Employment Court rules in yet another employee-contractor case

By Diana Clement

The way the judge has written this, it applies to every worker in New Zealand. She is the chief judge. This is the second time she has written a very clear judgment about the legal test and how s 6 is to be applied

A just-released Employment Court decision classifying a builder as an employee, not a contractor, should apply to every worker in New Zealand, says employment lawyer Garry Pollak.

Pollak, who acted for builder Ross Barry in his claim against CI Builders Ltd (CIB), is calling on the IRD to take note of the decision. And so too should the Department of Labour, says Amalgamated Workers Union secretary Maurice Davis.

Employment Court chief judge Christina Inglis earlier this week ruled in Barry’s favour, saying the actual nature of the relationship was one of employment, even though Barry had accepted the job as an independent contractor.

The decision comes hard on the heels of a similar case, Leota v Parcel Express Ltd, where a courier driver, also represented by Pollak, argued successfully that he was an employee and not a contractor.

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 Barry and Leota, Pollak says.

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. And as contractors, these workers cannot raise a personal grievance against their employer if they believe they’ve been unfairly dismissed.

The situation will become worse with enhanced sick leave shortly to come into force and a new Matariki holiday, says Pollak.

“This is a huge story. And it is a terrible indictment on our government. Inland Revenue should have been enforcing employment agreements, like Leota and like this, because they are illegal. They should be pursuing businesses for PAYE, and they’re not doing it.”

Davis, who gave evidence at the hearing, says the Department of Labour should be acting on sham contracts that are rife in building and other industries.

The case centred on s 6 of the Employment Relations Act 2000, which sets out the meaning of an employee. Judge Inglis noted that s 6(3)a, b, consider labelling and intention, but both are part of the section s 6(2) real-nature-of-the-relationship puzzle. “If it were otherwise, the underlying purpose of s 6 in particular, and the objectives of the legislation more generally, would be undermined.”

The facts

Barry had been out of work for three years when he met CI Builders’ owners Cameron Ireland and Rachael Newnham and agreed to be engaged as an independent contractor and worked fulltime for the company. Judge Inglis ruled that the contractor label ascribed to Barry’s status did not accurately reflect the real nature of the relationship.

Pollak noted the disparity of bargaining power between the business and individual worker in the Leota and Barry cases. “That’s not real equality of bargaining,” he says.

In court both sides referred to the usual indicia for determining employment status which were set out in Leota. Answers to some of the questions cited in the decision included: that CIB had the right to exercise detailed control over the way Barry’s work was performed; he was integrated into the organisation; given his hours at CIB and his childcare arrangements, it was unrealistic for him to work for others; he could not subcontract or delegate work to others; tax was deducted from his pay at source; he 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; and the business goodwill accrued to CIB.

CIB, whose builds have won awards, had also claimed a Covid-19 subsidy for Barry, although this was said in court to be a mistake.

The ruling

Although the judgment technically only applies to Barry, it has precedent value, says Pollak. “The way the judge has written this, it applies to every worker in New Zealand. She is the chief judge. This is the second time she has written a very clear judgment about the legal test and how s 6 is to be applied.”

Even so, employers will not give up on contracting arrangements overnight. “What they’re going to do is say ‘well this decision only applies to [Barry or Leota] and if anybody questions that I’ll deal with it when they question’.”

Leota had some positive benefits for other couriers even if it wasn’t a precedent. That Leota was earning less than the minimum wage was one important factor in proving he was an employee and not a contractor. “I do know anecdotally, after the Leota judgment, many courier companies increased their pay rates,” says Pollak. “So, if some smart aleck courier like Mr Leota comes along, the consequences for [companies] won’t be as severe.”

Although the court found in favour of Leota and Barry, Pollak lost a similar case relating to Uber driver Atapattu Arachchige. “I think the Uber one was just plain wrong,” he says, noting it was not presided over by the chief judge. 

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