Mr A had a sales target of one house per month. During the 11-month period that he worked for SHHBL, he only sold one house rather than the 11 expected. Because of this, Mr A was put on a three-month trial by the SHHBL Manager which required him to reach his targets or his services would no longer be required. Mr A resigned with immediate effect. He then filed proceedings in the Employment Relations Authority.
The first thing the ERA had to decide was whether Mr A (irrespective of the written contract) was in fact an employee. Remember the protections under the Employment Relations Act only extend to employees – not independent contractors. If he was an independent contractor he was not entitled to sick pay, holiday pay nor could he bring a claim for Unjustified Dismissal .
The ERA had to determine the real nature of the relationship between Mr A and Signature Homes.
The matters which supported Mr A being an employee of SHHBL were as follows:
· Mr A was clearly integrated into the operations of SHHBL. A potential customer would undoubtedly consider him as being involved with the SHHBL organisation and structure.
· There was considerable control exercised over the way in which Mr A worked. He was part of a roster and often directed to work from the office if he was not taking a day off.
· He was expected to wear SHHBL business shirts.
· He had no way of varying price or other terms of the sales contracts for new homes.
· The majority of his potential client leads came from SHHBL and he was required to follow them up.
However, there were also significant features about the relationship which pointed to its real nature being that of an independent contractor. These included:
· The terms of the written agreement made it very clear that he was an Independent Contractor and provided that he was not entitled to sick leave, annual leave or any other such payments.
· The parties’ mutual intention at the commencement of the contract was that it was to be an independent contracting arrangement.
· Mr A was paid only by way of commission on sales made.
· He was free to use his own contacts for work outside his normal hours in order to help achieve sales.
· Mr A never claimed that he was an employee until the date of his resignation.
· Mr A provided his own car and cell phone .
· The harder Mr A worked, the more likely it was that he would achieve higher earnings for himself (as well as SHHBL).
· The industry practice was that of independent contractors.
Weighing up all the relevant factors, the ERA concluded that Mr A was in fact an independent contractor and his was not a case that could be brought to the ERA
There is often a fine line between an employee and an independent contractor. Those businesses who engage independent contractors need to be absolutely clear in the terms of the agreement and ensure that the relationship does not unintentionally become that of employee / employer. If you don’t get it right you may find yourself liable for backdated holiday pay , sick leave and on the wrong end of an unjustified dismissal claim.
Remember the Courts will look behind a written agreement at the true nature of the relationship – an employee is still an employee even if they are called an independent contractor.
