For years the law has grappled with the question whether a particular person is an employee, or an independent contractor. Under the Employment Contracts Act, clearly expressed contractual intentions of the parties prevailed over all other considerations. So if the contract was wholly in writing, that was the end of the inquiry.

The Employment Relations Act introduced a new test for determining employment status. Section 6 directs the Employment Court and Authority to "determine the real nature of the relationship between [the parties]".

In a recent case, Koia v Carlyon Holdings Ltd (AC 56/01), the Employment Court considered for the first time the meaning of section 6, and whether it changed the "contractual intention" approach of cases decided under the Employment Contracts Act.

The case concerned Sam and Debbie Koia who in 1994 contracted with Carlyon Holding Limited to distribute the Company's Mother Earth and Rosedale range of products to supermarkets and dairies. They paid $40,000 for the distributorship and purchased a delivery vehicle for $25,000.

Originally there was no written contract between the parties, but in 1998 one was prepared and signed. The contract stated that Mr Koia was an independent distributor, and not an employee. It also gave him the right to distribute the Company's products to supermarkets and diaries within a described territory.

The contract required Mr Koia to buy merchandise from the Company. The Company set both the purchase price of the merchandise and the price Mr Koia could sell it to his customers. Mr Koia was not permitted to sell any other goods unless approved by the Company.

Goods purchased by Mr Koia were deemed to be his own property from the time of receipt. They were also to be invoiced at the time of dispatch, and the invoice was to be paid no later than the end of the month. The Company could terminate the distributor contract for late payment.

Mr Koia was required to use a delivery vehicle approved by the Company as to colour, size, and standard of maintenance and hygiene. He was also required to purchase and wear a uniform.

Mr Koia was not permitted to transfer or assign his distributorship without the Company's prior written consent.

On 8 September 2000, the Company terminated Mr Koia's distributor contract on two week's notice. Mr Koia tried to unsuccessfully to sell his distributorship, but in the end lost his $40,000 capital investment. He sued the Company for unjustified dismissal in the Employment Relations Authority alleging that he was an employee, and not an independent contractor.

After considering the terms of the distributor contract and how the arrangement operated in practice, the Authority held that the "real nature of the relationship" was that of an independent contractor, and not an employee. It therefore dismissed Mr Koia's claim on the basis that, as an independent contractor, he had no personal grievance rights.

Mr Koia challenged the Authority's decision in the Employment Court. As this was the first time it had considered the meaning of section 6 ERA, the Employment Court convened a full bench of three judges to hear the case instead of the usual one.

The Court went on to hold that the "real nature of the relationship" between Mr Koia and the Company was that of an independent contractor, and not an employee. "He did venture into business on his own account with all the attendant risks" it said. Mr Koia's personal grievance claim was dismissed.

In a decision issued last week, the Employment Court removed from the Authority another case concerning employment status. In that case, a number of tradesmen are suing a defendant company for unpaid holiday pay alleging that they were employees, and not independent contractors.

One of the issues in the case is whether section 17(c) of the Interpretation Act 1999, which preserves existing status or capacity when an Act of Parliament is repealed, requires that their employment status be determined using the old "contractual intention" approach, and not the new "real nature of the relationship" test. The tradesmen were all engaged prior to the Employment Relations Act 2000 coming into force and the Company is arguing that section 6 of the ERA does not apply in the circumstances. The case is yet to be heard.