A recent Employment Relations Authority decision may force businesses to rethink how they engage contractors. The Authority has held a worker to be an employee even though the true intention of the parties, and widespread industry practice, classified him an independent contractor.

JB Contractors operated a construction business. It received a complaint from an employee that he, and his girlfriend, had seen two workers urinating against a wall at a building site at an after work drinks function.

One of the employees was thought to be Lee Hook. Believing that he was a sub- contractor, and not an employee, the Company dismissed him without carrying out any investigation that met the minimum standards of procedural fairness required for dismissing employees. Mr Hook brought an unjustified dismissal claim against the Company claiming that he was an employee.

To determine whether or not Mr Hook was an employee with personal grievance rights, the Authority considered the new provisions of the Employment Relations Act which define employment status - what was the "real nature" of the relationship?

The Employment Relations Authority found that the true intention of the parties was to create a relationship of contractor and sub-contractor, and not one of employer and employee. This was also consistent with widespread practice in the construction industry.

It then considered other relevant matters such as the "control test" the "fundamental test", and the "integration test". These pointed to Mr Hook being an employee, and not a sub- contractor.

As regards the "control test", Mr Hook was expected to work specified hours, and directed to undertake specific tasks. He was also supervised as to his standard of workmanship. The was very little room for him to use his initiative in which tasks he would undertake or how he would undertake them.

As regards the "fundamental test", although he provided his own hand tools, he did not provide heavier tools and equipment. He also had no responsibility for investment and management and took no financial risks.

He was not genuinely in business on his own account and, in terms of the "integration test" he was not "his own man".

The Authority held that, although the true intention of the parties was to create a relationship of contractor and sub-contractor, the "real nature" of the relationship was one of employer and employee. "For me to determine otherwise would allow the possibility that any employer and any employee could form an intention that their relationship was one of principal and independent contractor for it to be so. Subsection 6 (3)(b) of the Employment Relations Act 2000 clearly determines that the Authority should not treat any such statements by the parties as determining employment status" the Authority said.

The Authority went on to find that Mr Hook was unjustifiably dismissed and awarded him lost wages, holiday pay, and $1000 compensation for humiliation and distress.

This decision marks quite a departure from previous decisions decided under the Employment Contracts Act. For example, in a case involving a deck hand on a fishing boat (Muollo v Rotaru) the Employment Court held that ". the answer in each case is to be more reliably found not by beginning with the well-known tests of presumed intention (the control test, the organisation or integration test, the fundamental test, the true intention test, and the multiple test - some of which overlap), but by falling back on these tests only as a last resort when the actual intention cannot be found otherwise in the evidence or deduced from it". In Mr Hook's case, the tests of presumed intention were used as a first resort, and prevailed over the true intention of the parties, which was to create a relationship of principal and independent contractor.