A recent judgment of the Employment Court could have wide reaching ramifications for businesses who operate under a model utilising owner/operators on independent contract arrangements. 

The decision, Leota v Parcel Express Ltd, centred around the employment status of Mr Leota, who sought, and was granted, a declaration from the Court that he was an employee of Parcel Express, despite having signed an independent contractor agreement.

Background

Mr Leota signed an independent contractor agreement with Parcel Express in 2018. In return for a guaranteed minimum daily payment ($240/day plus GST), he was given an assigned ‘run’, or delivery area. Mr Leota was required to purchase his own van at a cost of $17,000 (the bulk of which he paid for via a loan and repayment arrangement back to Parcel Express and the van’s previous owner).

In addition to the van, the Court noted the following in relation to Mr Leota’s obligations:

• The requirement to pay a $2,000 bond and lease a scanner for $120/month;
• The delivery area had boundaries set by Parcel Express;
• Mr Leota had to comply with any directions of the CEO or senior managers;
• He was required to participate in in-house briefings and instructions;
• He was required to hold insurance;
• He was not to exceed 20 working days holiday per year and had to organise a relief driver approved by Parcel Express during any period of leave; and
• He was responsible for his taxation.

Mr Leota worked for Parcel Express for about a year. His contract came to an end when he raised a payment issue following a request to pick up tyres for a week, on an unpaid basis, by the Managing Director. Parcel Express terminated his contract the day after Mr Leota raised this issue. It then raised issues relating to his performance, which resulted in it making deductions from Mr Leota’s final payment.

Court decision and analysis

Section 6 of the Employment Relations Act 2000 requires a court to determine the ‘real nature of the relationship’ between the parties. It must consider all relevant matters, and any statement that describes the nature of that relationship is not determinative. Accordingly, the fact that Mr Leota’s agreement included a statement that his relationship with Parcel Express was that of an independent contracting party did not mean that this was necessarily the case in practice.

There is significant case law around how to assess whether individuals are employees or independent contractors, and various tests are applied to assist in this assessment. Increasingly, the higher the level of control stipulated in a contract, the higher the level of risk that it may in fact be an employment agreement and not independent at all.

The Court in this case looked at the control held by Parcel Express including:

• the predetermined run given to Mr Leota
• his inability to: choose his customers; change his days of work; take leave without approval and without limitation; and
• the fact he had to be at the Parcel Express depot at specific times each day

and the Court found that these were all factors that showed that Parcel Express exerted a high level of control.

The Court also looked at the economic reality of the situation. Parcel Express contended that Mr Leota was free to grow his own business, but this was rejected by the Court, which found that Mr Leota did not have the spare time to do so. He was not free to take his business with him on departure, and the Court found that any growth would in fact have benefitted the company and not Mr Leota.

As an aside, the Court also commented on the fact that Mr Lepta was at a disadvantage in terms of bargaining power, when he entered into his contractor agreement, as English is his second language.

On a final assessment of the factors listed above and others detailed in the judgment (including the limited relevance of industry practice), that Court found that the scales were ‘firmly’ tilted in favour of a finding of employment status, and had ‘no difficulty’ in concluding that Mr Leota was not in business on his own account.

Implications of this decision

Because of the Court’s declaration, Mr Leota will be able to retrospectively apply for all statutory benefits applying to employees. The termination of his contract was also not carried out in a manner that complies with the rights of employees, which may result in further cost to Parcel Express as ‘employer’. An assessment of whether Mr Leota’s remuneration met the requirements of the Minimum Wage Act could also be expected.

While the Court made clear that its decision related only to Mr Leota’s circumstances, there are potentially wider implications of the Leota decision (which is still within its appeal period) as there are a number of owner/driver operators in the courier industry.

Similarly, other businesses that involve drivers operating their own vehicles in anything other than an employment relationship should also assess their practices in light of this decision. This is commonplace in the gig economy, so we encourage businesses who utilise workers in this way to undertake a review and risk assessment in light of this decision, as Minimum Wage and Holidays Act accruals could result in considerable additional business costs.

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