The fundamental economic reality of independent contractors in low skill occupations

The Employment Court has held that a courier driver engaged under an independent contractor’s agreement is at law an employee, and entitled to the protections and benefits of the Employment Relations, Wages Protection, Holidays, and Parental leave legislation.

This decision expands the potential for Claims against Employment Disputes Liability policies.  It opens the door for independent contractors in low skill occupations to challenge their employment status, raise personal grievances and seek remedies under the Employment Relations Act.  Expect to see more such Claims in the post-Covid economic environment.

Key Points


  • The real nature the parties’ relationship outweighs the contractual description of employment status
  • A worker with little autonomy and opportunity to develop an enterprise for their own benefit is likely to be an employee, not an independent contractor

The Test


An employee works within the employer’s business and for the benefit of the employer. An independent contractor operates their own enterprise, providing labour to one or more employers, for the mutual benefit of both.

Under s6 Employment Relations Act the Court must determine the real nature of the relationship to ascertain if a worker is an employee or an independent contractor.  This is a fact specific inquiry, and the way in which the parties describe the working relationship is relevant but not determinative.1  The provision is to be interpreted strictly.  Factors include written and oral terms of the agreement, operation of the relationship in practice, features of control by the employer and/or integration of the employee into the employer’s business, industry practice, and the “fundamental (economic reality) test”:  whether the contracted person is effectively working on their own account.2

The Facts


Parcel Express’ practice was typical of the courier industry, although not universal.  It engaged Mr Leota as an “Owner Contractor Courier”.  His contract expressly stated that his relationship with the company was as an independent contractor, not its employee or agent.

Under the contract Mr Leota had to purchase and insure his own van (that complied with company specifications) and pay for it to display Parcel Express’ logo.  Parcel Express did not allow Mr Leota to display any other signage.  He could not sell the van without Parcel Express’ consent.  He had to purchase a scanner from Parcel Express, the cost of which it deducted from his earnings.  He was responsible for taxation and was required to be GST registered (although he was not).  He had to obtain Parcel Express’ consent to any holiday leave, to a maximum of 20 days per year.

Mr Leota had very little autonomy under his contract.  Parcel Express assigned his run.  He wore a company uniform, attended the work premises at specified days/hours, and was required to follow Parcel Express’ directions.  He could only pick up and deliver packages for Parcel Express customers.

In exchange, Mr Leota received a minimum guaranteed payment of $240 per day plus GST for his run.

Although Parcel Express submitted otherwise, the economic reality of Mr Leota’s position was that the opportunity for him to develop his own enterprise outside his engagement with Parcel Express did not exist.  He worked exclusively for Parcel Express and for its benefit.  He could not grow his income, and his work for Parcel Express did not generate any business or goodwill that he could take to a new employer.

The totality of the evidence strongly suggested Mr Leota was an employee, not an independent contractor.  The Court found he was an employee and entitled to all the benefits and protections available to employees.

Comment


Whilst Chief Judge Inglis expressly limited the judgment to Mr Leota’s case, the facts on which she determined his status will apply to many industries that use independent contractors for relatively unskilled and low paid work such as delivery, catering, cleaning, and similar services.

In such cases, the true nature of the parties’ relationship will be determinative:  the reality for most is that the employer exerts a high level of control over the worker for its own benefit, without any real opportunity for the worker to develop his or her personal enterprise.

Employers engaging independent contractors to carry out higher skilled work (e.g. real estate agents and other skilled salespeople) are likely to fare better in upholding the legal status of these arrangements.  The Employment Court recognised that for such parties independence and flexibility are mutually beneficial, and the worker derives real personal benefit from the arrangement.

Following this judgment, we expect to see more challenges to independent contractor arrangements as the economy contracts and employment opportunities fall.


Please contact Kiri Harkess, Rachel Scott, Lauren van Arendonk or Melissa Castelino if you have any enquiries about employment disputes or employment liability policies.


  1. [33]-[34]
  2. [36], citing Bryson v Three Foot Six Ltd (No 2) [2005] NZSC 34, [2005] 3 NZLR 721, [2005] ERNZ 372 at [32]

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