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When a contractor may actually be an employee

A new employment court finding further explores the commonly vexed question of when a contractor may actually be an employee. Leota v Parcel Express Ltd concerns a courier driver who has been engaged as a contractor but argued that he was not “in business for himself” as an independent contractor, rather he is actually an employee of the company. Whilst this judgement is fact-specific and does not mean that all courier drivers in New Zealand are employees, Chief Judge Christina Inglis conducts an in-depth analysis that sheds light on the real test – asking “what is the real nature of the relationship?”

 

Employee vs independent contractor

The distinction between an employee and independent contractor is that an employee works for the employer, within the employer’s business, to enable the employer’s interests to be met. An independent contractor is an entrepreneur that provides labour to others in order to achieve gains for their own enterprise. They are in business for themselves.

 

The case

Mr Leota (Leota) was recruited to be a courier driver for Parcel Express Ltd (Parcel Express) after an employee of Parcel express who was also a member of his local church encouraged him to consider working for the company. Leota was engaged and signed a contract which described him as an independent contractor. Leota worked for Parcel Express for about a year and only stopped working after Leota began to have concerns about payment.

When determining the real nature of the relationship, Inglis J considered the degree of control Leota had over his business, the relevance of industry practice and the economic reality of the arrangement.

The “degree of control” exerted by the principal is an important factor in determining employment status. The court has previously said “the greater degree of control stipulated by the contract…the greater the risk that it may cross the boundary line and become a contract of employment”. When considering a variety of factors, the Court determined that Parcel Express exerted a high degree of control in relation to Leota’s work and this left Leota with no autonomy over his own business and work.

When discussing industry practice, Inglis J indicated that a cautious approach must be taken and that it is not enough that an industry considers it workers are engaged as independent contractors. If Parliament had intended courier drivers to be categorised as independent contractors, they would have specified it under the Act. The fact that English was Leota’s second language and he had no knowledge about what the industry practice meant that it was not realistic to look to industry practices in this case, as it would not have been known or understood by Leota when entering the contract.

The court also considered the economic reality of the relationship and determined that Leota was unable to grow his business due to the restrictions and conditions imposed by the contract. These conditions were found to benefit Parcel Express and grow their company, not Leota’s.

All in all, Inglis J weighed up the facts and found that Leota was indeed an employee of Parcel Express and was not in business of his own account. The fact he was labelled an “independent contractor” and even acknowledged he had been informed he would be “his own boss” was just one consideration and not enough to tip the scales sufficiently.

 

To read the full case click here or you can access our case summary here to read more about the finding.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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