Legal : Contracting under the spotlight

With speed reminiscent of Tolkien’s Black Riders, the Government passed legislation to help the film industry keep the production of The Hobbit in New Zealand, but there are wider implications for other businesses, says Anthony Drake, partner at Kensington Swan.
There was an important prequel to the recent events, Drake says, in the first employment case to go to the New Zealand Supreme Court: Bryson v Three Foot Six Ltd [2005] ERNZ 372.
Bryson was engaged as model-maker on the Lord of the Rings trilogy. The contract said he was an independent contractor. When his services were no longer required and Peter Jackson’s company, Three Foot Six Ltd ended his contract, Bryson claimed that he was an employee, and as such, had been unjustifiably dismissed.
On appeal to the Supreme Court, Bryson was successful in his claim. The court considered that the company had high level of control over him (for example, he was required to work set hours), that he was integrated into the business (the company provided the training and tools he required to do his job) and that he was not providing services on his own account, despite being responsible for his own tax affairs. The real nature of the relationship was determined to be one of employer/employee, despite the written contract stating otherwise. Section 6 of the Employment Relations Act 2000 trumped the parties’ agreement.
Now that Warner Brothers, through Three Foot Seven, is back in New Zealand and seeking to engage workers for The Hobbit, it was understandably concerned about this level of uncertainty in its relationships with these workers.
It is this grey area the legislation addresses, says Drake.
“Its effect is that persons working in the film industry are deemed not to be employees, unless there is written employment agreement recording the parties’ agreement that the worker is to be an employee. Since 1992, similar clarity has existed for the real estate industry.”
However, the distinction between an independent contractor and an employee is an important one and can only be answered by examining the “real nature of the relationship”, says Drake.
An employee is afforded the protections of the Employment Relations Act and related legislation, including minimum standards of employment, the right to bargain collectively, and the ability to bring personal grievance if dismissed. An independent contractor has no such protections. Disputes are dealt with by the Disputes Tribunal or District Court, and not by the employment institutions. Contracts can be terminated by giving the requisite notice, with no need to justify the termination. In contrast, an employer needs to have substantive grounds for terminating an employee’s employment and follow fair and proper process.
“That is the intent behind section 6 of the Employment Relations Act 2000, and to deny businesses the ability to engage workers as independent contractors and not have the real nature of the relationship questioned,” says Drake. “It stops businesses effectively contracting out of the protections available under employment laws.”
While the film industry has been afforded certainty with regard to workers in its industry, it is timely reminder for other businesses in managing independent contractors, says Drake. Important factors include:
• Having the right written contract in place. While the label ‘contractor’ will not be determinative, carefully tailored contract can provide evidence of the real nature of the relationship and provide strong disincentives for the worker to subsequently claim that she or he is an employee.
• Insisting an independent contractor provide GST invoices. Where possible, enter into the agreement with the worker’s company.
• Ensure that your managers understand the distinction between employees and contractors and manage the different relationships appropriately.
The NZ Actors and Equity Union and CTV joined forces with the Australian-based Media, Entertainment and Arts Alliance, to target the Hobbit project. The unions’ strategy unfolded like Shakespearean tragedy, says Drake.
“The precept of good theatre is getting the audience to understand and sympathise with the situation. Far from it. There has been strong public backlash against the union movement over the black-listing of the Hobbit film production in New Zealand.
“Plainly the unions’ strategy was the wrong one. This may cause the union movement to rethink its future strategies before embarking on industrial action.