Authority examines parties' relationship using 'fundamental test'
The Employment Relations Authority recently dealt with the dismissal claim of a worker who said she was an employee despite the absence of a written contract.
The worker, Emma McCloy, was employed at KPL Engineering and Contracting Limited (KPL) from October 2019 to January 2021, primarily involved in mowing activities at a South Island milk processing plant.
Following the loss of KPL's contract for the plant's mowing activities, McCloy said that she was unjustifiably dismissed, faced unjustifiable disadvantages during her employment, and experienced various breaches by KPL, including the absence of an employment agreement, violation of the duty of good faith, and failure to provide entitlements.
Meanwhile, the employer argued that McCloy operated as a contractor, not an employee, and disputed her claim of termination.
Both parties acknowledged the absence of a written agreement outlining their terms, with KPL emphasising the informal, verbal nature of the engagement.
‘Considered self-employed’
According to records, McCloy submitted that she initially joined KPL for a short-term commitment, but it extended into a permanent arrangement. According to her, a member of the management mentioned "they were considered self-employed, and that was the extent of the discussion."
During an investigation meeting, McCloy affirmed that the work was presented to her as "full-time contracting, responsible for her own taxes."
When the Authority asked to clarify, McCloy said that the "discussions about her employment were brief, focusing on the contracting nature of the work."
Additionally, when the Authority asked why "she believed she was an employee," McCloy "openly stated that when she raised concerns about her pay and received communication from the Inland Revenue Department (IRD) regarding unpaid taxes, her representative, expressed the view that she was not considered self-employed."
Employee or contractor?
The Authority said that the assessment of whether McCloy operated independently or as part of KPL involves key considerations such as the ability to subcontract or delegate tasks, provision of tools and equipment, payment structure based on task completion or hourly work, or exposure to risk or profit opportunities.
It said that the nature of the parties’ relationship must be examined through the “fundamental” test. “The fundamental test examines whether a person is working on their own account or acting as a separate business entity.”
“Indicators of a person being in business on their own account can include the ability to sub-contract work or delegate performance to others, the provision of tools and equipment, whether payment was based on task completion rather than time worked, the presence of risk or opportunity to make profit, and who business goodwill accrues to,” it added.
“The evidence of invoices, for the period that they were submitted by McCloy, and her statements that she recorded hours worked and then sought payment for those, supports that payment was for time worked rather than strictly task completion.”
“This could suggest the real nature of the relationship being employment, however, when viewed against the evidence that McCloy could choose which tasks to undertake from the list of tasks to perform at the milk processing plant and was not required to account for when she performed those tasks, such [is] also consistent with a labour-only contracting relationship.”
“When the relationship is assessed in terms of the fundamental test, this is consistent with the parties’ acknowledged intentions that McCloy was a labour-only contractor rather than employee,” it said. Thus, the Authority said that the worker was a contractor and wasn’t employed by the company. It then dismissed her claim against the latter.
