The New Zealand government has announced proposed amendments to the Employment Relations Act that aim to clarify the distinction between contractors and employees. The move was spurred by the recent Court of Appeal decision ruling that Uber drivers are employees under the ERA, and growing concerns about worker protections in the gig economy.
The central feature of the new legislation is a “gateway test,” designed to determine whether a worker is a contractor or an employee. Workplace Relations and Safety Minister Brooke van Velden announced that the test includes four criteria:
If all four criteria are met, the worker will be classified as a contractor. Should any of these not be fulfilled, the existing tests, such as the “real nature of the relationship” test used in court, will apply.
The proposed changes come in the wake of a landmark Court of Appeal ruling, where four Uber drivers were classified as employees, not contractors, entitling them to benefits like holiday pay and minimum wage protections. The court emphasised that these drivers were not running independent businesses but were economically dependent on Uber, sparking renewed debates about worker classification.
Van Velden’s legislation aims to provide clearer guidelines, particularly for businesses operating in the gig economy, such as ridesharing and delivery platforms, which rely heavily on flexible contractor arrangements. She emphasised that these reforms would create “greater certainty” for businesses and contractors.
The business sector has largely welcomed the proposed legislation. Business New Zealand’s advocacy director, Catherine Beard, expressed strong support, arguing that the new test will provide much-needed clarity. “Contracting has been around since Greek and Roman times. It’s a well-known way of working. This simply clarifies for both the contractor and the business exactly what they’re getting themselves into,” she said.
Freightways CEO Mark Troughear echoed these sentiments, noting that the proposed test ends “five years of ambiguity” for businesses, particularly in sectors like distribution and logistics where contractor-based models are prevalent.
However, the response from unions has been far more critical. Richard Wagstaff, president of the Council of Trade Unions, argues that the changes undermine workers’ rights by making it easier for businesses to classify individuals as contractors, stripping them of benefits and protections. Wagstaff emphasised that the courts have long used a case-by-case approach to employment status, which considers the “true nature” of the relationship between the worker and the business.
Wagstaff argues that the proposed legislation will “create more confusion” rather than clarity, criticising the government’s decision to introduce the legislation following the Uber ruling. “Just the idea that you can make something simpler by removing rights for people is a poor justification,” he said. First Union organiser Marie Aldcroft went further, saying she was “disgusted” by the move, arguing that the government is rushing the law changes before allowing courts to fully process the case.
Van Velden has repeatedly stated that her goal is to simplify the contractor vs employee for businesses and contractors. Speaking to BusinessDesk, she stated, “I’m not interested in trying to create […] a third category of worker,” referring to suggestions that a new classification might better address the gig economy’s unique challenges.
“This is about ensuring simplicity and certainty under our law, rather than adding more complexity,” Van Velden added, noting that while some legal experts have raised concerns about potential retrospective application of the law, such details would be worked out in the final legislative process.
The question of how to classify gig workers has been a global issue, with countries like the UK and Brazil grappling with similar challenges. In the UK, Uber drivers have been classified as “workers,” a category that provides limited employment rights like holiday pay but stops short of full employee status. Brazil is considering measures that would grant app-based drivers a minimum wage and social security contributions.
Van Velden has acknowledged that the gig economy will continue to evolve, potentially necessitating further legal adjustments down the line. “We’ve got a whole generation of people who have grown up online and expect to have more flexibility in their work; being able to have more flexible work arrangements, being able to work from home, being able to work remotely, being able to pick and choose their hours, and I would expect the gig-based economy to be growing, especially with digital platform work.,” she said.
The government intends to introduce the Employment Relations Amendment Bill in 2025. If passed, the bill would cement the gateway test as the standard for determining contractor status, providing what the government argues will be a more straightforward process for businesses and contractors.
