A new employment court finding further explores the commonly vexed question of when a contractor may actually be an employee. Leota v Parcel Express Ltd concerns a courier driver who has been engaged as a contractor but argued that he was not “in business for himself” as an independent contractor, rather he is actually an employee of the company. Whilst this judgement is fact-specific and does not mean that all courier drivers in New Zealand are employees, Chief Judge Christina Inglis conducts an in-depth analysis that sheds light on the real test – asking “what is the real nature of the relationship?”

Employee vs independent contractor

The distinction between an employee and independent contractor is that an employee works for the employer, within the employer’s business, to enable the employer’s interests to be met. An independent contractor is an entrepreneur that provides labour to others in order to achieve gains for their own enterprise. They are in business for themselves.

The case

Mr Leota (Leota) was recruited to be a courier driver for Parcel Express Ltd (Parcel Express) after an employee of Parcel express who was also a member of his local church encouraged him to consider working for the company. Leota was engaged and signed a contract which described him as an independent contractor. Leota worked for Parcel Express for about a year and only stopped working after Leota began to have concerns about payment.

When determining the real nature of the relationship, Inglis J considered the degree of control Leota had over his business, the relevance of industry practice and the economic reality of the arrangement.

The “degree of control” exerted by the principal is an important factor in determining employment status. The court has previously said “the greater degree of control stipulated by the contract…the greater the risk that it may cross the boundary line and become a contract of employment”. When considering a variety of factors, the Court determined that Parcel Express exerted a high degree of control in relation to Leota’s work and this left Leota with no autonomy over his own business and work.

When discussing industry practice, Inglis J indicated that a cautious approach must be taken and that it is not enough that an industry considers it workers are engaged as independent contractors. If Parliament had intended courier drivers to be categorised as independent contractors, they would have specified it under the Act. The fact that English was Leota’s second language and he had no knowledge about what the industry practice meant that it was not realistic to look to industry practices in this case, as it would not have been known or understood by Leota when entering the contract.

The court also considered the economic reality of the relationship and determined that Leota was unable to grow his business due to the restrictions and conditions imposed by the contract. These conditions were found to benefit Parcel Express and grow their company, not Leota’s.

All in all, Inglis J weighed up the facts and found that Leota was indeed an employee of Parcel Express and was not in business of his own account. The fact he was labelled an “independent contractor” and even acknowledged he had been informed he would be “his own boss” was just one consideration and not enough to tip the scales sufficiently.

To read the full case click here or you can access our case summary here to read more about the finding.

When it comes to working and COVID-19, businesses have had to navigate the obstacles and new requirements that come with Alert Level 3. Over the past couple of weeks, we have been assisting and supporting clients manage their workplace and deal with the tough COVID-19 questions. We would like to share our top 4 commonly asked questions from April that may help your business adjust to the “new normal” and weather the lockdown period.

Do businesses have to pay the wage subsidy back to MSD if an employee resigns during the 12 week period?

If the employee voluntarily leaves/resigns, then a business does not have to pay back the subsidy to MSD. You are however required to notify MSD that this employee has left. As the intention of wage subsidy is to pay wages, not other business expenses, it is our view that you would be required to use the remaining portion of the subsidy to pay other staff.

Do you have to pay employees if they refuse to return to work?

Firstly, you would need to understand why an employee is refusing to return to work. If they have health and safety concerns about returning to work, then these will need to be understood and worked through with the employee. If they are refusing to come to work based on legitimate health and safety concerns, then they may be entitled to receive pay.

If the employee is sick, then they may be entitled to paid sick leave if they have any available. However, if after consulting with the employee, and determining they have no valid reason for refusing to work, then they would not be entitled to be paid.

What are the main health and safety obligations businesses have during this period?

The health and safety obligations for businesses during this period differ depending on the industry the business works in, and will need to be assessed on this basis, including:

All employers operating under Alert Level 3 must have a Covid-19 Safety Plan, outlining how they will be operating safely.

Can I restructure my business during this time? If yes, what process must I follow?

An employer is entitled to review their structures during this period, even if they are receiving the government wage subsidy. Normal employment law obligations still apply, which requires full consultation process undertaken in good faith. A full consultation process requires engagement with employees on a proposal for change that has not yet been decided upon, an opportunity for employees to comment on that proposal, seek independent advice and careful consideration of any feedback received prior to making a decision on how the employer proceeds.

Restructure processes need to be specific to the employer’s individual circumstances. We are happy to provide more guidance on this.

If you need more information or guidance on how to navigate Alert Level 3 and Covid-19, get in touch by clicking here.