Contractor v Employee: Significant Changes Planned

Even though a working relationship with a worker may have started out as an ‘independent contractor’, it can morph into an employment relationship, irrespective of what your initial intention was. The difficulties with this change in status (or how it is labelled) are that the legal entitlements someone is entitled to receive as an employee (annual leave, sick and bereavement leave and so on) can be backdated up to six years!  You may also find that ending the relationship is not just a matter of ‘giving notice’.

The Court of Appeal in August confirmed the Employment Court decision that four Uber drivers were employees rather than contractors. This is yet another case of the potential significant implications and the importance for businesses to ensure the contractor relationships they believe they have, are genuinely that status.

In response to the uncertainty of the changing relationship between employee and contractor, the government is proposing amendments to the Employment Relations Act 2000, aiming to introduce a “gateway test” to clarify who qualifies as an independent contractor. If a working arrangement meets the criteria of this test, the worker will be deemed a contractor, limiting their ability to dispute their status.

The key criteria of the ‘gateway test’ include:

• A written agreement specifying independent contractor status;
• Freedom for the worker to take on additional work with other businesses (including competitors);
• The business does not require the worker to be available to work at specific times of the day or days, or for a minimum number of hours; OR the worker can sub-contract the work; and
• The business does not terminate the contract if the worker does not accept an additional task or engagement.

If these conditions are met, the individual is classified as a contractor in the first instance. Otherwise, the current legal approach assessing the “real nature of the relationship” remains in place, allowing workers to challenge their status. See previous article from June 2021.

The changes, expected to be introduced through the Employment Relations Amendment Bill in 2025, could significantly shift how contractor status is determined.

As these changes take shape, we will continue monitoring the situation closely. If you have questions about how this may impact your business or want to discuss your current contractor arrangements, don’t hesitate to reach out.