ACT proposes exclusion of independent contractors from 'employee' definition

New Zealand's ACT Party is seeking the removal of independent contractors from the definition of an employee in a bid to prevent potential legal challenges on employment status in the future.

"ACT is proposing to amend the Employment Relations Act to exclude independent contractors from the definition of employee so contractors who have explicitly signed up for a contracting arrangement cannot challenge their employment status in the Employment Court," ACT Leader David Seymour said.

Under the reforms, an individual should be clearly classified in contract as an independent contractor who will not have access to full employee rights. Other proposed changes include the introduction of the following minimum standards involving contracts:

• Workers must be given sufficient information and an adequate opportunity to seek advice before entering into a contract
• Agreements must not restrict a worker from performing services or work for other businesses, including competitors, or engaging in any other lawful occupation or work, except during the time from which the person commences a specified task provided by the business or undertaking until that task is completed
• The business cannot terminate the contract of the person for not accepting a specific task
• The business must keep records in sufficient detail to demonstrate that it has complied with minimum entitlement provisions

"A contractor who believes the terms and conditions of their contract are unfair has recourse under the Fair Trading Act which deals with unfair contract terms. If the business has not satisfied these basic conditions, the worker can challenge their employment status under the Employment Relations Act," Seymour said.

Provide legal certainty

The proposed changes aim to give certainty to workers and businesses entering a contracting relationship, according to Seymour, who pointed out that legal status quo is enabling independent contractors to challenge their employment status if they believe they should be classified as employees.

Four of Uber drivers were classified in 2022 as employees by the Employment Court, a landmark ruling that Uber was recently granted the right to appeal.

If the Employment Court's decision is upheld, it will have "knock on effects" for businesses relying on contractors, according to Seymour.

"Some businesses will not be able to continue if they are required to hire employees, and the status quo is creating uncertainty," he said.

Seymour added that the proposal will also give employers confidence to offer better benefits to contractors without risking employment challenges.

"Most importantly, this change will protect choice and the freedom to contract that should be the foundational principle of our employment relations law," he said.

New Zealand's Tripartite Working Group on Better Protections for Contractors in 2021 recommended reforms to establish stronger distinction between employment and self-employment status in law.

Agreement from businesses

BusinessNZ, a member of the Tripartite Group, welcomed ACT's proposal as it underscored the need for such legislation.

"Changes in employment practice resulting from flexible working routines and new technologies including app-based contracting mean a better legislative distinction between contracting and employing is needed," BusinessNZ Advocacy Director Catherine Beard in a statement.

"This is an area where employment law is significantly lagging behind employment practice."

'A terrible position'

Meanwhile, private sector union E tū slammed ACT's proposal saying it puts people in a "terrible position."

Annie Newman, E tū assistant national secretary, said recent legal cases on independent contractor's employment status call for reform that "better reflects the changing world of work."

"Instead, the ACT Party are proposing the opposite – locking workers into these exploitative arrangements without any recourse. It's a terrible position that will bed in the worst outcomes for many people," Newman said in a media release.

There are nearly 144,000 New Zealanders who work as self-employed contractors, or over five per cent of all employed people, according to Stats NZ in 2019.