Partner claims he was actually employed despite holding 20% stake in company
The Employment Relations Authority (ERA) recently dealt with a preliminary determination involving a man who claimed he was an employee of a window importing company where he held a 20% shareholding, seeking unpaid wages and compensation for alleged unjustified dismissal.
The worker argued that he was employed full-time and entitled to $1,000 per week wages, while also claiming unjustified disadvantage and dismissal when the business relationship ended.
He contended that despite being a shareholder, he was working as an employee and should receive employment law protections.
Business venture origins and partnership structure
The parties met through a mutual sailing friend in January 2019 after the company directors indicated they had a business idea to sell windows manufactured in Turkey for the New Zealand market and needed assistance with translation and understanding Turkish business culture.
The worker, originally from Turkey with an entrepreneurial background, was introduced to help with their venture.
During their initial meeting, the directors offered to pay the worker as a contractor for translation services, but he declined payment and instead suggested they pay for an open-ended return trip to Turkey to accompany one director on a business trip.
The worker also mentioned he had family in Turkey, including his mother, whom he would visit as part of the trip.
Following their successful trip to Turkey in March 2019, the worker advised that Turkish companies would only do business with incorporated companies and recommended incorporation.
The parties agreed that once the company was profitable, the worker would receive 20% of any profits for his efforts in translation, relationship building and sales.
As a result of this agreement, the company was incorporated, and the worker was given a 20% shareholding, with business cards indicating his role as "international business coordinator."
Work arrangements and payment disputes
The worker's position was that he was hired as a full-time employee with the company undertaking to pay all his expenses, including $1,000 per week as wages.
However, the directors' position was that they had only agreed to pay the worker's travel and expenses, and that he understood they were partners in a start-up business, often referring to one director as a business partner and the business as "our business."
The directors made various payments to support the worker's activities, initially for travel and business expenses, and later for living expenses when he moved to Istanbul in Turkey.
The male director stated that the agreement was that once the company became profitable, the worker would repay the living costs over time from the profits out of his 20% shareholding.
Throughout their relationship, the worker made requests for money, which were typically granted, with payments coming from the male director's personal bank account and sometimes from another company's account when personal funds were low.
The worker openly shared his independent business ventures with the directors, including an unsuccessful attempt to export manuka honey from New Zealand to Turkey, demonstrating his entrepreneurial activities outside the window business.
Communication patterns and business development
The parties communicated informally through WhatsApp messages, with exchanges that were "friendly and jovial at the start, and reflected an equal standing between the two individuals."
The worker acted autonomously in many business decisions, including arranging meetings with suppliers, suggesting business strategies, and making independent decisions about his work location and schedule.
In text message exchanges, the worker consistently referred to himself as a business partner. In December 2021, he wrote to the male director:
"I work for my self in company I am partner with you… You win I win." In March 2022, when requesting $200, he advised it could go on his "loan," indicating his understanding of the financial arrangements.
The worker demonstrated significant autonomy in business operations, including choosing to sail back to New Zealand instead of taking a purchased flight in 2020, finding employment in the UK during the COVID-19 pandemic, and later leasing office space in Auckland for the company at his own initiative.
He also arranged for a website to be built for the company and sought business relationships with property developers without specific instructions.
Relationship breakdown and employment claims
Tensions developed in the working relationship by April 2024, particularly over costs associated with website development.
The worker had initially said he could build the website for free, but later sought payment after engaging his former business partner to build it. This led to heated discussions between the parties.
Following this disagreement, the worker asserted that he was an employee and stated that he shouldn't have worked without an income for five years. In one of his final messages to the male director on 25 April 2024, he wrote:
"I don't have to educate you in your due diligence as a director and address my rights as a working partner." He then ceased all communication and raised a personal grievance claim on 16 May 2024.
The worker's claims included unjustified dismissal, unjustified disadvantage and unpaid wages against the window company and potentially another construction company, as well as against both directors individually.
His case was based on the assertion that, despite his shareholding, he was actually employed by the companies.
ERA analysis of employment relationship
The ERA applied the established legal test, examining the parties' intentions, how the work was carried out in practice, and applying three common law tests: control, integration, and the fundamental test of whether the individual was in business on their own account.
Regarding the parties' intentions, the ERA found "there was never any intention for an employment relationship of any sort."
The Authority noted that the worker "made decisions about what, when, how and where he chose to work" and "was free to engage in other work, businesses and obtain employment elsewhere."
The ERA determined the parties intended for the worker to have autonomy "because it was intended for [him] to be [a] partner of the business as a 20% shareholder and nothing more."
The ERA found that in practice, the worker "worked independently," identifying himself as a business partner, driving business direction as he saw fit, working hours and locations of his choice, referring to payments as loans consistent with shareholder drawings rather than wages, not requesting employee benefits, and working on his own business ventures.
The Authority concluded his conduct was inconsistent with that of an employee.
ERA’s final determination and outcome
Applying the control test, the ERA found the worker "largely set his own time for work, including location of work around the world" with a "level of autonomy inconsistent with the role of an employee."
The Authority noted examples of his independence, including choosing to sail instead of taking a purchased flight and finding employment in the UK.
On the integration test, while the worker was "the face of [the company] in Turkey," the ERA found this "equally reflects [him] being a business partner as it reflects him being an employee."
The fundamental test showed he was "operating a business for his own reward" as evidenced by his actions in leasing showrooms, building websites, and seeking business relationships "with the expectation that he would reap profits as a 20% shareholder."
The ERA concluded that the worker "was not an employee of any of the respondents" and had "entered into a business relationship with [the directors] as a 20% shareholder."
The Authority noted that the company "had no existing business, no bank account in its name, no sale, no windows available for sale" and that, unfortunately, "the business was unsuccessful."
All claims were dismissed, with no orders made for wages or compensation.
