A win for the employer - Employee v Contractor

A case brought before the Employment Relations Authority (Authority) requested a determination as to whether Mr and Mrs S (Mr/Mrs S) were employees or independent contractors. Their work was terminated, and as they claimed to be employees, they brought a claim for unjustifiable dismissal.
 
The company was in business as a building, painting and decoration service. Mr/Mrs S started work on 19 August 2015, finishing in November 2015.

In the recent determination, the Authority considered the following tests:

Intention of the parties: 

Mr/Mrs S applied for a job as plasterers.  The MD of the company met with them and explained the nature of the engagement, the applicable rate of pay and that payment would be on the production of an invoice. The offer was for $35 per hour plus the use of a van.  There was no written document that recorded the intentions of the parties. 

Mr/Mrs S told him that they were happy to sub-contract as they were planning to set up their own plastering company.  The following month Mr S registered a trading company name.

The Authority found that overall the intention was that of a contracting relationship.

The control test: 

The extent to which the actions of Mr/Mrs S were controlled by the company.

The company acknowledged that a van and running costs were provided on a temporary basis as Mr/Mrs S did not have a suitable vehicle to start with. They provided their own tools and some equipment.  One piece of heavy equipment and materials were supplied by the company – these factors indicative of an employment relationship.

The Authority was satisfied that Mr/Mrs S were free to set their own hours of work and they did not charge the company for travel between sites.

The integration test: 

The extent to which Mr/Mrs S were integrated into the company and integral to the business.

The company provided a full service to clients and engaged sub-contractors and employees. The Authority found that the work could have been done by an employee or a contractor; therefore it was not strongly determinative of Mr/Mrs S’s status one way or the other.

Fundamental test: 

Examines the extent to which Mr/Mrs S took financial risks in providing their services.

Mr/Mrs S submitted weekly invoices and calculated for a deduction of 20% scheduler tax.  Each job was itemised for the company to oncharge their clients.

Other contractors working for the company gave evidence of the ability to work for others as they wished.  Mr/Mrs S did not work for others as they had sufficient work from the company.

The Authority found that the fundamental test had elements of both an employment relationship and a contractor relationship.

Determination

The Authority considered employees’ pay for plastering work - between $15 - $30 per hour.  Mr/Mrs S were engaged at $35 per hour and provided invoices which provided for the deduction of 20% tax.  They also provided their own tools including scaffold and intended to start their own company.  

The Authority concluded that the relationship was more than likely to be that of an independent contractor and therefore it had no jurisdiction to investigate the claim that Mr/Mrs S were unjustifiably dismissed as employees.

Employers who engage contractors need to ensure the tests above clearly indicate a contractor relationship, and record the intention in writing by way of a Contract for Service.

Paddy Battersby : Battersby HR Consulting : www.battersbyhr.com : paddy@battersbyhr.com : 09 838 6338

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