Case demonstrates how financial arrangements can signal genuine employment conversion
The Employment Relations Authority (ERA) recently dealt with a case involving disputed employment status and unpaid wages. The matter concerned a worker who claimed recovery of wages for work completed as an employee, whilst the employer maintained the worker was engaged as a self-employed contractor throughout their relationship.
The worker argued that whilst he initially operated as an independent contractor, the working arrangement fundamentally changed when he raised financial concerns about the viability of the contracting model.
He claimed the employer then offered him employment on an hourly rate as a short-term solution, creating a distinct employment relationship for which wages remained unpaid.
The employer disputed this entirely, arguing that no employment relationship ever existed and that all work was performed under contracting arrangements on a per-load basis.
The dispute arose from a failed business transaction between the parties. The worker originally attempted to purchase a truck and trailer unit from the employer, making payment and expecting to collect his equipment when he arrived in Taupō. However, this transaction did not proceed as planned, leading to alternative working arrangements.
Instead of the truck purchase, the employer offered the worker use of his truck around 3 October 2023. The worker then completed deliveries using the employer's truck on a per-load basis as a contractor for the employer's logistics company, which was in receivership. During this initial period, the worker invoiced the company on a per-load basis and paid his own expenses.
The worker operated with considerable independence during the contracting phase. On one occasion, he arranged for a friend to complete a pickup, demonstrating the autonomous nature of the arrangement.
During the ERA investigation meeting, the worker acknowledged he "performed the majority of his work for [the employer] or his company in the capacity of contractor paid on a per load work basis."
The worker later approached the employer about financial difficulties he faced with the contracting model. The worker explained during proceedings that "the contracting on a per load basis was difficult to make financially viable - although the rate was higher, expenses were too." This conversation became central to the worker's claim that their relationship fundamentally changed.
Following the worker's concerns about the contracting arrangement's viability, the employer offered to personally pay the worker as an employee at $34.00 per hour as a short-term solution.
The employer made an initial payment of $5,676.11 to the worker on 26 October 2023, which the worker's bank statement confirmed represented wages for work completed under the new hourly arrangement.
The worker then performed an additional 73 hours of work under what he claimed was the employment arrangement. He sent an invoice to the employer personally for $4,846.10, requesting payment for this second period of employment work. The worker received partial payment but remained owed $1,981.09, which formed the basis of his wage recovery claim to the ERA.
The worker distinguished this employment work from his earlier contracting activities through several operational differences. During the claimed employment period, he reported hours worked rather than loads completed, had all expenses covered by the employer, and invoiced the employer personally rather than the company.
The worker maintained these changes reflected the genuine transformation of their working relationship from independent contracting to employment.
The worker clarified during proceedings that his "claim for work performed for [the employer] as an employee was for a total outstanding of $1,981.09 – an amount remaining unpaid for work performed of 73 hours which was different and in addition to the contracting arrangements."
The ERA applied the Employment Relations Act 2000 to determine the worker's status. The law defines an employee as someone employed to do work for payment under what's called a "contract of service." The key requirement is that authorities must look at the actual nature of the working relationship, not just what the parties call it.
The legislation requires authorities to consider all relevant matters when determining employment status, but it specifically states they should not rely solely on what either party says about their relationship. This approach means looking at how the work arrangement actually operated rather than focusing on labels or formal descriptions.
Recent court guidance outlined a two-step process for determining employment status. First, identify what the parties actually agreed to and how they operated in practice.
Second, apply established tests to determine if this amounts to an employment relationship. This approach focuses on the substance of the working arrangement rather than its formal structure.
The ERA found that the worker and employer had no written agreement for the alleged employment period. They verbally agreed limited terms after the worker expressed he could not survive financially on the contracting per-load rate.
The employer offered to employ the worker on an hourly rate as a short-term solution, which the worker accepted, continuing to drive the employer's truck for deliveries and reporting hours for payment on an hourly basis with expenses covered.
The ERA identified significant operational differences between the worker's contracting and alleged employment periods. During the claimed employment period, the ERA found "the employer controlled [the worker] more than when he did when [the worker] contracted to his business." Unlike the contracting period, the worker did not subcontract work to others when allegedly employed.
The worker completed what the ERA described as "effectively a record of hours worked" during the claimed employment period, which differed from the per-load invoices that "only recorded kilometres travelled and was sent to [the employer's] company" during contracting.
The ERA noted the payment arrangements supported the worker's employment claim, as "[the worker] was paid an hourly rate and had his expenses paid – to be contrasted with the much higher fee he would have received if he was contracting and covering his own expenses."
The ERA also considered that during the employment period, the worker invoiced the employer personally rather than the company, and the employer made payments from his personal account rather than through the business. These changes in payment arrangements supported the worker's argument that the relationship had fundamentally changed.
The ERA accepted the worker's argument that his relationship with the employer had genuinely changed from contracting to employment.
The ERA stated: "There is merit in the distinction that [the worker] makes between the per load work he performed for [the employer's] business when he absorbed most expenses, and the work he performed on an hourly rate basis for [the employer] (for which he was paid less but financially better off because all of his expenses were paid)."
The ERA addressed potential complications, including the worker's use of invoices during the claimed employment period, finding this was "a product of being eager for payment and doing what [the employer] had asked him to do."
The ERA also noted that while the worker's tax information suggested all work was categorised as contracting, "tax status is not determinative of worker status."
The ERA concluded: "I am satisfied [the worker] was an employee. [The employer] expressly said he would employ him and pay him an hourly rate plus expenses - different to the contracting arrangements. That reflected the real nature of the relationship in the limited context of work performed on an hourly basis as a short-term solution for the financial concerns raised by [the worker]."
