Simply because a company and an individual enter into a contracting agreement, that does not necessarily mean the individual will be regarded as a contractor in law. The Employment Relations Authority or Court can assess the real nature of the relationship under s 6 of the Employment Relations Act 2000 and deem the relationship to be one of employment if they consider it to be as such. This matters, as a finding that a contracting relationship was actually one of employment can result in costly unexpected holiday pay and statutory entitlement liability as well as the potential for personal grievance claims to be considered.
The test for whether an individual is an employee or contractor is as grey as they come. This is because it involves an overall assessment of a significant number of different factors. A recent decision of the Employment Court demonstrates how unpredictable this assessment can be. In the first instance, the Employment Relations Authority found the relationship to be one of employment. However, on appeal, the Employment Court overturned that decision and found the relationship to be a contract for services.
The Court upheld a contracting agreement despite it being for a manager who had worked full -time for the company for more than a year. In addition, there was no indication that the engagement was going to be for a finite period of time, except that it came to an abrupt ending due to differences between the parties. During the entire time he was engaged as a contractor, Mr Haywood worked full time for Horizon Concepts Ltd and another company owned by the same director, Mr Wood. Mr Haywood provided those companies with weekly GST invoices for the management services he provided and the combined total for both companies always amounted to 40 per week.
In the past, Mr Haywood had been engaged by companies owned by Mr Wood on several occasions as an employee paid by way of salary. The Court considered that the introduction of invoicing was, therefore, a significant departure from previous arrangements. There was no written agreement that Mr Haywood went from being an employee to an independent contractor. However, the Court found that Mr Haywood proposed to contract his services to Horizon Concepts and that this was agreed to. The Court found that it was not a situation where Horizon Concepts had greater bargaining power which it used to obtain a benefit to the detriment of Mr Hayward. The deal was made to deliver Mr Hayward what he asked for.
The Court applied the usual tests for determining the real nature of the relationship as sanctioned by the Supreme Court in Bryson v Three Foot Six Ltd (2005) 7 NZELC 97,866;  3 NZLR 721. The Court found that Horizon Concepts exercised some control over Mr Hayward by requiring him to be present during the working day. Work started each morning before 9 am and Mr Hayward was required to be present until 4:30 or 5 pm. Tasks were assigned by Mr Wood, sometimes by leaving notes, and at other times what was required was the completion of routine work. However, Mr Hayward had some flexibility with his time during the day.
The Court accepted that Horizon Concepts was Mr Hayward’s source of work and income, and as such was dependent on the company. However, the Court went on to find Mr Hayward was in business on his own account as he broached the idea to begin with, took advice about it, appreciated the financial benefits that might be available to him to be in business for himself, and took advantage of them. The Court considered Mr Hayward making claims in his tax returns being consistent with being in business on his own account.
While the decision yielded a favourable outcome for the company, employers should exercise some caution. Generally, it is likely to be risky to rely on a contracting agreement being upheld for a manager who works full time and for a period of time which is ongoing rather than defined as being finite. Such features are generally more reflective of an employment relationship. However, this decision demonstrates how cases of this nature are decided on their own facts and every little fact can make a difference to the outcome.
See Horizon Concepts Ltd v Hayward  NZEmpC 75.
Reproduced with the permission of Wolters Kluwer NZ