Employee or Independent Contractor?

The issue of whether someone is truly an independent contractor or is in reality an employee is something that continues to be fiercely litigated. Recently the Employment Court in Leota v Parcel Express Limited [2020] NZEmpC 61 provided further guidance on this issue when it held that a courier driver engaged under an independent contract was in fact an employee.

Although the decision was largely contextual – the Court made it clear that the findings were confined to the facts of the case- the decision brings with it a timely reminder that the label attached to an employment relationship will not always be indicative of its true nature – rather, the operation of the employment relationship in practice will be key.   

Summary of Facts

In this case the plaintiff, Mr Leota, was employed by the defendant, Parcel Express Limited, as a courier driver. Mr Leota drove a courier van for the defendant for approximately one year before his contract for service was terminated. Following his termination, Mr Leota asked the Court for a declaration that he was an employee of the Company, as opposed to an independent contractor. The Company asserted from the outset that Mr Leota was an independent contractor and that he was never an employee.

On the basis of the evidence put before them, the Court determined that the real nature of the relationship between Mr Leota and Parcel Express was that of an employment relationship. In making this determination, the Court put significant weight on the contextual factors of the case, the level of control exerted by the Company over Mr Leota and the economic reality of the employment arrangement.

Context behind the case

In issuing its decision, the Court was clear to state that not all courier drivers will be employees, and that its finding were based on the specific circumstances of the case. The premise of the defendant’s argument was that Mr Leota entered into an independent contractor arrangement knowingly, given that the agreement in question plainly referred to him as an independent contractor. However, the Court was explicit in pointing out that English was Mr Leota’s second language, that he was recruited from his Samoan church at time when the Company had difficulty maintaining employees, and that he had little to no understanding of New Zealand employment law. Mr Leota’s Counsel described him as “naïve”, to which the Court accepted as an apt characterisation.[1]

Control vs. independence

In establishing whether a worker is an employee or independent contractor, there are a number of established legal tests that can be applied – including the control and integration test. The control and integration test determines the level of control exerted by an employer, and likewise the level of independence held by a worker; the more control exerted by an employer, and the less independence held by a worker, the more likely the relationship is to be one of an employer and employee.

In this case, the Court found Mr Leota had little autonomy or independence over his actions. Mr Leota was assigned a courier run and given no say in it; he had to work specific hours; and he could take no more than 20 days holiday a year, having to find a relief driver when he did. Despite being described as “his own boss”, the Court found that Mr Leota did not exercise any real degree of autonomy over his work, unlike would usually be the case with an independent contractor.[1]

Economic reality

One of the other legal tests that can be applied to establish the true nature of an employment relationship is what is known as the economic reality test. The test looks to establish whether the worker has effectively been working on their own account or not.

The Court found that the application of this test strongly supported a finding that Mr Leota was not in business of his own account and was solely in the business of his employer, Parcel Express. Mr Leota did not have any spare time to engage in client building exercises and had very little opportunity to increase his remuneration given the continuous nature of his work and the hours that he undertook for the employer. Mr Leota did not have a GST number, and in fact as it was discovered during the hearing, did not know what a GST number was either.

Concluding remarks

The findings of this case, should be borne in mind by all employers who either currently engage an independent contractor, or are looking to do so in the future. Not only is it important to draft contractual agreements carefully, but to also ensure that any ensuing working relationships accurately reflect the agreements they are based on. Employee status is an important issue, as it provides access to a range of statutory entitlements, including personal grievance procedures, provided for under the Employment Relations Act 2000.

For further advice or information around independent contractor arrangements or any of the issues raised above, please contact our team of specialist employment lawyers on phone: 07 282 0174.