In Collaine v Kiril, Kiril Ltd advertised for, and thought it had engaged, a selfemployed permanent labour-only worker (independent contractor) who would become an apprentice. The Employment Relations Authority (ERA) disagreed with Kiril’s interpretation and determined that the worker was in fact an employee.
The facts
Collaine started work for Kiril on 12 January 2022 under an arrangement where he would be an apprentice but in circumstances where he understood that the company’s director Mr Kirilov ‘wanted to see how I worked before calling BCITO, the apprenticeship programme’.
On starting, Collaine was not provided an employment agreement but rather an IR330C tax form where the selected tax rate was for activity 8 – contracts wholly or substantially for labour only in the building industry. Kiril explained that Collaine was paid a higher hourly rate of $27 in acknowledgement that he would not be provided with statutory entitlements among other things.
Collaine later signed an apprenticeship training agreement with Kiril on 26 January 2022.
The ERA acknowledged that Kiril clearly intended for Collaine to be an independent contractor apprentice and that a number of steps had been undertaken to establish this status. The ERA also considered Kiril’s submission that it was industry practice that labourers be engaged as independent contractors. The ERA, however, considered this intent to be insufficient in light of other facts.
These were some of the facts considered by the ERA:
- Intent of the parties – while Kiril had clear intent, this was not shared by Collaine who gave evidence he thought he was employed.
- Control of Collaine – it was accepted that there was an apprentice relationship where Collaine was carrying out supervised work.
- Integrated nature of Collaine’s work at Kiril – Collaine was found to only be working on Kiril projects and allocated tasks at the start of each day.
- Fundamental test – whether Collaine was working for himself. While Collaine had a limited number of his own tools, Kiril provided the majority of his tools of trade.
- Apprentice agreement – the BCITO apprentice agreement stated ‘this document forms part of the Employment Agreement between the employer and the apprentice/learner’. Section 10 of the Education and Training Act 2020 references an employment relationship where the apprentice is an employee. Implied in this is that the supervisor is an employer. Section 362 of the Act states, ‘Training agreements and apprenticeship training agreements are part of the employment agreement between the employee and employer concerned.’
Opens way to a claim
The ERA’s finding that Collaine has employee status means Collaine can bring personal grievances and minimum standard claims against Kiril. This includes claims for unjustified disadvantage and dismissal, KiwiSaver, unpaid annual holiday entitlement (4 weeks) and sick leave (10 days).
Kiril faces claims that will likely be based off Collaine’s higher hourly rate of $27 per hour as opposed to the minimum wage rate he may have otherwise been paid.
Precedent established principles
In the 2021 case of Barry v C I Builders Limited, the Chief Judge of the Employment Court also found that an experienced builder who had previously run his own company was not an independent contractor despite both the builder and his hirer thinking it was a contract for service at the time the agreement was entered into.
The judge determined the main issue was whether the agreed label of independent contractor was correct for the purpose of section 6 of the Employment Relations Act 2000. The judgment references the ‘reality’ of the factual scenario several times before reaching a conclusion that Barry was an employee.
The parties’ lawyers agreed, when assessing the relationship, to apply principles that had been established in a previous case called Leota v Parcel Express. The Collaine case also reflected the Leota principles:
- Does the hirer have the right to exercise control over the work performed?
- Is the worker integrated into the hirer’s organisation?
- Is the worker required to wear a uniform and/or display material that associates them with a business (such as car signage)?
- Must the worker supply and maintain their own tools?
- Is the worker paid according to task completion rather than wages based on a time record?
- Does the worker bear any risk of loss or conversely have any chance of making a profit from the job?
- Is the worker free to work for others at the same time?
- Can the worker subcontract the work or delegate performance to others?
- Is taxation deducted by the hirer from the worker’s pay?
- Does any business goodwill accrue to the hirer?
- Does the worker receive paid holidays or sick leave?
- Does the agreement describe the worker as an independent contractor?
The Court held that Barry ‘was not in reality operating a business on his own account. Rather, he was working for CIB in CIB’s interests.’ Barry should have been receiving all the legal entitlements of employment. This included annual and sick leave, bereavement and parental leave, KiwiSaver contributions and the right to bring a personal grievance if he was sacked without cause.
Preventing costly mistakes
Ensure that you have your workers on the right type of contract for the right type of work. While employment paperwork can be a pain at the outset of a relationship, the above cases evidence how important it is to get this right and what the cost can be if it is not approached correctly.