Helen White: Employers finding ways around job law

When disaster strikes contractors can be vulnerable. Photo / Mark Mitchell

Companies and even government enterprises are increasingly contracting workers to avoid hard-won employment rights.

The Pike River mine explosion and the Hobbit movie row illustrate a serious issue now affecting thousands of low-income workers.

After the Pike River disaster, the widow of a mine contractor explained that, in addition to the loss of her husband, she also faced the loss of all money owed to him and his two employees. Her husband, a contracted electrician, had reportedly worked 15 hours a day for the mine.

Despite this level of loyalty, dependence and vulnerability to one company, her husband, as a contractor, and his workers, lacked the protection afforded Pike River employees.

In the Hobbit dispute, actors were deemed to be "contractors" in order to save the industry from perceived negative consequences of employment protection legislation.

Over successive generations, New Zealand has built an enviable "cloak of protection" in the form of its labour laws - because employed workers are recognised as being vulnerable.

Employees have minimum terms, conditions, pay rates, holidays and rights.

In this regard, Pike River employees were priority creditors - but "contractors", like that loyal electrician and his workers, were not. Why the difference? Because contractors, in business on their own account, are perceived as being "independent" and therefore less vulnerable than wage-earning employees.

However, the reality is that contractors are not "independent" if they depend on one income stream from one company or enterprise. In fact, they are just as vulnerable, or more, than employees.

So why do laws in this country not protect contractors? The sad truth is that the use of contracting is growing worldwide, largely because companies can avoid the obligations they would have to employees doing the same work. Companies that regard employment rights as an impediment to growth don't need to challenge those rights directly, they can simply fail to provide protection by engaging "contractors" who lack employment law protection.

Perhaps a lack of enthusiasm displayed by successive governments for constraining the abuse of contracting is not surprising, given that public "enterprises" use contracting in ways that evade risk and liability.

During the 1990s, hospitals ceased to employ their own cleaners and contracted out cleaning services - transferring workers, along with their redundancy rights, to private companies that often went bust, leaving workers without compensation.

Our society is failing to protect those who need it because it is not recognising the use of a particular breed of "contractor" - those who are not truly independent but who often contract to work exclusively for a single enterprise and finance their equipment through the company they are contracted to.

In actuality, such contractors are far less "independent" than employees, because they stand to lose more financially if terminated.

When an employee loses a job, the impact ripples out to the family through loss of income.

However, a contractor who loses a sole contract with a company, in which he or she has a financial investment via the equipment used, is even more devastated.

This is not true for truly independent contractors who have a number of contracts with several enterprises and who are not likely to be wiped out by the termination of one contract.

Some of the controls that companies and other private and public enterprises impose on "independent contractors" and their workers, which makes them vulnerable by eroding their independence, are:

* The obligation that the contractor must work exclusively for the one enterprise.

* The right to veto hiring.

* Restraints on the contractor from working for a competitor during or after employment for several months.

* The obligation for the contractor to extend the enterprise's business and pass on that business to the enterprise.

* The ownership of all information by the enterprise.

* The control of contractors' equipment which cannot be used for any other purpose.

* The control of the amount of money paid, which can be decreased or increased without further agreement.

* The payment of flat rates during set hours, so that no matter how much the contractor works, earnings cannot be increased.

* The right to manage the way the work is carried out in minute detail.

When deciding whether a person under a contract of service is "employed" or "engaged" as a contractor, the courts must determine the real nature of the relationship between them.

The appropriate legal test has been examined by the Supreme Court in Bryson v Three Foot Six (No 2).

In that case, "control" of Bryson was only one of the factors considered relevant.

I suggest that, as a matter of good public policy and fundamental principle, the right to "control" a worker and the worker's consequent vulnerability, is the crucial issue.

If a worker can be effectively sacked by the enterprise and if a contractor has no ability to develop that enterprise independently, he or she should not be called a "contractor".

Even if they are called "contractors", they should receive no less protection than employees, because to terminate the worker unjustifiably would be equally harmful.

* Helen White is a specialist employment barrister based in Auckland.