The line between being an employee or an independent contractor can be a grey area in many industries where flexibility and autonomy are key drawcards for its workers.  But that line may soon become clearer, with legislative change on the horizon.

Workplace Relations and Safety Minister, Hon. Brooke van Velden, announced last year that the Government will introduce changes to the Employment Relations Act aimed at providing greater clarity for businesses and independent contractors. Central to these changes is a proposed ‘gateway test’: a four-part threshold that, if met, would conclusively classify a worker as an independent contractor and prevent any future challenge to their status before the Employment Relations Authority. 

The four-part ‘gateway test’

The proposed ‘gateway test’ would require:

• a written agreement specifying the worker is an independent contractor;
• no restrictions on working for other businesses, including competitors;
• flexibility in when and how the work is done, or the ability to sub-contract; and
• no penalty for turning down additional tasks or engagements.

Why this matters for direct selling businesses

For businesses that rely on large networks of sales teams or distributors, often labelled as independent contractors, the ‘gateway test’ could either bring long-awaited clarity, or new risks, depending on your current practices.  If your agreements and/or practices fall short of the ‘gateway test’, your salesforce may still be able to bring an employment status claim.  On the other hand, we consider that the ‘gateway test’ presents a strategic opportunity to:

• strengthen your contractor status with clearer, tailored agreements;
• re-evaluate worker incentives and controls, ensuring they don’t undermine independence in practice;
• build contractual flexibility, including express rights to sub-contract, refuse work and engage with competitors; and
• mitigate legal exposure by updating onboarding processes, training materials and operational policies.

What’s next?

We expect that the Employment Relations Amendment Bill will be introduced in Parliament this year.  In the meantime, now is a good time to review your current business practices and ask:

1. Do your contractor agreements clearly satisfy all four elements of the proposed ‘gateway test’?
2. If not, could your contractors potentially bring an employment status claim under the existing legal tests?
3. Are your day-to-day business practices consistent with the independence your contracts describe?

For more information on the ‘gateway test’ (and existing tests used by the Employment Relations Authority or Employment Court), read our FYI here.

We recommend that direct selling companies keep an eye on further developments of the Employment Relations Amendment Bill. We would also be happy to assist with preparing a submission when the Bill is introduced.

Special thanks to Minerva Peters and Cody Malaki for their assistance in writing this article.