Do You Have Independent Contractors and Do You Work in the Construction Industry?

The construction industry often engages independent contractors, rather than employees. There is clearly a need for contractors in the industry, but in some situations, contractors are engaged because they are often seen as easier to engage than employees. This is often because a company can end a contractor's contract by giving notice, contractors do not receive annual leave or sick leave and are not entitled to minimum wage. If you have a contractor who works 40 hours a week, who rely solely on the company for work, cannot choose their own hours of work, then there may be a risk that the relationship could be deemed to be that of employee and employer rather than contractor and principal. The reason this is concerning is that if a contractor is deemed to be an employee, the company may have to backdate payments of annual leave, sick leave and minimum entitlements. Such a decision could be expensive and have significant implications for the workforce and the company.

Recently the Courts considered a number of cases questioning the true nature of independent contractor arrangements. A concerning number of cases found what were labelled as independent contractor arrangements, to be, employment relationships.

Last year, in 2021, the Employment Court in the case of Barry v CI Builders Limited, found that the real nature of the relationship between Mr Barry and CI Builders was one of employment despite the parties signing an independent contractor agreement.

The compelling factors for the Court were that Mr Barry:

• Worked only for CI Builders;

• Worked 40 hours per week;

• Was told where to work and when, he had no flexibility;

• Could not subcontract;

• Had tax deducted from his pay; and

• Did not supply his own tools.

Regardless of what the contract says, the Court will consider the true nature of the relationship. To determine the true nature of a relationship, the Courts will also look at the following factors.

Intention

What the parties intended the work arrangement to be is often the starting point of the Court's assessment. A written agreement such as an independent contractor agreement or employment agreement is often a strong indication of what the parties intended the relationship to be alongside prior communications.

Although intention is indicative, it is not the be all and end all.

Control

The degree of control the company has over the worker's day to day tasks are considered. Whether the company directs what jobs the worker does and when, is an integral indication of the degree of control in the relationship.

Common indicators that help measure the degree of control over a worker can include the use of a roster, and whether the worker needs to request approval for time off. The higher degree of control over a worker, the more likely the worker will be found to be an employee.

Part of the business

Is the worker part and parcel of the business? Factors including the type of work, the duration of work ie whether the job is ongoing or a one-off and whether the worker wears a company uniform and uses company equipment are all considered.

A Court will often look through the lens of a member of the public and determine whether the individual would see the worker as a part of the business. If so, this is a persuasive factor that the worker is an employee.

Alternative work and cover

Whether a worker is able to work for other businesses alongside their duties and the ability to subcontract and delegate work are factors considered by the Courts. If a worker is unable to work for another company and unable to delegate work to others, it is indicative of an employment relationship.

Nature of business

The general nature of business such as whether the worker is at risk of loss, has the ability to make a profit in addition to their usual pay and whether they can accrue any good will is a determinative factor. The further removed from the business and its operations, the more likely the worker will be found to be a contractor.

Standard industry practice can also be taken into account

Many contractors in the construction industry are dependent on one company for their work, the company stipulate the days and hours they work, the company provides the tools, and in reality the contractor has no time to work for anyone else. It is contractors in these arrangements that the Courts are interested in, and we are seeing some significant and costly decisions being made where contractors are being found to be employees.

Prior to this case there was the case of Leota v Parcel Express Limited where the Court held that a courier driver engaged as a contractor was in fact an employee.

The same issues are currently being traversed again in New Zealand. The Union is taking on Uber over driver contracts, and arguing they are employees not contractors.

Contractors in your workplace?

If you have contractors working for you, you need to consider the relationship you have. Can they choose to work or not? Can they work for others? Can they leave when they like? If you answered no, you may find that the relationship is an employment relationship and not a contractor/principal relationship.

If you have any concerns, please contact:

Melissa Johnston (Partner) on (09) 306 6729 (mjohnston@mcveaghfleming.co.nz)

Hiruni Wijewardhana (Solicitor) on (09) 262 4940 (hwijewardhana@mcveaghfleming.co.nz)

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Employment Law

Written by Melissa Johnston