When is a worker an employee or a contractor? Late last year I wrote about an Employment Court case brought by James Bryson, a model maker on The Lord of the Rings movies.

The Court decided he was an employee. Karin, in my book group, was interested. For some time, she has wanted the hairdressers in her business to be contractors.

I told her to wait for the Court of Appeal, which has now ruled Mr Bryson to be a contractor. When I told Karin this, she was annoyed. How, she asked me, could she ever know what the law is? As I told Karin, it is a bit like what happens when the members of our book group read a book. We each read the same words, yet we can have very different interpretations.

The main difference between our book group and the courts is that the Court of Appeal is superior to the Employment Court. This means its decision overrules the Employment Court’s decision on the same case.

In addition, the Court of Appeal’s interpretation of a law may create a legal “test” for the lower courts to apply if they have to consider that section. In contrast, as all our book group members are equal, no one person’s interpretation of a book is “right”. Sometimes we have a majority and minority view, which can happen with appeal judges too, as it did in the Bryson case.

In Mr Bryson’s case, the Court of Appeal considered section 6 of the Employment Relations Act 2000. That section says that when deciding if a worker is an employee or a contractor, a court must determine the real nature of the relationship between the people. The court is to look at all relevant matters, including what the people intended their working relationship to be. However any “label” given to the relationship will not determine the answer.

The Court of Appeal looked at the section, and set out its analysis of the legal test to use when applying it to a real work situation.

The Court said the following matters should be considered:

  • Is the worker providing services as part of his or her own business? A “yes” answer indicates the worker is a contractor. Look at who controls what the worker does on a day-to-day basis; who provides the equipment for the job; if the worker can hire helpers; if the worker has taken on any financial risk for the job; if the worker has any responsibility for management decisions; and the degree, if any, to which the worker can profit from sound management in the job.
  • If there is a written contract, the way its terms have actually been followed will be relevant. Consider how the worker has been paid – by wages, or on receipt of an invoice? How has income tax been dealt with?
  • What is the normal industry practice for hiring workers? The Court of Appeal, strongly influenced by the industry practice of engaging contractors for roles such as Mr Bryson’s, decided that he was a contractor.

Karin is probably in the same position as before. As I had already told her, her workers are still employees. As for Mr Bryson, his position may not yet be final. The Supreme Court can be asked to give leave to appeal, and we do not yet know whether that will happen.

By Penelope Ryder-Lewis, first published in The Dominion Post

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