The Covid-19 Pivot, and the Appeal of the Contractor

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Independent Contractor Arrangements

There will be many businesses seeking to “pivot” and/or restructure to make themselves more sustainable in the current climate in NZ. Well done you for your creative thinking. In these uncertain times, independent contractor arrangements are almost certain to appear much more attractive than hiring staff.

Contractors do not have personal grievance rights, and they generally have to pay their own GST on payments made to them. They don’t get holiday pay, sick leave or parental leave, and often contracts for independent contractors can be terminated simply with a short notice period. Handy!

Additionally, with our increasing unemployment rate there are likely to be more workers who will be willing to accept contractor arrangements in order to obtain or augment their income, even if that means they have less security and limited rights.

Contractor arrangements can undoubtedly have their benefits. But please take note: there are people who would prefer the protection and benefits of an employment arrangement, and the NZ court and legislature are increasingly and overtly seeking to protect vulnerable workers. Companies seeking to utilise the “gig-economy” model, or independent contractor arrangements in general, to reduce costs and obligations should think hard about the legality of this arrangement.

We are experiencing a long-term trend in New Zealand where various industries are engaging independent contractors in order to avoid their employment obligations. In response to this, in November 2020, MBIE released a discussion paper that proposed options to provide better protections for contractors. This is in line with Labour’s election promise to introduce “dependent contractors” – a class of workers that has many of the freedoms of a contractor, and some of the rights and safeguards of an employee.

The endeavours of the courts and legislation to protect vulnerable workers such as Uber and Ola drivers, construction workers and cable layers are increasing their profile. The growing focus on protecting individuals who are regularly engaged as contractors indicates that industry practices provide only limited protection. We saw this last year with the courier driver, Mike Leota, who won his case despite having signed an independent contractor’s agreement with Parcel Express. The Chief Judge of the Employment Court deemed him to have been engaged for all intents and purposes as an employee. (See Stuff.co.nz for the full article.)

Those who are truly in business on their own account are more likely to be seen as independent contractors. Often, they will operate through a company, and will be highly skilled. Many will do work or provide services to several clients. Individuals working in such arrangements are much more likely to be seen as independent contractors than a person in Leota’s position with the associated high level of control Parcel Express maintained.

Independent contractors are clearly here to stay. They offer too much to the economy to have them stamped out. But we must remember that engaging someone as a contractor is a significant decision and it needs to be entered into thoughtfully and carefully and ideally with both parties taking proper legal advice.

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