1. Contract of service vs contract for services PDF

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THE CONTRACT OF SERVICE DETERMINING THE EMPLOYMENT RELATIONSHIP 1. Legal Relationships Involving the Performance of Work a) Employee o Section 5(a): “Employment agreement… means a contract of service” cf. a contract for services, which would be a contractor etc. o Section 6(1)(a): “Employee means any person of any age employed by an employer to do any work for hire and reward under a contract of services b) Self-employed o Independent contractor: contract for services o Vendor: contract for sale of goods. These tend to look like an employee c) Agency o Someone authorised to act for a principal, but who is not in an employment relationship d) Partnership e) Officer o E.g. director of company f) Bailment g) Tenancy h) Religious Relationships i) Volunteer o Section 6(1)(c): Definition of employee excludes a volunteer who does not expect to be rewarded for work to be performed as a volunteer, and receives no reward for work performed as a volunteer j) Family Relationships k) Education Contracts l) Military Service 2. Why is it important to distinguish the legal relationship from other relationships? a) Application of labour legislation o Tends to apply only to employees o ERA ss 5 and 6 discuss employees – provisions tend only to apply to them o As does other legislation: Equal Pay Act 1972, s 2(1) “Employee”, Holidays Act 2003, s 5(1): “Employee, Minimum Wage Act 1983, s 2: “Employer”, ”Worker:, Wages Protection Act 1983, s 2: “Employer”, “Worker” b) Implication into the contract of particular common law rights and obligations c) Tax ramifications o Income Tax Act 2007: Employees, unlike independent contractors, cannot deduct expenses from their income o Goods and Services Tax Act 1985: GST does not apply to employees’ wages and salary d) Application of ACC

o Employer has an obligation to pay ACC levy’s for employee (s 168) o Employer has duty to pay first week compensation for work-related accidents (s 98) e) Vicarious liability of employer for employee actions o Under common law an employer is liable to pay for employee damage/harm to third party – but not contractors o This can kick in under tort and contract 3. How to distinguish a contract of service from a contract for services?  Starting point is s 6(2) & (3) ERA (2) In deciding for the purposes of subsection (1)(a) whether a person is employed by another person under a contract of service, the court or the Authority (as the case may be) must determine the real nature of the relationship between them. (3) For the purposes of subsection (2), the court or the Authority— (a) must consider all relevant matters, including any matters that indicate the intention of the persons; and (b) is not to treat as a determining matter any statement by the persons that describes the nature of their relationship The common law tests (included among ‘all relevant matters’ under s 6(3)(b) a) The control test o Zuijs v Wirth Bros: “Little room for direction or command in detail may exist… what matters is lawful authority to command so far as there is scope for it. And there must always be room for it, if only in incidental or collateral matters” o Sometimes though, there will be more control over contractors than employees o Cunningham: contractor got fired. He was under a lot of control and tried to argue he was an employee. He lost, as modern business practise shows there can be more control over contractors than employees b) The independence test o A high level of independence supports the conclusion that a person engaged to perform the services is an independent contractor o A person generally has a high level of independence if they  Work for multiple people  Work from their own premises  Supply their own tools or equipment  Have direct responsibility for the profits and risks of the business  Hire or fire whomever they wish to help them do the job  Advertise and invoice for the work c) The organisation/integration test o Stevenson, Jordan, Harrison v MacDonald: "Under a contract of service, a man is employed as part of the business and his work is done as an integral part of the business; whereas under a contract for services, his work, although done for the business, in not integrated into it but is only accessory to it." d) The business economic/reality/fundamental test

