The problem of distinguishing between an employee and other
workers who are required to provide personal performance is one that most
employment lawyers have been aware of, if not since time immemorial at least
shortly thereafter. In New Zealand the
approach to this question is now subject to the statutory direction in s 6 of
the ER Act that the Authority or Court must determine the “real nature of the
relationship” taking into account all relevant matters that indicate the
intention of the parties and that any statement of intention is not to be
treated as determinative. This direction
and its effect has been considered in a number of cases including the Supreme
Court in Bryson v Three Foot Six Ltd
[2005] NZSC 34.
The issue of the employee-contractor distinction was, in
mid-2011 also considered by the United Kingdom Supreme Court in Autoclenz Limited v Belcher [2011] UKSC
41. This case, a unanimous decision of
the Court, was notable for its very realistic approach to employment contracts
and for its willingness to cut through the legal sleight of hand to determine
the true nature of the relationship.
The facts of the case were relatively typical and
straightforward. Autoclenz, who provided
car-cleaning services to various companies, decided to change the employment
status of its valeters to that of contractor.
This was done by means of a contract that placed great emphasis on the
workers being “self-employed independent contractors”, that contractors were
free to sub-contract to approved persons and that they were free to refuse to
provide their services on any particular occasion. These contracts were offered
on a take it or leave it basis, the workers having little or no input into the
terms. In practice of course little changed and valeters worked much the same
as previously although the nature of paying for the work, liability for taxes
etc changed as a result of the change in employment status.
It is not necessary here to provide a detailed legal
analysis but rather to highlight some of the more interesting points of the
Supreme Court’s decision.
The first is that a clear line was drawn between commercial
contracts and employment contracts and the Court was very clear in pointing out
that “Nothing in this judgment is intended in any way to alter those principles,
which apply to ordinary contracts and, in particular, to commercial contracts.”
In the case of employment contracts,
said the Court:
“the circumstances in which
contracts relating to work or services are concluded are often very different
from those in which commercial contracts between parties of equal bargaining
power are agreed. I accept that, frequently, organisations which are offering
work or requiring services to be provided by individuals are in a position to
dictate the written terms which the other party has to accept. In practice, in
this area of the law, it may be more common for a court or tribunal to have to
investigate allegations that the written contract does not represent the actual
terms agreed and the court or tribunal
must be realistic and worldly wise when it does so. ...”
It was accepted that one of the factors that the
worldly-wise courts should take into account was
“The concern to which tribunals
must be alive is that armies of lawyers will simply place substitution clauses,
or clauses denying any obligation to accept or provide work in employment
contracts, as a matter of form, even where such terms do not begin to reflect
the real relationship.”
Employment Court judges in New Zealand, to whom the
statement is equally applicable, might take heart from the Court’s quote from
Sedley L J where he stated the following “with characteristic clarity and
brevity”: ‘Employment judges have a good knowledge of the world of work and a
sense, derived from experience, of what is real there and what is
window-dressing’.”
New Zealand readers, alert to TNT
Worldwide Express (NZ) Ltd v Cunningham
[1993] 3 NZLR 681 (CA), might note that the Supreme Court expressly
doubted the view that contractual documents are to be regarded as expressing the
true intentions of the parties unless there was a sham intended to deceive
third parties. Statements of intention,
and particularly those effectively dictated by the employer, must give way to
the reality of the actual working relationship. The impact of Autoclenz in New Zealand is perhaps
limited given the presence of the statutory direction but it does serve as a
common law reinforcement of that direction and of the need to discern the
reality of the “working” rather than the legal intention.
The importance of this case is twofold. First it reinforces the view that what is
critical in determining the true nature of an employment relationship is the
real, on-the ground, operation of the relationship: the real nature of the
relationship to use the New Zealand parlance.
And second, that an employer should not be able to draft
your way around this reality.
Readers interested in an analysis of the case might refer to Julie
McClelland “A Purposive Approach to Employment Protection or a Missed
Opportunity?” (2012) 75(3) MLR 387–436.