Lawyers attack bill's employee definition

By BRIAN FALLOW

WELLINGTON - The Law Society has thrown its weight behind criticism of the Employment Relations Bill's definition of employee.

The definition is extremely wide and will cover almost all independent contractors, even those who are truly independent and in business on their own account, the society says in its submission on the bill.

By implication, it also takes issue with Labour Minister Margaret Wilson's contention that under the bill no one is forced to change their employment status, pointing to provisions for class actions on employment status.

And it says that if the bill proceeds as it stands, someone could be an independent contractor for tax purposes while entitled to the protections of an employee.

This lack of consistency is likely to cause uncertainty and an increase in litigation.

The Law Society argues that widening the ability to classify independent contractors as employees creates a risk that businesses will no longer choose to engage independent contractors, denying both firms and workers the opportunity to have flexibility in their work arrangements.

Ms Wilson said in Parliament that it was not unknown for lawyers to disagree and she did not agree with the Law Society's interpretation.

The bill's definition of an employee was considerably narrower than the common law definition, she said.

Ms Wilson also implied that the legal profession had an interest in drumming up work for itself.

Clause 154 of the bill allows a union, a labour inspector or any member of a class of people to apply to the court for a declaration as to whether that particular class of people are employees under the bill.

That is likely to introduce delays, the society argues, and in the meantime parties will face uncertainty as to what their rights and obligations are.

It recommends a transitional period during which existing independent contractor agreements will remain valid.

Employers should also be able to seek such declarations.

Ms Wilson said the clause " was intended to ensure that people with few resources were not denied an opportunity to have their employment status determined.

"The intention is they seek the assistance of the labour inspectorate or union or an authorised representative to assist them in getting a declaration as to their employment status."

The society says that the bill does not make clear how the definition of employee will affect the Accident Insurance Act or the Income Tax Act.

"If the bill goes ahead in its current form the test adopted by the Inland Revenue Department will be clearly different from the tests set out in the bill, as the latter specifically states that `less weight' must be given to what is stated in the contract."

The society says that to avoid uncertainty and increased litigation the bill's definition of employee should either be amended so that it is consistent with tests the IRD uses, or the bill should clearly state how it will affect the tax act and the Accident Insurance Act.

Revenue Minister Michael Cullen reiterated on Tuesday that contractors' tax status would not be directly affected by the bill.

"At a later date there may have to be some consideration of whether there should be two definitions of employee. But this would only be done after wide consultation, with full consideration given to any tax consequences."

Looming tax law to stop employees avoiding the top tax rate by diverting income to a company trust or partnership was not an attempt by the Government to bring more people into the employee group and deny them deductions. Income-related deductions would not be affected, Dr Cullen said.