Market Investigations Ltd v Minister of Social Security: "Is the person who has engaged himself to perform the services performing them as a person in business on his own account? If the answer to that question is 'yes' then the contract is a contract for services. If the answer is 'no', then the contract is a contract of service." o Basically: is the worker in business for himself – do they carry the risk of losing or gaining a profit? o This test looks at factors such as  Whether the type of business justifies or requires using an independent contractor  The behaviour of the parties before and after entering into the contract  Whether there is a time limit for completing the project  Whether the worker can be dismissed  Who is responsible for correcting sub-standard work  Who is legally liable if the job goes wrong e) The mixed/multiple/totality test o Looks at all the different factors and weighs them up Common Law on Determining Employment Status  The intention of the parties is still relevant but is no longer determinative (Bryson v Three Foot Six Ltd)  Cunningham v TNT Express Worldwide (CA) o Facts: C worked for a trucking company and was fired. He wanted to bring a personal grievance claim but there was argument over whether he was an employee or a contractor. Contract called him a contractor. Very specific rules in the contract regarding C’s conduct etc. o Cooke P:  Lower courts had decided C was an employer  Judge here however thinks it creates a genuine relationship of independent contractor  Why? Mainly due to the fact that C had to obtain his own licence, have his own vehicle and keep it up to standard himself. If he was an employee these sorts of things would fall on his employer o Casey J:  Notes argument by Hugh Collins that the current labour market incentivises business owners to use contractors to get around owing obligations to employees. Thinks the tests for determining employees are dysfunctional and change needs to happen to stop such practises  Collins suggests the courts should presume in favour of employment unless the employer could show it merely obtained labour power and had no control other than checking the adequacy of the work  Casey J doesn’t like this approach  Thinks looking at parties intentions only rather than the contract is too broad  Essential point in the decision is the proper construction of the contract – this will provide more guidance than trying to determining the parties’ intentions  Ready Mixed Concrete: “If the provisions of the contract as a whole are inconsistent with its being a contract of service, it will be some other

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kind of contract. The Judge’s task is to classify the contract… he may take into account matters other than control” Curlew v Harvey Norman Stores o A complex structure was set up to avoid employment law. o Nothing the court could do about it – the ERA had no jurisdiction o When everything is legitimate there is no reason to look behind the corporate veil o It was a legal relationship distinct from employment law o Points favouring employment:  Nothing paid for purchase of business  Harvey Norman purchased stock  Product liability issues were with company not Curlew  Postal address was HN  Had vehicle purchased on fleet discount  Had minimum assured income and less business risk o Points favouring independent contractor  Curlew was responsible for hiring/firing  He had financial liability for them  No dictated hours of work  Stock ordered by Curlew  Could wear uniform or own dress Bryson v Three Foot Six Ltd. o Made miniature models for Peter Jackson’s company. Contract specified that he was a contractor. He was fired and brought a claim, but first need to figure out if he is an employee or a contractor o Important quotes:  The court must determine the real nature of the relationship  The intention of the parties is still relevant but no longer decisive  Statements by the parties, including contractual statements, are not decisive of the nature of the relationship  The real nature of the relationship can be ascertained by analysing the tests that have been historically applied  Industry practise may assist, although this is far from determinative o Totality test was applied:  Employer had a high degree of control (he was making models exactly to their specifications)  He had 6 weeks of training from them (contractors usually do their own training). He could not be said to be contracting his skills, as they developed his skills for him  He was not a separate business entity – no separate profit for him  He worked regular hours  He was being paid sick pay  He was paid for idle time – if he was an independent contractor he would not be paid for this o All the above factors led to the conclusion he was an employee Tse v Cieffe (NZ) Ltd o At beginning of working relationship there was no written contract between parties, only oral. Written contract eventually provided.

