a worker is labelled an independent contractor does not mean they actually are,” says Pollak.

For the drivers, employee status is an important issue, says Pollak. Employees have access to a range of statutory entitlements, including minimum wages and holiday pay, redundancy, parental leave, KiwiSaver contributions by employers, and the personal grievance procedures and remedies under the ERA. Employees can also join unions and engage in collective bargaining.

Parcel Express is a small player in the industry with a minimal number of drivers. In evidence, however, its chief executive John Cole explained he had previously worked at Freightways, New Zealand’s largest courier company, and his systems and practices at Parcel Post were “in most instances” consistent with those of the industry-leading player.

Freightways was sufficiently concerned about the potential outcome of the case that it applied, and was granted leave, to appear and be heard as intervener. It argued that the court’s findings could potentially impact on all courier drivers in New Zealand and particularly on its business, since it operated a network of owner-driver contractors.

In his decision about the leave to appear, Judge Bruce Corkill said there was a longstanding, and at that time settled, common law position in New Zealand that couriers were classified as contractors. The judge noted: “Were it to be held the plaintiff was an employee, necessary changes to courier businesses may follow, and affect how services are to be provided to an end user.”

Precedent setting?

Until now, the threshold question of status has been a point of contention and not well addressed, says Pollak. “Contractors are such a huge part of our economy and the practice of avoiding employment obligations has run riot. Very sadly, we have created an underclass of workers labelled independent contractors who are paid poorly and exploited.”

He says the decision has put to rest the oftenquoted Cunningham v TNT case. “This is a particularly well-written judgment – extraordinarily clear and concise in how she so correctly analysed the various legal threads. It is very timely and telling. It reinforces the principle that simply because you label a worker an independent contractor it does not mean in fact and in law that they are an independent contractor.”

Though the chief judge was at pains to point out the facts of the case related to Leota alone and not courier drivers more generally, many lawyers are viewing it broadly.

Stewart, for example, says it is more than a decision about a single worker. “This has been a long time coming. I have to say it is a very strong judgment.” She is in no doubt this is a test case and should make future cases more straightforward. Similarities will be drawn, and it has laid the groundwork for further such employee versus contractor tests in the future.

In particular, says Stewart, the table of indicia included in the judgment strips back to fundamentals the question of whether the worker serves his or her own business, or someone else’s. “That is a fundamental question, although there could still be room for an argument between the parties as to the application of the table or its components.”

Nonetheless it is not a blueprint and each case should be considered in its totality of evidence, she says.

“There are some strong messages being given in this,” says Stewart. “One clear message is that since the enactment of the Employment Relations Act the strict contractual analysis of an agreement is no longer appropriate in the current employment law sphere in New Zealand.

“The chief judge makes a statement that every worker in New Zealand has a statutory right to seek a declaration as to whether they are an employee. These situations are intensely factual so you can’t be more black and white than her Honour has been.”

Vulnerable workers

Leota v Parcel Express is likely to be influential further afield than employment law. It is already being referenced in other cases and is also being noted by policymakers.

The case could lead to better outcomes for groups of vulnerable workers such as Pasifika who figure too rarely in New Zealand’s civil law system, says Pollak. “Civil law is expensive, perceived to be intimidating and often such workers choose to go to their church instead or do not pursue their legal rights.”

The Ministry of Business, Innovation & Employment (MBIE) is working on a project to protect contractors. It is reviewing feedback from the Better Protections for Contractors discussion document and will report back to Workplace Relations and Safety Minister, Iain Lees-Galloway. That report will include options for change and will factor in Covid-19’s impact on workforces and workplaces.

First Union has stepped up its discussions with drivers and courier companies and has reported that following the Leota decision, FedEx New Zealand gave notice to terminate all contracts with drivers, offering them employee status instead, says Jared Abbott, First Union’s secretary for transport, logistics and manufacturing.

Abbott, who was an expert witness in Leota, says the irony that FedEx had merged recently with TNT was not lost on the union.

He says the union will expect drivers to be earning more than minimum wage and is hoping to be able to bargain collectively on their behalf across the industry. The union already has Freightways’ employees working in other parts of the business as members.

The next step for Leota, says Pollak, is to pursue a dismissal case. Leota is seeking holiday pay and the resolution of his personal grievance. The court’s decision to grant him employee status will help to embolden other workers to raise personal grievances, says Stewart.

The parties have 28 days from 7 May to appeal.