Shifting goalposts

It has often been difficult for tradie business owners to navigate different employment structures, particularly when a business engages both employees and contractors. Historically, there has always been a risk that the Employment Relations Authority (ERA) could declare a contractor an employee, despite the terms of their contract.

This ability stemmed from a test labelled ‘the real nature of the relationship’, where the ERA would look at the actual function of the relationship to decide how it was classified.

The high-profile Uber case demonstrated the court’s ability to determine the “real nature” of the relationship, depending on the level of control a business had. If the business had a high degree of control, such as setting the hours, providing the uniform or controlling the pay of a worker, among other things, the court could deem a “contractor” an “employee,” possibly triggering backdated holiday pay and KiwiSaver obligations.

But as of February 21, the Employment Relations Amendment Act 2026 (the 2026 Act) came into force, and there has been a fundamental shift in favour of businesses. This change is particularly useful for employers in the industrial areas and trade spaces when deciding on different employment structures for workers, and will also provide more clarity and security for workers.

Now, if a worker has a signed written contract stating they are an independent contractor, and they meet the strict four-factor test required under the 2026 Act, then the ERA cannot look at the “nature” of the relationship.

The criteria steps are:
• First, a written agreement stating the person is an independent contractor.
• Second, a business cannot stop the worker from working for others, except in situations required for safety or protecting intellectual property.
• Third, the worker will not have specific times or days where they are required to be available, or they must be able to subcontract the work.
• Lastly, the contract must not restrict the worker from terminating the arrangement with a reasonable notice period.

This represents a significant shift to help employers in industry and trades so that there is more clarity, and less risk of expensive claims regarding worker status.

However, the new rules mean that it is more important than ever to have your agreements and contracts set out correctly. If you engage both contractors and employees, it is particularly important that your agreements are clear and set out the expectations of whether the worker is a contractor or employee. If your current contracts are vague or restrictive you may still be susceptible to the “real nature” test.

Informal ‘handshake’ arrangements also carry a lot of risk for both workers and business owners. Clear contractor or employment agreements are crucial and can provide invaluable protection for both employers and employees.