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o Factors the court considered. o Consultant  T’s work was closely supervised  She worked regular hours but at her own choice – she didn’t request leave she just told manager she would not be there  T invoiced company for hours worked  T was provided branded clothes, a business card and credit card o Found she was a contractor Kiwikiwi v Maori Television Service o K worked as a teleprompter for Maori TV. Issue over whether he was an employee or an independent contractor. o Factors court considered:  K was required to comply with rosters, had no flexibility within the role and was required to carry out additional tasks when company wanted him to  When his standards slipped he had to undergo re-training  K did not work for any other employer  He did not bring any skill to the job  He took no financial risk and could not alter his profits by changing his work habits o K was an employee

Employment Status and Tax Law  Employment status has the following consequences regarding tax: a) Payments to employees from their employer must have PAYE deducted at the source b) Employees cannot register for GST or charge GST for services they supply as employees c) Independent contractors may deduct certain expenses incurred in deriving assessable income d) Independent contractors must account to IRD for tax and accident compensation earner and employee premiums for themselves and any employees When is it desirable to have a contractor relationship?  One-off jobs  Where work flow is unpredictable  Where there is frequent turnover of staff (to cut recurrent hiring costs)  Risk/cost reallocation  Incentivisation/motivation of performance When is it undesirable to have a contractor relationship?  Where good will is involved (recurrent customer relations) – customer might come back but contractor no longer there  Where loyalty is important – contractors don’t have built in obligations of loyalty to company e.g. trade secrets  High trust relationships.  Where certainty is needed in the supply of workers, or workers of requisite skill  Continuing working relationships/collegiality

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Where there is a career path, promotion based on experience and performance

4. Deemed Employees: Homeworkers  Employment Relations Act provisions:• An “employment agreement” (s 5(b) definition) “includes a contract for services between an employer and a homeworker”.• A “homeworker” (s 5 definition):(a) means a person who is engaged, employed, or contracted by any other person (in the course of that other person’s trade or business) to do work for that other person in a dwellinghouse (not being work on that dwelling house or fixtures, fittings, or furniture in it); and(b) includes a person who is in substance so engaged, employed, or contracted even though the form of the contract between the parties is technically that of vendor and purchaser • A “dwellinghouse” (s 5 definition):(a) means any building or any part of a building to the extent that it is occupied as a residence; and(b) in relation to a homeworker who works in a building that is not wholly occupied as a residence, excludes any part of the building not occupied as a residence • The definition of “employee” (s 6(b)(i)) includes “a homeworker” See Cashman v Central Regional Health Authority [1996] (CA) R

- Were treated as independent contractors when were professional homeworkers at a rest home in Wanganui

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- Concern that homeworkers would extend to reelance artists etc. who work at home, but consider the original policy considerations which was to protect women working piecemeal work in homes to support family who could be exploited

Old peoples home workers were working for the Regional Health Authority in the course of their business. Contracts said they were independent contractors.Held: CoA found they were homeworkers. Question of fact and degree 5. Deemed Independent Contractors • Real estate salespeople, Real Estate Agents Act 2008, s 51 (after Challenge Realty v Commissioner of Inland Revenue [1990] 3 NZLR 4): (1) A salesperson may be employed by an agent as an employee or may be engaged by an agent as an independent contractor.__(2)__ __Any written agreement between an agent and a salesperson is conclusive so far as it expressly states that the relationship between the agent and the salesperson is that of employer and independent contractor.____ (3)__An agent who engages a salesperson as an independent contractor is liable for the acts and omissions of the salesperson in the same manner, and to the same extent, as if the agent had employed the salesperson as an employee.” • Employment Relations Act, s 6(1)(d): the definition of “employee”:

excludes, in relation to a film production, any of the following persons: R

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- a person engaged in film production work as an actor, voice-over actor, stand- in, body double, stunt performer, extra, singer, musician, dancer, or entertainer: - a person engaged in film production work in any other capacity.

3 (1A) However, subsection (1)(d) does not apply if the person is a party to, or covered by, a written employment agreement that provides that the person is an employee. ... (7) Film production means the production of a film or video game These provisions were added by the Employment Relations (Film Production Work) Amendment Act 2010 (“the Hobbit Act”): the label here is determinative (contrary to s 6(3)(b)), no matter what the real nature of the relationship is....