You may have hired a worker as a contractor or have begun working as a contractor, but the Courts may see the relationship differently to you. Instead, the Court may decide that the relationship was rather one of employer-employee. This can have significant implications, as outlined below.

In deciding this issue, the Court has to consider the “real” nature of the relationship. To this end, the Court:

• Must consider all relevant matters, including any matters that indicate the intention of the parties; and

• Are not to treat as a determining matter any statement made by the parties that describes their relationship (e.g. if the contract describes one party as a contractor).

So what is the distinction between an employee and a contractor?

The distinction usually lies in whether the person is performing the services as a person in business on his/her “own account. If they are in business on their “own account”, they will usually be an independent contractor.

The Courts have developed a variety of tests over the years to assist in assessing the relationship. Examples of these include:

• What degree of control does the employer have over the work done and the way in which it is performed? The more control an employer has, the more likely it is to be an employment relationship.

For example, if the worker is required to work set hours, is not able to sub-contract the work out to anyone else, is unable to work for other competing businesses, is required to follow workplace rules and is closely monitored, this is may suggest that the “contractor” is actually an employee.

• Is the person a fundamental part of the business – are they “part and parcel of the organisation” or do they merely have an ancillary role?

The more integral to the business, the more likely you are to be an employee.

• Was the person performing the services on his/her own account or as part of the business?

For example, if the worker is providing his/her own tools/equipment, is invoicing the organisation, is able to hire his/her own labour and is responsible for his/her own tax and ACC payments, this may suggest that the worker is a contractor.

Why should this distinction be of a concern for me?

If you engage a worker as a contractor but then, later, that worker is held to be an employee, the following flow-on effects could occur:

• You or your organisation/company could become liable for backdated holiday pay and sick pay from the commencement of the services;

• The tax position will be reassessed. You may become liable for tax.

• The worker will be able to follow all of the processes contained in the Employment Relations Act 2000 including bringing a personal grievance against you/your organisation.

Vice versa, if you are performing work as a “contractor” but fail to see how your situation is any different to a regular employee, you may be missing out on employment entitlements which you are legally entitled to such as holiday pay/leave, sick pay, bereavement leave, kiwi-saver contributions and minimum wage entitlements. You may also believe that you are prevented from bringing a personal grievance against your “employer”.

If you are intending to take on a new worker and wish him/her to be a contractor, at a minimum you should ensure the following:

• That there is a “contact for services” contract in place (we can draft an appropriate document for you);

• That the person is invoicing you/your company for the services provided and payment is made on receipt of an invoice. The person will need to be responsible for their own tax and ACC payments;

• That you do not exercise too much control over the services and how they are being provided e.g. make sure there is flexibility in terms of when the services are to be performed and allow the person to undertake other work (even if it for a competing business);

• That the person provides his/her own equipment/tools (where appropriate).

If you are currently contracted as a “contractor” and are unsure whether in fact you should be classified as an employee, we recommend that you raise this with the business you work for and/or contact us for further advice.

Should you need any assistance with this, or with any other Employment matter, please contact Hannah Carey at Parry Field Lawyers (348-8480).

When a New Zealand company goes into liquidation, the liquidator can ask its creditors to refund payments they received prior to the liquidation. Parry Field Lawyers provide advice designed to help creditors avoid this risk.

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When an employer is considering making an employee(s) redundant or restructuring job positions, it is important that an employer shows good faith to its employees. The employer needs to ensure that the redundancy is genuine and must follow the correct process when carrying out either the redundancy or restructuring.

 

Reasons For Redundancies Must Be Genuine

Redundancies are a matter of managerial prerogative. The Court cannot question the commercial wisdom of a decision to create redundancies.  Rather, the issue is whether the redundancy is genuinely the reason for terminating the employment.

A redundancy is genuine if it is made for genuine commercial reasons.  Factors that may suggest that a redundancy is not genuine include;

  • Having job positions after the restructuring which are substantially the same as the previous positions, but may just have a different job title;
  • Hiring someone shortly after the redundancy for the same position that has been made redundant;
  • Where the redundancy is not the real reason for the dismissal – a redundancy is
    sometimes used as a camouflage to dismiss a worker for another reason e.g. poor performance or misconduct.

It is important that an employer keeps a clear paper trail of the background to the decision to restructure the business or make employees redundant.  These could be board or management meeting notes, letters to employees, financial records or any other documentation that may show that the redundancy was genuine.

Redundancy Process Must Be Procedurally Fair

Not only does the redundancy have to be genuine, but it must be carried out in a procedurally fair way. Under the Employment Relations Act 2000, it is part of an employer’s good faith obligation that when they are proposing to make a decision that will or is likely to have an adverse effect on the continuation of employment for 1 or more employees, the employer must provide the affected employees access to information relevant to the continuation of the employee’s employment and an opportunity to comment on the information before the decision is made.  Consultation with employees prior to the decision being made is an important part of this process.

