A third category of worker in NZ? MBIE seeks your feedback

3 December 2019

​A third category of worker (a hybrid between an employee and independent contractor) may be introduced in New Zealand if changes proposed in the Government's latest Discussion Paper are implemented.

On 26 November, the Ministry of Business, Innovation and Employment (MBIE) issued its Discussion Paper “Better protections for contractors". MBIE is asking for submissions in response to the Discussion Paper by 14 February 2020.

The issue of the categorisation of workers has come to the fore as a result of the increase in “gig" economy workers (such as Uber drivers), as well as recent cases challenging the employment “status" of certain types of workers (such as courier drivers, and labour hire workers).​

Contractors versus employees

In New Zealand, contractors are engaged to provide services to one or a number of businesses on their own account. Contractors enjoy greater autonomy compared to employees, and may work for multiple organisations at once.

Contractors are responsible for their own tax and ACC levies, and are not protected by most employment laws (including the right to receive certain minimum entitlements, such as the minimum wage and paid leave).

Whether or not a person has been correctly classified as a contractor is a common question tested in the employment courts, and requires a factual analysis of how the particular relationship operates in practice and what was intended between the parties.

The ostensible need for change

It is increasingly recognised that some workers occupy a 'grey area' between contracting and employment, and do not clearly fall into either category. A worker in this 'grey area' is not entitled to minimum employment standards (because they are not an employee), but may also not have realised the full benefits of being a contractor, such as the ability to exercise true freedom and control over their work activities.

In the Discussion Paper, MBIE describes these types of worker to be “vulnerable contractors", and has suggested a number of possible solutions to address their protections and negotiating power.

Potential options for change

One specific change being considered by the Government is the introduction of a new category of worker, a “dependant contractor", a hybrid between employee and contractor, who would receive some of the benefits of each category.

It is proposed that a “dependent contractor" would be entitled to minimum wage protections, paid leave, the right to collectively bargain and protection against unjustified dismissal. They would, however, remain responsible for their own taxes, and enjoy greater autonomy over their working arrangements.

Other jurisdictions, including Italy, Canada and the United Kingdom, have already adopted a hybrid category of worker. In all of these countries, the third category of worker has been entitled to some of the minimum employment standards afforded to employees, including entitlement to holiday pay, sick pay, and the minimum wage – but, generally speaking, not to “unjustified dismissal" rights.

Where to next?

The Government recognises that introducing a third category worker in New Zealand could lead to further uncertainty, including more instances of miscategorisation between three rather than two categories.

In our view, there is certainly scope for debate about whether expanding the law in this regard would actually effectively address the vulnerability of this group of workers, or simply add more compliance complexity. Much will depend on any final formulation of legislation, which has yet to be produced and may still be influenced by the response to MBIE's Discussion Paper.

Submissions in response to the Discussion Paper are due by 5pm on 14 February 2020. All submissions will be reviewed by MBIE before it develops final proposals regarding the options for strengthening legal protections for “vulnerable contractors".

You can read the Discussion Paper here.

If you would like assistance in drafting or reviewing your submission to MBIE, please get in touch with the contacts listed or your usual Bell Gully advisor.​​​

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.