Contractor or employee? Make sure it's clear

OPINION: Contractor or employee, asks Mary-Jane Thomas in this week's Work to Rule.

Some businesses seem to think they can avoid employer obligations by simply calling their workers "contractors" and getting them to invoice for their work and pay their own taxes. However, the Employment Relations Authority has once again confirmed that is not enough. If a worker is truly an independent contractor, they will be in business on their own account and the "boss" will simply be one client of theirs (even if the only one).

B was a car groomer for H and signed a contract that specifically said he was an independent contractor and not an employee. B was paid $4 for a "wash and vac" and $15 for a "re-groom". He issued weekly invoices for his work and H paid resident withholding tax. However, when it came down to it, B was not in business of his own right – he was entirely under the authority of H. He had to work set hours, had no control over the jobs he was given as they were allocated by H, and his uniform and cleaning equipment were all provided. He could technically have employed another to do his work but only if H consented.

He couldn't make his business do any better or worse by managing his work more efficiently. As such, despite the contract and the financial setup, B was legally an employee. Predictably enough, the reason all this came out was that there was a falling out.

The story goes like this. B left his jersey in the office. H heard another car groomer say it smelled of marijuana. On a Friday afternoon, H gave B a memo stating that a random drug test would be carried out on Monday. H said in evidence that, at the time he gave the memo to B, he had no intention of actually going ahead with the drug test. Apparently it was just meant to scare.

On the Monday morning B brought a glass of apple juice into the office, said "there you go, there's my urine sample", then drank it in front of H. H responded by saying B would not be given any more work until he had proven he was not taking any drugs. B then went to a doctor and gave a urine sample for testing. He returned to work the next day with the doctor's note saying he had taken the test and was waiting for the result. On B's evidence, at this, the employer said there was no work available regardless of the drug test result.

Although there was a discrepancy here, the Authority preferred B's evidence as it noted there had been a fall in the amount of work available and that was more likely the reason for the lack of work. B was awarded lost wages plus $3000 in compensation.

Employers – before you take on someone as an independent contractor – make sure that they really are one.

» Mary-Jane Thomas is a partner at Preston Russell Law. E-mail questions to Mary-Jane.Thomas@prlaw.co.nz.

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