The question of whether or not a person is an employee is a fundamental one.
It has come into sharp focus with a decision of the Full Employment Court in Prasad v LSG Sky Chefs NZ Ltd  NZEmpC 150 regarding contractors of a labour hire agency who worked at LSG Sky Chefs. Despite having contracts with the labour hire agency describing them as “contractors”, those individuals were found to be employees of LSG.
The Employment Relations Act 2000 defines who is an employee. That is “any person of any age employed by an employer to do any work for hire or reward under a contract of service”. The test for determining whether a person is an employee is “what is the real nature of the relationship between them”? In applying that test, all relevant matters must be considered, including any statement of the parties’ intention, but must not “treat as a determining matter any statement by the persons that describes the nature of their relationship”.
In Prasad, the labour hire agency (Solutions) initially engaged the workers as “independent contractors” and recruited them to work for the end user (LSG). The agency paid the workers after being funded by LSG for that purpose and after taking a margin for their services. The workers did not receive holiday pay or other employment rights, although they were paid the minimum wage. The workers were also paid less than the rates
in the LSG collective agreement for their work.
After their initial recruitment, Solutions played no real part in the working relationship, other than paying the workers according to timesheets the workers filled out at LSG. LSG rostered the workers and had complete control over their hours of work. LSG could dismiss the workers and did dismiss one of them. Arrangements for leave were made with LSG. LSG controlled almost all aspects of their work and the workers were integrated into LSG’s business.
Each worker worked exclusively for LSG for several years and the workers weren’t placed on other assignments by the labour hire agency. Later on, when a Labour Inspector became involved, Solutions created a new company called Blue Collar and began paying the workers holiday entitlements. However, the Employment Court found this made no real difference to the real working relationship.
Based on these facts, the Employment Court found the real nature of the relationship between LSG and the workers was one of employment. It didn’t matter that the workers were described as labour hire agency workers nor that they had signed contracts to that effect, because they were “in reality” employees of LSG.
There is every chance LSG may appeal this decision. In our view though, the decision in no way puts an end to the use of labour hire agency workers. It simply reinforces the need for employers to have in place rigorous systems and practices that minimise the risk the workers will be deemed to be their employees, as opposed to employees of the labour hire agency.
Another recent case from the United Kingdom involved Uber drivers. In Aslam v Uber BV  IRLR 4 ET the Employment Tribunal held Uber drivers were really employees not contractors and were entitled to the minimum wage, holidays and so on, notwithstanding a comprehensive written agreement governing their relationship. That case is being appealed to the Employment Appeal Tribunal, which is at a similar level as our Employment Court.
Why is all of this important? If a person is an employee, a suite of protective laws applies to that person, including the minimum wage, annual and public holidays, sick leave (all of which the employer has to provide) and the right to bring a personal grievance. However, employees also have duties to their employer that are not automatically present in normal contracting situations, such as the duty of fidelity, the duty of personal service and the duty of obedience.
A person who is not an employee has none of these protections, but may also have some advantages. These may include advantages in terms of taxation, and the ability to have more control over his or her work. The Employment Court has said that any “deficit in bargaining power” is going to be relevant to whether a person in fact has any such advantage.
In some respects, the United Kingdom is aligning with the test for employment in New Zealand legislation, which has existed since 2000. The written agreement is only part of the bargain, and the courts may peek behind that agreement and look at all relevant matters to determine the real nature of the relationship.
As the gig economy develops, questions about who is an employee and who is not remain as important as ever.