Employment in a “gig” economy – independent contractors and employees

Gig economy blog

As our labour market changes with current economic forces, there is a growing pressure on the way in which employers characterise and organise their workers.

An ongoing debate exists in employment law when considering how to distinguish between independent contractors and employees. New Zealand currently has two categories of workers; employees and independent contractors. Employees are classed under section 6 of the Employment Relations Act 1996. They fall under an employment agreement, working in return for a wage or salary. An employee is entitled to the minimum employment rights, including minimum wage, holiday pay, and various types of leave. Employees also retain the right to raise a personal grievance. 

An independent contractor is engaged primarily under a contract for services. They are self-employed, and invoice the employer for their services. They are not entitled to any employment rights, and they pay for their own taxes.

Workers in New Zealand are legally expected to be classed under one of these two categories. However, there is an inherent grey area which exists between the two for those whose work does not fit within either category.

Categorisation issues have come to the fore in the rapid expansion of the “gig” economy, where workers such as Uber drivers, have found themselves trapped within this grey area. MBIE has classed these workers as ‘vulnerable workers’. They are not entitled to employment rights, yet their work is often less autonomous than independent contracting. 2019 saw MBIE propose a new hybrid category of worker known as a “dependent contractor”. A “dependent contractor” would be entitled to a few minimum employment standards such as paid leave and protection from unjustified dismissal, whilst retaining a degree of autonomy over working arrangements and taxes. 

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A third category of worker has already been introduced in other jurisdictions such as the United Kingdom. In the case of Uber BV v Aslam, the Supreme Court ruled a group of Uber drivers as ‘workers’ for Uber, rather than independent contractors. This case saw formal recognition of a third category of worker, which is entitled to some employment standards such as holiday pay and the minimum wage, whilst retaining the nature of an independent contractor role. 

In New Zealand, E tu Inc & Anor v Raiser Operations BV & Ors also saw Uber drivers declared employees. When assessing the nature of the relationship under section 6, the court took a realistic view on the role of the drivers. This case further highlighted the urgent need for clarification around the various types of workers.

High performance sporting athletes in New Zealand are also disputing their current employment status as independent contractors. The difficulty in classing professional athletes as employees surrounds the tight controls an employment relationship has over the employee. Professional athletes often incur business interests outside of their training. Thus it will likely be a challenge to confine professional athletes to one particular employment category. 

Following public feedback, the current Labour government established a Tripartite Working Group to recommend a set of policy changes regarding the intersection of “employment” and “contracting”. As an alternative to a third category of worker, the Working Group recommended changes to assist in clarifying the boundaries between contractors and employees. This could provide clear statements of principle in defining where a worker sits. 

It is evident that legislation and law-making could reflect the changing economic environment. There certainly is scope for debate around either options of reform. It is arguable around whether either options would adequately protect ‘vulnerable workers’ or whether they would add further complexity to the issue. The elite athlete claim against High Performance Sport NZ in February 2023, at the very least, will add to the growing debate.

For further information or assistance with navigating your employment law needs, please contact our 
Employment Team.

Authors: Annabel Jones and Troy Wano

Troy Wano is a partner at Govett Quilliam and leads our employment law team and Annabel Jones is a Law Clerk at Govett Quilliam.