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Employee? Contractor? Why does it matter?

By Terri Gough - 21 Jun 2019

Sometimes the distinction between an employee and an independent contractor is unclear. In the eyes of the law however, the difference is profound.

An employee receives all the protections afforded by the Employment Relations Act and common law. In particular, the employer is obligated to deal with the employee in good faith and cannot terminate the employee's employment unjustifiably. Furthermore, the parties to an employment agreement must comply with an obligation of trust and confidence towards each other.

The contractor, by contrast, receives no such protections. The principal engaging a contractor may terminate the contractor's services on notice, they need not treat them with good faith and there is no implied mutual obligation of trust and confidence between the parties.

It follows that establishing whether the person you engaged is an independent contractor or an employee is critically important. To differentiate them one must determine the real nature of the relationship. In turn, this requires an assessment of such factors as:

  1. The intention of the parties.
  2. Whether the services are performed by the person on their own account. This includes consideration of whether they provide their own equipment, whether they hire their own assistant(s), the degree of financial risk they are taking and the degree of responsibility for investment and management they have. Also relevant is how much they are likely to profit from their own endeavours in the performance of the services rendered.
  3. The degree of control that is exerted by the principal/employer over the work and the manner in which it is to be done. The greater extent to which the person is regulated and supervised, the more likely they are an employee.
  4. Whether the work performed is an integral part of the business and whether the person can be considered part and parcel of the organisation.
  5. Common industry practice.

The analysis is not always easy and factors sometimes point in different directions.  Martelli McKegg's specialist employment law team can assist you if you have any queries or concerns.

Contacts

Terri Gough

Andrew Steele

 

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