The requirements of procedural fairness will depend on the size and nature of the business, but will usually require the following aspects;

  • Providing notice of the possible redundancy.
  • Consulting with staff who could be affected and giving them an opportunity to suggest any alternatives to redundancy.  This could involve options such as redeployment, job sharing or working part-time.
  • If the employer is intending to go through a selection process to decide which
    employees will be made redundant, an employer must adopt a fair basis for this selection policy and advise employees of how this decision will be made.  This could involve advising of what the selection criteria are, details of the positions available, information on who will be making the decision and a timeline for this process.
  • The employer must genuinely consider any options put forward by the employees during consultation prior to making a decision to dismiss.  The decision should not be pre-determined and should be free from bias.
  • Once the decision has been made, this needs to be communicated to the affected employees.  Pursuant to the employer’s duty of good faith, the employee needs to be given reasonable notice of their last working day.  Contractual notice periods need to be considered as part of this. There may also be an obligation on an employer to provide other practical assistance such as offering counselling, providing a work reference and assisting the employee in finding other employment.

Redundancies Where Business Sold

If a business is being sold or transferred, generally the provisions of an employee’s employment agreement must be followed. However, if the business has employees who work in the cleaning and food catering services at any workplace; laundry services for the education, health or age related sector; orderly services for the health or age-related sector; or caretaking services for the education sector, there are special rules that apply to them.  They have a right, inter alia, to choose whether to transfer on the sale of the business to the new employer.

 

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Employment matters, please contact Hannah Carey at Parry Field Lawyers (348-8480) or hannahcarey@parryfield.com

Although there is no minimum code as such in New Zealand Employment Law, there are certain rights that all New Zealand employers must honour in relation to their employees.

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New Zealand Exempt Collective Investment Vehicles – Submission on turning New Zealand into a Financial Hubinvestors and overseas sourced income.

Set out below is our joint submission with Christchurch law firm Helmores to the Inland Revenue Department on the officials’ issues paper “Allowing a zero percent tax rate for investors investing in a PIE“.

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You may have seen the term Portfolio Investment Entity or PIE used in the local newspapers and wondered what it was all about.  In this article we explain the reason for the provisions, and what they to do.

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Is a GST Domestic Reverse Charge a Good Idea?

GST is a hazardous tax, not only for taxpayers, but also for the Government. Unlike income tax, the Government has a commitment to refunding GST, and this part of the GST mechanism leaves the tax open to manipulation. The hazard is greatest where the assets sold are largest.  The domestic reverse charge mechanism will to an extent reduce the risk the Government faces from being ripped off through the GST system.

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In the recent Court of Appeal decision Commissioner of Inland Revenue v Penny and Hooper [2010] NZCA 231 (4 June 2010) it was held that Mr Penny and Mr Hooper entered into a tax avoidance agreement when structuring their affairs in such a way as to avoid paying tax at 39% on the majority of their income.  The surgeons have now decided to appeal the case, but if not successful it will have significant implications for a broad sector of the New Zealand public. Read more

What are the transitional rules for the GST rate increase if I account for GST on a payments basis?

What are the transitional rules for moving to the 15% GST rate in New Zealand from 1 October 2010 if you account for GST on a payments basis? The transition rules applying to those on a payments basis are arguably the most complex part of the change to the GST rate. This article helps explain these specific aspects of the transitional rules.

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When purchasing a property, it pays to investigate the history of the buildings on the land. If there are no records of building consents having been issued by the council, then at best the buildings may have been constructed without council approval and may not comply with the building code. At worst, they may be dangerous for use and occupation.

 

Background To The Building Consent Process

The Building Act 2004 (“the Act”) governs all building works in New Zealand. It states that such work must comply with the building code. The code is made up of regulations which prescribe the functional requirements for buildings and the performance criteria they must meet for their intended use.

Before undertaking building work, the owner of the property must obtain approval from a building consent authority. Usually, the building consent authority is the local council. Council approval for building work is known as a “building consent”.

During construction and once construction is complete, the council will inspect the work to ensure compliance with the conditions of the building consent and the building code. If the council approves the work, then it issues a code compliance certificate. It is an offence to carry out any work requiring a building consent if the work is not in accordance with the terms of the building consent. Also, subject to some exceptions, until such time as a code compliance certificate has been issued, it is an offence to occupy the building.

What Happens When Building Work Has Been Done Without A Building Consent?

Building consents cannot be issued retrospectively. However, if the work has been completed and a building consent was required but not obtained, then an application to the council for a “certificate of acceptance” may be made. This involves the council inspecting the work to determine if it complies with the building code. If it does, then it may issue a certificate of acceptance. However, such a certificate cannot be issued if the building work was carried out prior to 1992 as the building code was not in existence prior to that date.

It is not uncommon to come across properties where the buildings on the land have been constructed with a building permit or consent but the work has either never been completed, or if it has, the council has not approved it. If the work was carried out prior to 1 January 1993 and provided that the building is not “dangerous” or “unsanitary” as defined in the Act, then the council cannot take any action to require the owner to complete the work in accordance with the original building permit.

Make Sure Your Contract is Conditional on Approval of a LIM Report

The best way to check that there are no unauthorised buildings on a property is to obtain a Land Information Memorandum (known as a “LIM report”) before you buy it. This includes a summary of all records held by the council in relation to the property including details of building permits, consents, code compliance certificates and certificates of acceptance. To protect your position, any sale and purchase agreement you sign should be subject to approval of a LIM report for the property.

It is worth remembering that although the absence of permits or consents may not pose a problem while you live in the property, it may well become a problem once you decide to sell it. For that reason, a LIM report is money well spent. It could save you a great deal more at a later date.

 

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com

 

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