Employment status: employees not contractors…

The Employment Relations Authority has held that several drivers for a taxi company were employees, not independent contractors, and has ordered payment of holiday pay and minimum wages of $97,000 plus other expenses and interest.

The ERA had to determine whether certain taxi drivers were employees or contractors because these drivers did not have Contractor Agreements with the taxi company and also did not have Employee Agreements either.  Other drivers with the company did hold Contractor Agreements.

The ERA looked at the four tests to determine whether the drivers were employees or not.  The first test is the intention of the parties but there was no written agreement, so it had to look at the conduct of the parties and the context of the agreement.  In this case the company did have agreements with its independent contractors, other than these drivers.  It also deducted PAYE from these drivers’ income, issued pay slips, paid some Kiwisaver contributions and provided vehicles for these drivers (but not the contractors).

The second test is control.  The ERA found that there was a roster that the drivers had to adhere to, there was close scrutiny of their work and they got their jobs from a central dispatch system.

The third test is integration into the business. The ERA found that there was significant integration because of the roster and because they were provided with fully maintained vehicles, which they were not able to let out to other drivers, or use for any work outside of the company.

The last test is the economic reality test.  This means: Were the drivers in business on their own account?  The ERA found that the drivers did not invest any capital and had no possibility of making a capital gain or loss or creating any goodwill.  The company deducted PAYE and paid some Kiwisaver contributions and the drivers did not fill in any tax returns.  They also only worked for the taxi company and did not have any other customers.

Taking all these factors into account the ERA found that they were employees and therefore the company had to pay $61,500 in unpaid minimum wages and $35,800 in holiday pay, plus other expenses and interest.

Two major issues are still to be decided in the case.  The first of those is any penalties to be imposed for non-payment of minimum wages and holiday pay and not having Employment Agreements for employees.

The second major issue is whether the Directors of the company should be personally liable for the unpaid wages and holiday pay, as they have stopped operating the company and it has no assets to pay any of the awards made.

Any company contemplating taking on contractors (versus employees) should be very careful to ensure that they are true contractors, because getting that status wrong can result in very large back payments and penalties.

Alan Knowsley

Employment Lawyer Wellington