Clarity ahead over status of contractors?

Workplace Relations and Safety Minister, Hon. Brooke van Velden announced last week upcoming changes to the Employment Relations Act to provide greater certainty for independent contractors and businesses.

Minister van Velden said: “These changes to legislation are necessary to ensure businesses and workers have more clarity from the start of their contracting arrangement.” This had been advocated for by the ACT party in its coalition agreement, and will be welcome news for many employers, following the Court of Appeal’s recent decision in the Uber case.

The proposed changes to the Employment Relations Act will include the introduction of a “gateway test,” which the Minister says will assist employers and the Employment Relations Authority in responding to an employment status claim.

The way the test will apply is that if the working arrangement meets the four factors set out below, then the worker will be considered a contractor (and will have no right to challenge this in the Authority). If one or more of these factors is not met, then the worker will be able to proceed with a claim, and the existing tests will apply. The four factors are:

• A written agreement with the worker, specifying they are an independent contractor.
• The business does not restrict the worker from working for another business (including competitors).
• The business does not require the worker to be available to work on specific times of day or days, or for a minimum number of hours Or the worker can sub-contract the work.
• The business does not terminate the contract if the worker does not accept an additional task or engagement.

Existing tests for independent contractors

To determine whether a person is genuinely engaged as an employee or independent contractor, the Authority or Court commonly applies the following tests:

• The "control" test: This test looks at the degree of control or supervision exercised by the employer over the individual's daily work.
• The "integration" test: This test considers whether the work performed by the alleged employee is an integral part of the business and whether he or she has effectively become "part and parcel of the organization."
• The "fundamental" or "economic reality" test: The question under this test is whether the alleged employee is engaged to perform the services as a person in business on their own account.

The level of uncertainty around independent contractor status has been amplified by the recent Uber decision of Rasier Operations BV v. E tu Inc [2024] NZCA 403. The Court of Appeal upheld the Employment Court’s decision that four Uber drivers were employees and not independent contractors. Although the Court of Appeal adopted a different approach to the Employment Court, it ultimately reached the same conclusion.

The Court of Appeal focused on the significant control that it found the ride-share app held over its contractors and specifically noted that any contractual arrangement purporting to recognise the contractor as independent was not definitive of the true nature of the relationship. However, under the proposed gateway test, a written agreement specifying the relationship being that of an independent contractor would be highly relevant to this assessment, and considerations such as influence and control would arguably not form part of the criteria in this preliminary stage. It’s reasonable to conclude that the Court’s decision in the Uber case might have differed had the proposed gateway test been in place.

Applying gateway test in practice

If the new test is implemented, any employer who intends to engage a contractor should have the “gateway test” factors front of mind. Unlike the current case law, having a written agreement that specifically identifies the worker as an independent contractor would be a determinative factor. Employers should also ensure that there are no restrictive terms within an agreement stopping the worker from taking on additional work and maintaining flexibility with working arrangements.

It is expected that the Employment Relations Amendment Bill will be introduced in 2025.

Bronwyn Heenan is a partner at Simpson Grierson in Wellington, practicing in all employment law matters with a particular expertise in disciplinary and termination matters. John Rooney is a partner at Simpson Grierson in Auckland, specialising in employment law and health and safety. Special thanks to Gioja Buckleton and Ngahuia Muru for their assistance in writing this article.