Protecting choice and freedom to contract

The gig economy, for example, where people work on short-term contracts or freelance jobs, has created jobs that wouldn’t otherwise exist and offers autonomy and flexibility unavailable in conventional work.

This is particularly useful for people who can’t commit to standard hours like students, or parents with young children. Contracting can be a stopgap between roles or a way to re-enter the job market or to top up earnings from a first job

People with jobs that need doing can easily find the skills they’re looking for without making a permanent hire. For consumers, businesses with contractor operating models offer lower prices and more choice.

Enabling flexibility in working arrangements increases productivity and incomes by allocating resources more effectively and increasing output per hour worked. It can also improve income security by expanding short-term employment opportunities to smooth incomes.

According to Stats NZ , about 1 in 20 New Zealanders are contractors and:

• Almost 80 per cent said they had a lot of control over how their work was organised and how their tasks were done; and
• 90 per cent said they were satisfied or very satisfied with their jobs and that they would prefer to continue being self-employed rather than have a paid job working for someone else.

The issue

The legal status quo has created uncertainty for contractors and businesses. That’s because contractors are able to challenge their employment status in the Employment Court if they believe they should be classified as employees. If contractors have been offered benefits normally reserved for employees, the Employment Court may rule they are employees.

The Productivity Commission explains that “the courts can infer an employment relationship if workers are offered certain benefits and supports that in the past may have been offered primarily to employees. Hiring firms risk liability and disruption of their business if they offer contractors benefits” and this can “discourage firms from offering contractors better working conditions.”

The Employment Court has become increasingly unpredictable and tends to rule in favour of contractors seeking to be classed as employees. Not only can this be costly for businesses which genuinely believe they have a contractor business model, but it increases business uncertainty in general, including for contractors in the same business who don’t want to be employees.

The most egregious example of a rogue Employment Court decision was the judgment that Uber drivers are employees, not contractors. The Uber decision took an activist approach to the Employment Relations Act, attempting to advance “the underlying social purposes” of the legislation rather than using it as a neutral framework for employment relations.

This decision is being appealed, but if it is upheld it will have knock-on effects for contractors and businesses across New Zealand that use them, like Air New Zealand, NZ Post, Chorus, and Uber. Many businesses would not be able to continue if utilising an employee workforce, and contractors will lose the freedom to choose how and when they work.

ACT believes worker choice and the freedom to contract should be protected while ensuring workers aren’t taken advantage of.

Why is legislative change necessary?

We need an enduring solution to the issue of people who willingly enter contracting relationships being able to challenge their employment status.

The current employee/contractor boundary discourages businesses from offering contractors added benefits that are normally reserved for employees such as sick leave and parental leave. Our policy would give businesses the confidence to offer better benefits to contractors.

There are some who believe the solution is to clarify in legislation the employee/contractor boundary. This is not an ideal solution because it still gives workers the ability to challenge the nature of the relationship, which means it does not resolve the issue of business uncertainty or the costliness of having to go through the court process. It is also likely to be difficult, if not impossible, to design criteria that removes all ambiguity.

ACT’s solution

ACT will amend the Employment Relations Act so that contractors who have explicitly signed up for a contracting arrangement can’t challenge their employment status in the Employment Court. The contract must meet certain minimum standards that protect workers’ freedom to contract.

Our policy would explicitly exclude independent contractors from the definition of employee, as long as the contracting relationship meets certain criteria. This would give greater certainty to workers and businesses that they are entering a contracting relationship, and will impose minimum conditions for the contract framework.

The following criteria must be satisfied:

• a written agreement where the person is specified as an independent contractor and will not have access to full employee rights;
• the person was given sufficient information and an adequate opportunity to seek advice before entering into a contract;
• the agreement does not restrict the person from performing services or work for other businesses or undertakings, including competitors, or engaging in any other lawful occupation or work, except during the time from which the person commences a specified task provided by the business or undertaking until that task is completed;
• the business or undertaking cannot terminate the contract of the person for not accepting a specific task; and
• the business or undertaking has kept records in sufficient detail to demonstrate that the employer has complied with minimum entitlement provisions.

A contractor who believes the terms and conditions of their contracts are unfair has recourse under the Fair Trading Act which deals with unfair contract terms. If the business or undertaking has not satisfied the above terms, the worker may challenge their employment status under the Employment Relations Act.