Stop me if you’ve heard this one: When is a contractor not a contractor? When he’s an employee.

Friday, July 2, 2021

It was the employment law theme for 2020 and, just as we were beginning to get distracted by Fair Pay Agreements and changes to holidays legislation, here it comes again: the Employment Court has just decided that Ross Barry, the builder applicant in Barry v C I Builders Ltd [1], was for three years misclassified as a contractor when he was an employee all along.

The most interesting thing about Barry is that it doesn’t really say anything new. It follows several recent cases which determined on the facts that the real nature of the working relationship was one of employment, rather than contractor. The most notable example being Leota v Parcel Express Limited [2], where the Court held that a courier driver engaged as a ‘contractor’ was, in fact, an employee.

Why is this interesting? Because it speaks loudly to the consistency of the message – particularly given that the Chief Judge was the decision maker in both Leota and Barry. While Chief Judge Inglis explicitly stated in Leota that any ‘inquiry is intensely factual and much will depend on the individual facts of each individual case’, the facts in both have been assessed with significant uniformity, including the application of the same table of indicia. Consequently, there is no ambiguity that these are intended to be clear judgments in respect of the legal framework to be applied in future cases.

As in Leota, Barry centred on section 6 of the Employment Relations Act 2000 and the meaning of ‘employee’. Chief Judge Inglis considered that the references to labelling and intention should not take precedence over other applicable factors but are relevant pieces in the larger ‘real-nature-of-the-relationship’ puzzle. Specifically, the Chief Judge disagreed with the proposition that the parties’ intention creates ‘a presumptive bar’ which a worker is then required to overcome. In considering this issue, reference was made to the recent UK case of Uber BV v Aslam[3] in which it was observed that ‘it would be inconsistent with the purpose of this legislation to treat the terms of a written contract as the starting point in determining whether an individual falls within the definition of a “worker”. To do so would reinstate the mischief which the legislation was enacted to prevent. It is the very fact that an employer is often in a position to dictate such contract terms and that the individual performing the work has little or no ability to influence those terms that gives rise to the need for statutory protection in the first place.’

The Chief Judge summarised the issue by stating that, when weighing the parties’ intention with the real nature of the relationship, ‘if the reality of the relationship in practice does not marry up, party intention will not operate to convert the relationship into something it’s not.’

When compared with Leota, the only real point of difference raised in Barry is the industry concerned – this being construction.

Construction is widely known as an area of business in which independent contractors are engaged, and for good reason. Construction requires multiple genuine independent contractors in order to function effectively and efficiently across varied skills; this includes tradesman builders, scaffolders, plasterers, welders, plumbers, electricians, etc, who carry on their own businesses. This is part and parcel of how the industry works.

However, the case of Barry concerns a different issue and a different kind of ‘contractor’. Although Mr Barry’s engagement was defined as a contractor from the outset, it was considered that he entered into the contract with C I Builders (CIB) on an unequal footing. Despite Mr Barry’s experience in the building industry, his long-term unemployment prior to the offer meant that he ‘simply accepted what he was offered’. Therefore, despite the original intention of the agreement, the following factors were held to be indicative of an employment relationship between Mr Barry and CIB:

  • Mr Barry had worked generally consistent hours each week over the three years and was expected to turn up and work a full day.
  • He didn’t work for anyone else; his work hours were 40 hours per week, making it unrealistic that he could work for others at the same time, and there was no other evidence to suggest he did or could have subcontracted work.
  • The fact CIB provided most of the tools he used on site and he sometimes drove a CIB branded van pointed towards Mr Barry being integrated into the business.
  • He didn’t issue invoices to CIB but provided them with screenshots of the hours he worked, which were then passed on to the customer by CIB.
  • He was paid weekly on the basis of hours worked, rather than on completion of tasks.
  • Mr Barry did not bear any commercial risk, nor did he have the ability to make a profit by completing his work more efficiently, or the ability to accrue business goodwill (this went instead to CIB).
  • CIB included him in its application for the Government Wage Subsidy.
  • Nothing externally differentiated Mr Barry from any of the employee workers on site.

Significantly, the Secretary of the Amalgamated Workers Union, Maurice Davis, gave evidence of his understanding of what is currently occurring in the construction industry. Namely, that there is an increasing tendency to engage less skilled and specialised workers on an hourly basis, ostensibly as independent contractors. He stated that this is being done to shield employers from the obligations and liabilities that arise from hiring staff. The outcome being that affected workers are ‘denied all employment protections they would otherwise be entitled to, including the right to pursue personal grievances, to be consulted about loss of employment, redundancy rights, holidays, return to work rights such as limited duties after an accident, etc.

This situation is, of course, distinguishable from the genuine contractors in the construction industry described above, who regularly work across sites for a particular project and leave when their work is completed. Where someone works at different locations and on distinct projects for a variety of customers, while providing all the equipment for the job and setting his or her own rates, the appropriate assessment would almost always be one of somebody in business on his or her own account.

However, Barry is a warning bell to the construction industry that it has come under scrutiny. It is also yet another reminder across all industries that, where a worker is engaged to perform work regularly, the question must always be asked whether he/she is working in reality as a contractor or as an employee. Further, working relationships can and frequently do change over time, so any business engaging contractors should monitor how contracting arrangements continue to operate.

For more information on the issues which can arise in relation to engaging independent contractors, or for specialist advice on any employment issues, please contact a member of our employment team.

 

[1] [2021] NZEmpC 82.

[2] [2020] NZEmpC 61.

[3] [2021] UKSC 5.

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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