Better protections for contractors

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Next year could see a major shakeup to the law around contractors. This was signalled when Labour came to power. The Government, through MBIE, has released a public consultation paper discussing proposals for change. The aim of the paper is to address workers who are “misclassified” as contractors and so do not receive minimum worker entitlements, as well as those workers who are in the so-called “grey area” between contractors and employees. Whether a worker is an employee or not is dependant of the facts of the individual case, and a contract stating that the worker is a “contractor” is not necessarily determinative of the issue. The consequences for a business of a determination that a worker has been misclassified can be significant in terms of the risk of claim for unpaid wages, holiday pay and tax; not to mention the potential impact on the status/classification of other staff. A summary of the key parts of the report is below.  

The report addresses two main concerns. The first is workers that are misclassified as ‘independent contractors’ so that employers can reduce their entitlements. The second is workers in the ‘grey zone’ between employee and contractor status due to their dependence on one firm for most of their income and having little control over daily work. The argument is that both are vulnerable because of their limited power to negotiate better pay and conditions. The report considers 11 options that are grouped into 4 categories, and it outlines the implementation as well as some of the potential benefits and risks of each of them.

The objectives of the work are to ensure that all employees receive their statutory minimum rights and entitlements, and reduce the imbalance of bargaining power between firms and vulnerable contractors while encouraging inclusive economic growth and competition. The risks identified include impacting the benefits and freedoms of genuine self-employment, increasing the costs for firms and restricting their ability to innovate and that changes that do not work for all types of work may be introduced. Overall, the Government is seeking to ensure a “fair balance of rights and responsibilities” to encourage productive and mutually beneficial relations.

Criteria for assessing the options:

1. Striking a balance between protecting contractors’ freedom with suitable protections for workers who are vulnerable to exploitation.
2. Ensuring costs to firms are reasonable and any restrictions on their ability to compete, adapt and innovate are minimal.
3. Design systems that are clear, resilient and adaptable to the needs of a changing labour market.
4. Changes that are cost effective to implement..

The four groups of options

One – Options to deter misclassification of employees as contractors
* Important because employees that are misclassified miss out on minimum rights and entitlements.

1. Increase proactive targeting by Labour inspectors to detect non-compliance.

2. Give Labour Inspectors the ability to decide workers’ employment status.

3. Introduce penalties for misrepresentation an employment relationship as a contracting arrangement.

Two – Options to make it easier to for workers to access a determination of their employment status
* Important because employees that are misclassified miss out on minimum rights and entitlements.

4. Introduce disclosure requirements for firms when hiring contractors.

5. Reduce costs for workers seeking employment status determinations.

6. Put the burden of proving a worker is a contractor on firms.

7. Extend application of employment status determinations to workers in fundamentally similar circumstances.

Three – Options to change who is an employee under New Zealand law
* About addressing the imbalance of bargaining power between vulnerable contractors and firms.

8. Define some occupations of workers as employees.

9. Change the tests used by courts to determine employment status to include vulnerable contractors.

Four – Options to enhance protections for contractors without making them employees
* About addressing the imbalance of bargaining power between vulnerable contractors and firms.

10. Extend the right to bargain collectively to some contractors.

11. Create a new category of workers with some enjoyment rights and protections.

MBIE will accept submissions until 5pm on 14 February 2020. 

For further information, please contact a member of our employment team. 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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