Employer argues they transitioned into 'contract for services'
The Employment Relations Authority recently dealt with a case involving a dispute over the nature of the working relationship between two parties.
Roheeni Bhana incorporated Health Management Systems Limited (HMSL) in July 2015, initially serving as the sole director and shareholder.
She worked on establishing and developing software for the company, later known as cure8health. By March 2020, Bhana had brought in two other directors, Mr. Tomlinson and Dr. Valentine, but remained the majority shareholder.
Changes in company's structure
In October 2020, a "Heads of Agreement" (HOA) was signed between HMSL and two other entities, The Sovereignty Network Limited (TSNL) and Health Blocks Inc (HBI).
According to records, the HOA outlined commercial arrangements between the companies and their principals, including the allocation of shares in HBI to the "Founding Members."
By November 2020, Bhana was removed as a shareholder and director of HMSL but continued to work in the company's business.
Founding member turned employee?
Under the HOA, founding members had the option to "Be paid at $40 per hour now" or "Be paid at $80 per hour later," based on timesheets and invoices submitted to the company.
Email exchanges between Bhana and HBI's Chief Financial Officer, Mr. Daniel, confirmed that Bhana was GST registered and that payments to her from HMSL would be based on her GST invoices.
A "standing invoice" was set up for Bhana's monthly payments of $8,000 plus GST.
In December 2020, Bhana was sent an independent contractor agreement, which she did not sign but responded, "Best we discuss this." The matter was not pursued further by either party.
Bhana's bank statements showed monthly payments consistent with the invoicing arrangements. In July 2021, Bhana agreed to a "pay cut" to help the company continue until it secured more investment.
Disagreements and termination
From July or August 2021, business disagreements developed between Bhana, MacDonald, Valentine, and Tomlinson.
Bhana's involvement in these disagreements appeared more consistent with her role as a business owner and independent contractor rather than an employee, according to the Authority.
On 30 November 2021, the employer sent Bhana a letter giving notice of termination of her "contract for service" effective 15 December 2021.
The Authority considered various factors, such as the HOA, invoicing arrangements, and Bhana's involvement in business decisions, to determine the nature of her working relationship with HMSL.
Independent contractor or employee?
“In summary, the changes brought about by the HOA by which Bhana relinquished her directorship of HMSL, exchanged her 42% shareholding in that company for an approximately 21% shareholding in HBI and entered into a commercial relationship were in furtherance of her business interests in the creation of cure8health software,” the Authority said.
“In that context, Bhana accepted the terms offered to her by the HMS Contracting Agreement – Cash agreement, under which there was a contract for services between Bhana and HMSL. That status was consistent with the common intention of all involved.”
“In practice, the relationship remained a contract for services. Although Bhana was fully integrated in HMSL’s business, her principal work after the HOA was the continuing development of her product,” the Authority said.
“Bhana was not an employee,” it concluded. Consequently, the Authority added that Bhana's relationship with the company was more similar to that of an independent contractor.
