Despite 'contract arrangement,' ERA looks beyond agreement among parties
The Employment Relations Authority (ERA) recently dealt with a case involving a dispute over employment status. The case centred on whether two individuals were employees or contractors.
The workers, a married couple, argued that despite signing a “contract agreement,” they were effectively employees of the farming company.
They claimed the contract was "a total sham" and that they had lost control over the farm operations shortly after starting.
The couple also pointed to instances where they believed the employer had exercised control over their work, suggesting an employment relationship rather than a contractor arrangement.
Employee or contractor?
The ERA was asked to determine if the couple were employees of the farming company or if they were operating as contractors through their own company. This distinction is important as it affects legal rights and obligations under New Zealand employment law.
The couple had signed a contract milking agreement (CMA) with the farming company for a one-year term from 1 June 2023 to 31 May 2024. The agreement specified details such as the number of cows to be milked, payment rates per kilogram of milk solids, and performance incentive arrangements.
The farming company argued that the CMA clearly established a contractor relationship. The couple, however, claimed they were effectively employees despite the contract's wording.
Determining an employment relationship
To make its determination, the ERA applied the test outlined in Section 6 of the Employment Relations Act 2000. This test requires consideration of all relevant matters to determine the "real nature of the relationship."
The ERA first looked at the intentions of both parties when entering into the agreement. The evidence, including the CMA itself and the invoicing arrangements, suggested that both sides intended to create a contracting relationship rather than an employment one.
The ERA noted: "The CMA, submissions for both [the couple] and [the farming company], and invoicing arrangements all strongly support a conclusion [the couple] and [the farming company] intended the relationship between [their company] and [the farming company] to be for a contract for services between two companies rather than an employment relationship."
Employer’s alleged control and integration
Another key factor in determining employment status is the level of control exercised by the engaging party and the degree of integration into their business.
The ERA examined evidence from both parties regarding the level of control exercised on the farm. The couple described issues arising early in the relationship, stating, "This was supposed to be our own business we had spent months setting up for only in the first month losing all control over the farm over a personal issue between staff."
The farming company, on the other hand, argued that the couple "enjoyed a high level of control over their own arrangements for managing the Farm and herd, as anticipated by the [CMA]."
They acknowledged making arrangements to cover the couple's absence from the farm and interacting with other workers once the couple had been given notice, but said this was within their contractual rights.
Regarding integration, the ERA accepted the farming company's argument that: "Although the services provided by [the couple's company] contributed to [the farming company's] core business – the production of milk solids for sale – the way the relationship worked, the low level of direct involvement of [the farming company], and the apportionment of significant cost and risk to [the couple's company] meant that [they] were not closely integrated into the [farming company's] business, in the way that they would have been had the relationship been one of employment."
‘Fundamental test’ of employee relationship
A crucial aspect of the ERA's decision was the application of the "fundamental test," which examines whether a person is effectively working on their own account or as a separate business entity.
The ERA found that the couple had made significant investments in setting up their own business.
The couple's submissions described "setting up for the new business" and stated "A lot of work went into setting this business up" and "The Contract was of significant financial gain."
This aligned with the intention to enter into a contracting relationship and the couple's expressed view that they were establishing their own business. The ERA did not find evidence that this intent changed during the relationship.
After considering all relevant factors, the ERA concluded that the couple were not employees of the farming company but were engaged as contractors through their own company.
This meant that the ERA did not have jurisdiction to consider the other issues raised by the couple regarding the ending of their contract.
The ERA said the importance of looking beyond the contract itself: "As the Act makes clear, the fact that a working relationship is described in a particular way is not to be treated as determinative. That largely reflects a Parliamentary acknowledgement of the dynamics inherent in workplace relations, and the vulnerabilities of some workers."
The decision also underscores that each case must be assessed individually: "Whether a particular worker is an employee is an intensely fact-specific inquiry."
Finally, the ERA noted the broader implications of employee status: "Employee status is an important issue. It provides gateway access to a range of statutory entitlements, including minimum wages and holiday pay, redundancy, parental leave, KiwiSaver contributions, and the personal grievance procedures and remedies provided for under the [Act]."
This case serves as a reminder for businesses to consider the nature of their working relationships. It highlights the importance of ensuring that contractual arrangements accurately reflect the intended relationship and are consistently applied in practice.
