Covid, technological advances, changing perspectives on work and the Court of Appeal's Uber decision have challenged the traditional notion of what it means to be an employee in New Zealand. Last month ACT announced a gateway test for a new class of worker, 'contractor', agreed by the coalition government to be introduced as a Bill in January 2025 to amend the Employment Relations Act 2000 (ERA). Click here for a short summary by Anne Wilson.

This article considers the implications for employees, employers and other types of workers of the evolving classification of workers in New Zealand.

The changing definition

New Zealanders work in diverse fields with increasingly flexible working arrangements. Much of this work no longer fits into the traditional definition of an employee as under s 6 of the ERA as ways of working have changed with developments in technology. For some, new ways of working provides the opportunity to work flexibly on their own terms and, in some cases, running their own businesses. Other workers are vulnerable and at risk of missing out on core employment protections such as minimum wage, sick leave and Kiwisaver contributions leaving them exposed to exploitation as the gig economy remains largely unregulated. Businesses need certainty on worker classification to ensure they are complying with minimum employment rights and tax obligations (to avoid costly claims and liability for back payments to workers improperly classified as contractors).

The current test- s 6 of the ERA

The current test to determine whether a worker is an employee entitled to minimum employment protections is set out in s 6 of the ERA. This test was applied in the Uber decision to determine whether Uber drivers were employees or independent contractors. The Courts have grappled with how to apply the test to new and novel work arrangements, suggesting the definition is no longer fit for purpose.

The current test involves an 'intensive factual analysis' of the following key factors:

• what was the intention of the parties when forming the agreement (was the person meant to be an employee or working on their own terms?);
• what is the level of control exercised over the worker by the company (can the worker choose when and how they work?);
• to what extent is the worker integrated into the business (does the worker wear a uniform? Do they hold them self out as being part of the business?); and
• the fundamental or economic reality test (is the worker operating a business on their own account with a genuine ability to profit from their own good management?).

Employees will usually have a high level of control exercised over the way they work including dictating how and when the work is done, be highly integrated into the business and provide services related to the employer's core business and will be paid a salary or by the hour with little ability to profit from the company's financial success. By contrast, an independent contractor will have flexibility and control over their hours and place of work, a genuine opportunity to build a business (with the ability to attract and retain customers / clients and generate goodwill) and an ability to influence their work (effort invested into the business reaps rewards).  

The Uber decision

The decision

Last month, the Court of Appeal confirmed the 2022 decision of the Employment Court finding that Uber drivers are employees under s 6 of the ERA. In the Employment Court, Chief Justice Inglis found that Uber drivers were employees while they were logged into the app rather than carrying out their own independent transport service business as Uber claimed.

The Court accepted that drivers had some ability to control their work (and income) through choosing their hours and times of work but found that this did not amount to a genuine opportunity to run (and profit from) their own business. There was no opportunity for Uber drivers to make decisions such as marketing and pricing decisions or to take risks (and obtain a reward) and no opportunity for them to build goodwill and a customer base. Instead, Uber exercised full control over the terms on which the drivers offered the transport services.

Uber has announced its intention to appeal the Court of Appeal decision to the Supreme Court stating that the decision will bring uncertainty for workers who value the flexibility of contractor relationships.  

The new proposed test

Uncertainty around worker status has increasingly plagued the Courts in both New Zealand and overseas since the new millennium with cases involving film workers in the Lord of the Rings (prompting new legislation in this area), courier drivers, and more recently the Uber litigation.

As part of the Coalition Agreement between Act and National, the parties agreed to address this uncertainty through new legislation. In September, the Minister for New Zealand Workplace Relations and Safety, Brook van Velden announced a proposed gateway test to be introduced as an amendment to the Employment Relations Act next year, for businesses to use when responding to a claim whether a person is an employee or a contractor. The purpose of the gateway test is to recognise the role that contractors, and flexible workers, play in the economy and to provide some certainty to businesses to be able to provide better conditions to contractors, as well as to promote the use of innovative business models.

The current proposed test (which is subject to consultation through the Select Committee Process once it is introduced as a Bill), is:

To be classified as a contractor the working arrangement must meet the following four factor test:

1. a written agreement with the worker specifies they are an independent contractor;
2. the business does not restrict the worker from working for another business (including competitors);
3. the business does not require the worker to be available to work on specific times of days or for a minimum number of hours or the worker can sub-contract the work;
4. the business does not terminate the contract if the worker does not accept an additional task or engagement.

If any of the four factors are not met, then the traditional section 6 test will apply.

The change is planned to be progressed through an Employment Relations Amendment Bill, introduced in January next year. The announcement is not unique, many other jurisdictions (for example the UK and Singapore) have already introduced similar 'in between' or contractor worker classes to address the changing way people work.

What will this mean?

The Government's announcement has been well received by the business sector. Businesses will be have more control about how to structure their workers and more certainty that they can avoid claims from contractors in the Employment Relations Authority and Employment Court if they structure their working arrangements with contractors to comply with the four factor test. By contrast, the Union's are wary of the proposed change, concerned it will limit worker rights and leave them vulnerable to exploitation. However, the four factor test will provide some protection for contractors as, in return for not being entitled to minimum employment rights, their right to work for competitors and control the way they work will be secured.  

The change will impact many workers in New Zealand including:

• Platform or 'gig' workers (uber, uber eats, hola, deliver easy, doordash drivers etc.)
• Creative and social media workers (influencers, content creators, affiliate and social media marketers)
• Health and wellness workers (personal trainers, fitness instructors, freelance physios, etc.)

The implications of the change will not be fully apparent until further details of the amendment are announced. We will be watching for any further announcements, and in particular how the new test will intersect with other frameworks such as the 90-day trial period, casual and fixed term agreements and triangular employment relationships.

What can you do?

Employers should ensure that workers (particularly independent contractors) have written contracts clarifying their status and that the expectations and obligations of the worker are clearly specified from the outset of the relationship. If the way the relationship operates in practice is different from the contract or changes over time, the business should review the circumstances and reclassify the worker. If the business is unsure, seek advice.  

If you have questions about how these changes may affect you, or your workers, please get in touch with our employment partner Anne Wilson or one of our employment law specialists.

Thanks to Law Clerk, Elizabeth (Beth) Wray for her assistance with the preparation of this article.