News & Thinking

Are you an independent contractor or an employee?

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Kathryn McKinney
Partner

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Kathryn McKinney


The test to determine whether a worker is an employee or a contractor is well established, and it requires a focus on the real nature of the working relationship. In practice, this test assesses the intention of the parties, the level of control that the business has on the worker, the level of integration of the worker into the business, and look at the economic reality of the relationship. However, despite the comprehensive nature of the test, workers are still frequently misclassified as contractors, when in reality they should be considered employees.

Facts

Leota v Parcel Express Limited looks at this very issue. In this case, Mika Leota (Mr Leota) applied to the Employment Court (Court) for a declaration that he was an employee of Parcel Express Ltd (Parcel Express). In opposition, Parcel Express argued that Mr Leota was an independent contractor.

Mr Leota was a courier driver for Parcel Express. When Mr Leota was engaged, Parcel Express told him that he would need to buy his own van but that the van would need to have the company’s branding on it. Before commencing work, Mr Leota was required to buy the van, pay for the branding of the van and pay the company a bond of $2000. Mr Leota was told that he would “be his own boss” and was given a contractor agreement to read and sign. The Court notes that Mr Leota was not told to seek advice on the agreement and any other documents.

Arrangements were made for Mr Leota to buy a van and Mr Leota paid a portion of the purchase price. The agreement was that the vendor would remain the owner of the van, Mr Leota would be able to drive it, and Parcel Express would make monthly deductions from Mr Leota’s pay to cover the remainder of the purchase price, over a period of 10 months. When Mr Leota started working he was required to wear the company uniform, work when and where the company needed and in the company’s best interest, comply with the company’s procedures and policies, and with the CEO’s directions, have his run boundary set by the company, and agree to holiday restrictions and relevant standards of work.

Analysis

When analysing the relationship, the Court made a well worded distinction; “An employee is someone who works for the employer, within the employer’s business, to enable the employer’s interests to be met. An independent contractor is an entrepreneur, providing their labour to others in pursuit of gains for their own entrepreneurial enterprise.”

The Court then carried out an assessment of “all relevant matters” within the relationship and noted the following:

  • Control and integration: Parcel Express exercised all control over the time and boundaries of Mr Leota’s runs every day, and his leave arrangements. Additionally, Mr Leota had to wear a Parcel Express uniform and his van was branded with Parcel Express signage. The Court concluded that Mr Leota therefore did not have any real autonomy over his work.
  • Industry practice: The Court took industry practice into consideration but cautioned that this factor should be approached with care. This is because “(t)he mere fact that an industry considers that its workers are engaged as independent contractors cannot, of itself, be enough.” There still needs to be an assessment of all other factors in the relationship. In this case, the Court found that Mr Leota had not known both the industry practice, nor that he was being engaged as an independent contractor.
  • Economic reality: The Court found that Mr Leota was not working for himself and that he had no real freedom to grow his business. In making this finding, the Court considered that because Mr Leota’s van was branded with a Parcel Express logo and was occupied five days a week, there was little to no opportunity for Mr Leota to grow his business for his own personal benefit.
  • Other factors: English was Mr Leota’s second language and he did not fully understand the terms of the agreement that he entered into with Parcel Express.

 Held

Based on the above factors, the Court held that Mr Leota was an employee, and not a contractor, of Parcel Express.

 What does this mean for employers?

When engaging independent contractors, it is essential that businesses carry out a thorough analysis of the real nature of the relationship. It is not enough to only look at the label given to the relationship, written agreements, and industry practice as these are not determinative factors. The assessment must take into account all factors of the relationship as the Court did in the above case.

A thorough initial assessment is the best course of action to avoid litigation over employment status determinations, which may result in expensive proceedings and the business being liable to compensate for a range of minimum employment entitlements, that should have been offered to the  employee in the first instance.

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