New Categories of Workers: Employee, Dependent Contractor, Independent Contractor

Spotting the difference between an employee and independent contractor can be difficult, but is a critical exercise. This is because employees are afforded a suite of rights not available to contractors, such as the right to collectively bargain, the ability to raise a personal grievance, as well as the application of minimum code legislation (for example the Minimum Wage Act 1983, Holidays Act 2003, and Wages Protection Act 1983).  

In establishing whether a person is an employee or contractor, the test is to determine the “real nature” of the relationship between the parties by considering a range of factors.  We outline these considerations in our article found here.

The current test focuses on the person and their relationship with the business.  It does not categorise groups of people doing the same work in similar circumstances.  This can result in people being classified differently, even if they are doing the same work, for the same business, and with the same contractual terms.  For example, courier drivers with similar contracts and work arrangements have been classified as both contractors and employees depending on their individual circumstances, while Uber drivers so far have been deemed contractors and not employees (although another decision on the matter is due shortly).

The difficulty is that workers can fall into a “grey zone” between employee and contractor.  This typically occurs where the person is dependent on one company or business for most of their work and has limited control over their day-to-day activities.  These workers are often referred to (at least internationally) as “dependent contractors”, and according to the Survey of Working Life 2018 make up approximately half of all contractors in New Zealand.

The problem is not unique to New Zealand.  It is grappled with in Australia, the UK, Canada and the US, where it is described as “wrongful classification” or “misclassification”.

There is concern in New Zealand that the current classification system can operate unfairly in relation to dependent contractors, as they do not enjoy the choice and flexibility commonly associated with self-employment, yet also do not have the legal protections of an employee.  

This issue was considered by MBIE in 2019, when it sought public feedback on a series of suggested legislative changes, including a proposal to establish “dependent contractor” as a new category of worker.  Under the proposal, dependent contractors would be granted some, but not all, of the existing employment rights and protections including minimum wage, the right to paid leave, the right to collectively bargain, and protection against unfair dismissal.  The Government formed a tripartite working group with NZCTU and Business NZ in 2021 to draw on the feedback and develop recommendations, however it did not recommend the formation of an intermediate category of worker. Instead, it suggested delineating a clearer boundary between employment and contractor / principal relationships. No legislative change has resulted to date. 

Different Approaches in the UK and Canada

The UK has adopted a “worker” category that sits between “employee” and “independent contractor”, which broadly fits the ‘dependent contractor’ description proposed by MBIE in 2019.  Workers get some employment rights such as minimum wage and holidays, but are not afforded the ability to take an unfair dismissal claim. 

Ontario has taken a different path.  It recently passed Bill 88, which, among other things, introduces a new piece of legislation; the Digital Platform Workers’ Rights Act 2022 (Act).  Rather than focusing on the type of contractual and work arrangement, as the UK has done and as was proposed in New Zealand, Ontario has focused on the type of work.

A “digital platform worker” will typically include those providing services for delivery, courier, and rideshare companies, where the worker can accept or refuse each job as it becomes available. 

The purpose of the Act is to establish certain rights for such workers, regardless of whether they are employees, in recognition of the fact that the employment status of workers in these industries is notoriously difficult to establish.

In summary, the Act will provide digital platform workers the right to:

  • Information such as how pay is calculated, whether tips or gratuities are collected by the operator, any factors that determine how assignments are offered, and the consequences of the operator’s performance rating system (if any);
  • A recurring pay period and pay day;
  • A minimum wage for each work assignment;
  • Amounts earned in respect of tips and other gratuities. An operator is not permitted to withhold tips or gratuities unless authorised to do so;
  • Notice of removal from an operator’s digital platform;
  • The resolution of digital platform related disputes; and
  • Prevention of reprisal where the worker exercises rights under the Act.

A need for change in New Zealand?

The question for New Zealand remains whether it too should implement legislative protections for workers straddling the line between employee and contractor, as was explored by MBIE in 2019.  

An option put forward by the tripartite working group is to keep the categories of worker as they are but give certain types of contractors the right to collectively bargain.  This would allow contractors to negotiate minimum terms of engagement and set a “floor” to help prevent exploitation.  Another alternative is to keep the categories as they are but allow the Employment Court to determine the classification of whole categories of workers within a business (although, not so broadly as to apply across an entire industry), as opposed to just individual people as is currently the case (except for the film production industry, which is a limited exception).

It remains to be seen whether the New Zealand government will make any substantive legislative changes.  However, as Ontario and the UK has evidently identified, dependent contractors are a large and vulnerable subset of the working population, often with little bargaining power and who would substantially benefit from additional legal protections in one form or another.

If you have any questions about employee rights and employer obligations in the New Zealand context, please get in touch with our Employment Team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

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Media contact - Kerry Browne
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