The Changing Landscape of Contracting ..........19 May 2022
The process of establishing better rights for contractors has started. A Tripartite Working Group comprising MBIE, CTU and Business NZ has recommended a set of policy changes to improve how regulatory protections apply to working arrangements at the intersection of “employment” (employment law) and “contracting” (commercial law).
If the recommendations are enacted many current contractors would be re-classified as employees. For a person to be a contractor, it would be the responsibility of the hiring business to ascertain that the person is in business on their own account – ie having the freedom to control their business, generating goodwill for themselves, having the ability to work for other entities and the ability to sell their business for personal gain at some point.
Factors like the person providing a vehicle, tools and equipment, issuing tax invoices and paying their own ACC and other taxes will not, on their own, determine contractor status.
Even if the person wishes to be a contractor, the hiring organisation would have to ensure the person meets the tests for contractor status, otherwise they will have to be classified as an employee.
Rec 1: Revise the legislative definition of “employee” to include a strong sense of contradistinction to someone who is genuinely in business on his or her own account. This should be the critical question to answer when deciding whether someone is an employee or a contractor.
Rec 2: Nine design principles are proposed be used as the basis for constructing more detailed, objective and prescriptive legislative requirements for worker classification. The aim would be to create an effective legal duty on “hiring entities” to step through a robust decision-making process when considering worker classification, guided to a large extent by the legislation itself. The hiring entity will be responsible for making this decision correctly (more detail below).
Rec 3: Further work should be prioritised as a next step, to understand the impacts, manage the risk of unintended consequences, and consider how business models could transition away from unlawful classification practices in a way that is fair for the people involved.
Rec 4: Develop a comprehensive package of guidance and support services to support better classification practices by firms in the first instance, reducing reliance on the dispute resolution system.
Rec 5: Allow judicial determinations on employment status to cover other workers performing similar work for the same hiring entity under similar contractual terms (even if only one worker seeks a judicial decision it would apply to all other workers in the business performing similar work).
Rec 6: Explore options that would allow for regulators to intervene without relying on an individual complainant wanting to pursue the matter.
Rec 7: The definition of “employee” to be aligned across employment and tax legislation. This should include allowing for appropriate two-way information sharing between Inland Revenue and the employment regulator. The Government should explore ways to better use the tax system as an intervention point to encourage better classification practices by firms.
The Nine Design Principles
1. The test for whether a person is an employee should be an objective one and the intention of the parties is not material.
2. The classification decision and the onus of proof sits with the hiring entity. If a person would prefer to be engaged as a contractor, this preference alone does not remove the need for the hiring entity to consider the correct classification (based on whether the person will, in providing labour, be genuinely operating an independent business on their own account).
The legislation needs to make it clear that to be “genuinely in business on one’s own account” requires indicators that get to the substance of commercial activity.
3. The most crucial elements of the distinction are reflected in the table below.
Person genuinely in business on their own account will demonstrably:
An employee will typically:
Be responsible for managing their business operations (this includes making decisions about the best use of labour and capital resources to maximise productivity).
Have a limited ability to influence the overall productivity of a business operation, other than by increasing personal efficiency or effort.
Be free to contract with other businesses to provide the same or similar services, and build and maintain a varied client base.
Be identified as “part of” the hiring entity’s operation, and have limitations on their ability to work for other organisations.
Generate gains that accrue to their own business enterprise (e.g. an expanded client base, good will).
Not accrue business gains of their own (any gains that could be reflected on a business’s “balance sheet” accrue to the hiring entity).
Have business resources available to assist in providing services.
Not be required to provide significant resources to enable the work to be carried out.
The legislation should also seek to de-emphasise or explicitly rule out some of the customary indicia for “being in business”, as they are superficial and open to manipulation.
4. The transactional or formal characteristics of a relationship (e.g. the fact that the person issues an invoice to the payer in order to be paid, is paid through an interposed structure such as a company, is required to manage their own tax affairs, or is required to provide their own insurance) should have no bearing on the hiring entity’s classification decision.
5. Requiring someone to own and maintain assets or equipment that will be used to perform work for the hiring entity, as a condition of entering a contract, should not – on its own – justify a contractor/principal relationship being constructed rather than an employment relationship. Provision of resources is a necessary precondition for someone to be genuinely in business on their own account, but it is not a reliable indicator on its own.
6. Requiring or allowing someone, as a matter of contract, to delegate or subcontract tasks to other workers in order to ensure a continuous supply of labour to the hiring entity should not have a bearing on the classification decision.
Elements of control and integration are strong indicators of the person being employed, rather than being in business on their own account.
7. If the contract provides for extensive control by the hiring entity over the manner in which work is performed (e.g. specifying routes or operating procedures), as opposed to merely holding the person to account for outcomes, this is more consistent with an employment relationship than a contractor/principal relationship.
8. If the contract requires the person to only use the principal’s signage and branding, and/or to wear a uniform that holds them out as a representative or agent of that company, this suggests that the hiring entity should classify the person as an employee (it is consistent with complete integration into the hiring entity’s operation, and inconsistent with the person being genuinely in business on their own account).
9. If the person will be providing labour under an apprenticeship agreement or a similar arrangement, they cannot, in providing that labour, be “genuinely operating a business on their own account”.
Watch this space………. You can read the full report here.
Meanwhile in Australia…………..
Pressure is building on lawmakers to address the question of gig-economy regulation.
A first-of-its-kind agreement, signed last week between food delivery platform DoorDash and the Transport Workers Union (TWU), is expected to ensure greater protections for Australia’s estimated 250,000 gig workers.
The agreement lays out key principles for workers and companies operating in the gig economy while backing the push for enforceable industry standards.
DoorDash, like Uber Eats and Deliveroo, operate under an independent contractor model, where riders and drivers decide when, where, and how long they work. That flexibility currently comes at the expense of many entitlements handed to fully-fledged employees.
The deal provides that the platform’s 40,000 workers will not be prohibited from accessing their rights and entitlements; ensures transparency; gives the opportunity to contribute to a collective voice; and allows access to dispute resolution processes.
DoorDash has also committed to allocating appropriate resources to ensure industry standards are established and maintained, and to driver education and training.