Defining and understanding what relationship you have with a worker is important as each relationship brings different rights and responsibilities for the parties.
A Dunedin taxi company has been ordered to pay nearly $100,000 in wage arrears after the Employment Relations Authority (“the ERA”) found it had been wrongly treating four of its former drivers as independent contractors (rather than employees) in an attempt to save money.
The Taxi Sham
The taxi company said it provided the four drivers written contractor agreements. However, the drivers were given payslips (with PAYE deducted), did not file tax returns and were not invoiced for ACC levies. The drivers had no control over their terms and conditions (including fare settings and takings) and overall were assessed as being “part and parcel” of the taxi company.
The ERA found the four drivers were in fact employees, and at best had received minimum wage for no more than 15% of the time they were employed. Each driver was awarded a share of $97,753.05 in minimum wages and unpaid holiday pay.
The taxi company actually knew the difference between contractor and employee drivers; a Labour Inspectorate commented “this is clear evidence of sham contracting being practiced by employers who knowingly breached the law at the expense of these drivers”.
Employee v Independent Contractor
Whilst the taxi company was found to have partaken in sham contracting, there are situations where it really is a “grey area” as to what the relationship is, and employers can accidentally get it wrong.
When a working relationship is on the cusp of that “grey area” the courts have developed four legal tests to help tell the difference between an employee and a contractor:
- Intention – what do the parties intend the relationship to be?
- Control v Independence – who ultimately controls when and how the work is carried out?
- Integration – is the work carried out for the benefit of the business or the benefit of the worker? Is the worker independent, or “part and parcel” of the organisation?
- Fundamental/economic reality – does the worker provide invoices or receive payslips, who carries the financial risk?
These are just some of the questions employers should consider when determining what the working relationship actually is.
The Lesson
As Taylor Swift says, you can “Call It What You Want”, but as the taxi company found out, it is the true nature of the relationship that will determine whether someone is a contractor or an employee.
