The government plans to introduce a draft bill to Parliament this year proposing changes to the Employment Relations Act 2000 to clarify the distinction between employees and independent contractors.

The changes are part of the coalition agreement between the National and ACT parties, which states that they would “maintain the status quo that contractors who have explicitly signed up for a contracting arrangement can’t challenge their employment status in the Employment Court”.

OVERVIEW OF CHANGES

The proposed ‘gateway test‘ for assessing whether a worker is an independent contractor or an employee is aimed at providing clearer guidelines for businesses and workers. The test involves four criteria that businesses can use to determine contractor status:

• A written agreement stating the worker is an independent contractor.
• The worker is allowed to work for other businesses, including competitors.
• The business does not control the worker’s working hours or require a minimum number of hours, or the worker can subcontract the work.
• The business cannot terminate the contract if the worker declines an additional task.

If all four criteria are met, the worker is classified as a contractor. If any of these are not met, existing tests under the Employment Relations Act will apply to determine the true nature of the relationship.

GOVERNMENT’S RATIONALE

There has been ongoing debate about contractor classification, particularly in industries like the ‘gig economy’. The draft bill responds to these concerns and aims to clarify and reduce legal disputes over employment status. Businesses could use the test when responding to claims that workers were employees rather than challenging employment status through the courts, which can be costly and create business uncertainty. Organisations like the Employers and Manufacturers Association and Business NZ have welcomed the move in the hope that it will simplify employment status determinations for businesses and support productivity, particularly for industries relying on contracting and short-term arrangements.

LANDMARK CONTRACTING CASE

In August last year, the Court of Appeal dismissed Uber’s bid to overturn a controversial Employment Court decision that found four of the rideshare company’s drivers were employees rather than independent contractors. Uber was also ordered to pay costs to the respondents. Uber immediately announced that it would seek to appeal the decision in Raiser Operations BV v E Tū Inc [2024] NZCA 403 (“the Uber decision”), saying the decision exacerbates uncertainty about contractor arrangements.

The Court of Appeal found the drieally amounted to window dressing. “Uber has a high level of unilateral control over the documents with contractual force and over the day-to-day operation of the relationship, in a manner and to an extent which render ineffective many of the rights which drivers appear to have on the face of the agreement.”

CRITICISMS OF THE PROPOSED REFORMS

Some argue that the government’s proposed changes, including the gateway test, could allow businesses to classify workers as contractors even when the arrangement resembles employment. This would potentially strip workers of important rights, like paid leave and job security, favouring corporate interests over worker protections.

New Zealand Council of Trade Unions president Richard Wagstaff believes the government should abandon the bill in light of the Uber decision. He cautions that the contractor reforms are unethical and that the executive branch has a duty to uphold the rights of workers to test their employment status in court. “Attempting to remove their ability to do so, because they don’t like the judicial branch’s decisions, would be an affront to constitutional norms in New Zealand.”

E Tū Inc’s national secretary, Rachel Mackintosh, believes that the Uber decision should be a warning to the government as it considers tampering with employment laws to give vulnerable workers fewer protections. “As new ways of working emerge, it’s crucial that our employment laws are there to protect working people and not allow them to be exploited.”

The Green Party is also against the reforms and has described them as “the latest episode in a series of assaults on workers’ rights”. It has accused the government of playing directly into the hands of companies looking to cut corners and boost profit margins at the expense of workers. Party leaders believe this is a case of the government legislating over hard-won rights in the Uber case in favour of corporate interests.