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Employment Court revisits the employee/contractor conundrum
I have a distinct memory of the image of Marlon Brando in the Godfather informing various members of his "family" that he wished to "take a contract out" on a particular individual.
Of course, this is not the type of "contract" that you would probably like to have taken out in respect of you - having it fulfilled would certainly have severe consequences.
In an employment law context, a decision to take a contract out on someone raises entirely different issues.
It is accepted at law that any task which can be performed by an employee can generally be performed by an independent contractor. The distinction between the two is, however, significant.
An employee can look to his or her employer for a number of protections and benefits. Amongst the more important of these is the obligation upon the employer to deduct taxes, and to pay ACC levies. Significantly, the employee also gains access to the dispute resolution procedures provided by employment legislation.
On the other hand, as the title suggests, an independent contractor retains an element of independence from his or her principal. The contractor is responsible for attending to such things as taxation and ACC - and does not enjoy the protections offered to employees under employment law.
The issue that has historically troubled the Courts is a simple one - how can we tell if a person is actually an employee or a contractor?
On one hand, society has a legitimate interest in ensuring that the employers do not attempt to avoid the obligations owed under employment law by creating "sham" independent contractor arrangements. On the other hand, however, it is generally recognised that there may be commercial advantage to both parties by allowing independent contractor arrangements - essentially because of the commercial freedom that it provides to each.
Under previous employment legislation, the position was reached where the written intention of the parties was regarded as the paramount consideration in determining whether or not an arrangement was one of employment. That position changed with the introduction of the Employment Relations Act. In determining the distinction between these two types of arrangement, the Court is now required to consider the "real nature" of the relationship.
This issue recently made its way to the Employment Court in the case of Curlew v Harvey Norman Stores (NZ) Pty Limited (Unreported, Employment Court Auckland, Judge D L Colgan, 19 July 2002). This decision provides some guidance to businesses in New Zealand as to the way in which this question may be approached in the future.
Harvey Norman wished to operate a business in New Zealand. It approached Mr Curlew in this regard. It proposed an arrangement (which Mr Curlew agreed to) which involved a consulting contract between Harvey Norman and a private company acting in a trustee capacity. The settlor of the trust (which Harvey Norman referred to as the "proprietor") was to be the sole director and shareholder in the consulting company that contracted with Harvey Norman.
This business structure allowed Mr Curlew an opportunity to have responsibility for the running of a business, and a potential for profits and earnings as a result.
The Court accepted that this business structure was not an arrangement intended to evade the law by creating a false structural or institutional façade. The issue for its consideration was whether, in reality, despite the structure, Curlew was an employee of Harvey Norman.
The Court considered a number of the features of the relationship between the two parties - including the Harvey Norman's degree of control over Curlew and the degree of integration of Curlew's business into that of Harvey Norman. The Court concluded that there were features of the relationship that were consistent with an employment arrangement - and other features which were not.
On balance, the Court concluded that the relationship between the two parties had operated in accordance with the documents executed between them. In other words, although the relationship had certain aspects which were consistent with an employment arrangement, in substance the Court concluded that it was not.
The fact of the difficult nature of this issue - and the degree of detail considered by the Court in the course of its decision - illustrates how problematic questions of distinction in this area may be. The decision does, however, operate as an affirmation that a legitimate business arrangement which is structured between a party and an independent contractor (and which operates as such) will be recognised by the Courts - and a contracting party will not later be able to deny the legitimacy of the arrangement (for example, to rely upon the benefits otherwise provided by employment legislation).
In other words, "taking a contract out" is recognised as a legitimate way of doing business (although perhaps not exactly in the same sense intended by Marlon Brando!).
