A new test for workers who want to challenge their employment status as contractors is on its way. Here’s everything you need to know.

On Monday, workplace relations and safety minister Brooke van Velden strode onto parliament’s tiles with a fuchsia-coloured clutch, perfectly matching her signature coat. Granted, it was made out of cardboard, and probably filled with A4 printouts of the Employment Relations Act, but it was on-brand. 

It was a quick reset from her contract gig in Auckland on Sunday, where she made a Door Dash delivery in her Act-branded Honda, complete with giant vinyl headshots of a smiling van Velden on its sides. Why? To promote an announcement about upcoming changes to the Employment Relations Act – a new “gateway” test to determine whether workers are employees or contractors. So, into what paddock does this gateway lead us?

What will change?

The new test will be a legal tool for businesses to use when responding to a claim that someone is an employee and not a contractor. It will come before the existing test in the legislation can apply, therefore acting as a gateway (some say barrier). It sets out four criteria:

• A written agreement with the worker, specifying they are an independent contractor.
• The business does not restrict the worker from working for another business (including competitors).
• The business does not require the worker to be available to work on specific times of day or days, or for a minimum number of hours OR the worker can sub-contract the work.
• The business does not terminate the contract if the worker does not accept an additional task or engagement.

If all four are met, the claim cannot progress – the gate is closed. By law, the person will be a contractor, and will not be able to challenge that legal status. If one of the four isn’t met, the gate opens, and the existing test then applies. 

The existing test is set out in section six of the Employment Relations Act, which defines the meaning of “employee”. Whether someone meets the definition, or “the real nature of the relationship”, is determined by the Employment Relations Authority or the Employment Court. There are usually a number of competing factors, none of which is singularly definitive. Legal tests have been developed under common law to apply when assessing them. These are:

• The intention test: the type of relationship that the parties intended. This can normally be worked out from the wording in written agreements or contracts – if they exist.
• The control vs independence test: the greater the control exercised over the worker’s work content, hours, and methods, the more likely it is they are an employee.
• The integration test: this looks at whether the work performed by a person is fundamental to the employer’s business. If it is, it’s more likely that a person is an employee.
• The fundamental/economic reality test: this looks at whether the contractor is a person in business on their own account. As their own business they should invoice, pay their own tax, and work for multiple entities.

Why does being an employee or a contractor matter?

In short, an employee has more rights. Employers must pay tax, KiwiSaver contributions, ACC, holiday pay, and sick days for their employees. They also can’t just get rid of an employee – they’d have to have a reason (misconduct, poor performance, or redundancy) and follow a fair and proper process. A contractor is entitled to none of these things.

If a worker has been treated as a contractor but is found to be an employee in the court, that worker is then entitled to challenge unfair dismissals, statutory minimum employment entitlements like minimum wage, paid holidays and leave, and access to benefits like KiwiSaver or the right to bargain collectively. This costs businesses money.

Gordon Anderson, professor emeritus in the faculty of law at Te Herenga Waka, wrote last week that “although the statutory minimums are very much a safety net (the minimum wage, for example, is about $4 below the living wage), many employers are happy to try to evade these costs”. He said that the reality of “gig companies” like Uber is that they “seek to enhance their profits by evading or avoiding national regulation and by shifting the costs of providing their service onto the drivers”.

Why is this happening now?

Connections have already been made to the landmark Employment Court ruling that classified four Uber drivers as employees rather than contractors in October 2022. Uber appealed the decision in 2023, but it was rejected on August 26, 2024. As employees, the four drivers are entitled to the minimum wage, guaranteed hours, holiday pay, sick leave, KiwiSaver contributions, the right to challenge an unfair dismissal, and the right to unionise and collectively bargain. In June, while consulting for these legislative changes, van Velden confirmed that she had met with Uber.

Act campaigned on amending the Employment Relations Act last year, and legislative reform around contractor status was included in the Act-National coalition agreement. In a bullet point under the heading “employment”, it states, “Maintain the status quo that contractors who have explicitly signed up for a contracting arrangement can’t challenge their employment status in the Employment Court.” “Taking Cabinet decisions” on this is point 14 of the Coalition Government’s Q3 Action Plan.

How is van Velden selling the changes?

“Increased certainty for contractors” was the subject of van Velden’s press release announcing the changes. “Contractors play an important role in New Zealand’s economy and society,” it read, and their services in the gig economy are “a hallmark of our modern age”.  The actual benefits are weighted to employers, however, with van Velden saying the changes “will provide businesses with more certainty to proceed with innovative business models involving contractors”, with less risk of a costly court process.

She suggested businesses might offer workers better terms and conditions with less concern that it might impact a contractor’s status. Providing certainty for businesses was a theme, with the implication that this would filter down to workers.

What do the unions make of it?

Surprising no one, the New Zealand Council of Trade Unions has come out against the changes, urging National and NZ First to “block Act’s anti-worker agenda”. President Richard Wagstaff said the amendment would deny misclassified workers their fundamental rights. “Businesses will be encouraged to exploit the contractor loophole,” he said.

Wagstaff said the changes were designed to benefit employers – “multinational corporations and unscrupulous employers” – in the gig economy. “Uber has lost in court and the government is going to legislate so that they, and companies like them, don’t lose again.”

E tū, the biggest private sector union in the country, is also opposed, saying that while legitimate contractor arrangements exist, “a worker’s ability to challenge their status is a crucial part of ensuring these arrangements aren’t used improperly to deprive workers of their rights and protections”.

E tū national secretary Rachel Mackintosh said the workers most often disadvantaged by improper contractor arrangements were the most vulnerable – such as migrants and people who can’t find secure work. “Taking a sledgehammer to workers’ rights and protections like this is a clear demonstration that van Velden does not have a solid grasp of the intricacies of employment relations in Aotearoa New Zealand.”

Who else opposes it?

In a press release, the Greens’ spokesperson for workplace relations, Teanau Tuiono, said the changes marked “the latest episode in a series of assaults on workers’ rights”.

Tuiono said the announcement emphasised how deep the government was in the pocket of big business. “This is something that quite clearly plays directly into the hands of companies looking to cut corners and boost profit margins at the expense of our workers – by denying people sick pay, holiday pay, and job security.”

Labour’s employment relations spokesperson Camilla Belich was less damning, saying the government was looking to limit the type of matters that could be considered when determining whether a worker is an employer or a contractor, reported 1 News. “We would be concerned if New Zealanders’ rights were being taken away by this change,” Belich said.

Are businesses popping the champagne?

It seems many industry bodies are in support of the change. The Employers and Manufacturers Association, New Zealand’s largest business association, said greater certainty around contractors’ status would be welcome news. “Clarifying the contractor status gives employers certainty without having to test it through the employment courts,” said head of advocacy Alan McDonald. 

BusinessNZ advocacy director Catherine Beard told RNZ that contracting was a well-known way of working. “This simply clarifies for both the contractor and the business exactly what they’re getting themselves into.” She said if workers didn’t want to be contractors, they should find full-time employment instead. BusinessNZ said the Uber case had created “a high degree of uncertainty” for businesses.

What questions remain?

The announcements around this change have been simple, based on four succinct bullet points. However, employment lawyers from Bell Gully said there were still a number of details to be ironed out around things like approval of subcontractors, whether employers could be asked to work their hours within a timeframe, and restrictions on working for another business through the use of conflict of interest. There are also questions around the rights of contractors – like whether they will be advised to take legal advice before signing a contractor agreement or provided with specific information about their legal status as a contractor. Much of this will remain unknown until a draft bill is introduced to parliament next year.