One of the key changes is to the definition of “employee” under section 6 of the Act, which now includes an exclusion for “specified contractors”. This has the effect of making it expressly clear that a person who meets the criteria of being a “specified contractor” under the Act, is not an employee.
The term “specified contractor” is new and clearly defined.
A “specified contractor” is defined as “a person (person A) who has entered into an arrangement with another person (person B) under which person A either performs work for person B or performs work for a third party that is facilitated by person B”, and meets the following five requirements:
- the arrangement includes a written agreement that states that Person A is an independent contractor and not an employee;
- except while performing work under the arrangement, there is no restriction on person A to not perform work for any other person;
- person A is not required to be available to perform work under the arrangement at a specified time or on a specified day, or for a minimum period. Or, person A is allowed to subcontract the work to be performed under the arrangement without having to have the subcontractor vetted for this. Or, if vetting is to be done, it must only be for the purposes of ensuring compliance with any relevant statutory requirements, or if justified, to do criminal record and/or relevant qualifications checks, with this to be assessed on a case by case basis;
- termination for reason that person A declined any work offered to them is prohibited;
- person A must have had a reasonable opportunity to seek independent legal advice before entering into the arrangement.
For businesses, this change may come as welcome relief given it provides greater certainty that independent contractor arrangements which meet the five requirements may carry less risks of being challenged as being employment relationships. Businesses should, however, be careful not to treat the five requirements as being simple and easily satisfied. It is not that straightforward!
Businesses must ensure any written agreement they wish to use for a “specified contractor” arrangement is carefully drafted. For example, the terms of the agreement should align with the five requirements listed above. Additional terms that are relevant, not contrary to the five requirements, and which ensure the entire agreement works practically, and is fit for purpose, will be critical.
Businesses may require advice on how to navigate through the availability and sub-contracting requirements. They may also require advice on how best to satisfy the requirement of giving a prospective contractor the opportunity to obtain independent legal advice before entering into the agreement.
For businesses, it would be prudent to review existing contracts with independent contractors, and have these varied to the extent necessary, so that they align with current laws. Not doing this may mean that the business carries the risk of uncertainty as regards a possible claim by a contractor in the future, that they are an employee, as opposed to a contractor, and financial exposure. Such disputes are unpleasant, stressful, take up resources that could otherwise be focused on running the business, and are costly. If a contractor is found to be an employee, they will be entitled to recover monies owed by way of any unpaid wages, holiday pay, sick leave pay and other statutory entitlements.
Businesses are also encouraged to have new agreements drafted for any new person they want to engage as an independent contractor. This will ensure the agreement meets all the requirements of the law as it now stands.
In assessing these changes, some businesses may decide that an independent contractor arrangement with existing contractors carries significant risks, due to the terms on which they currently operate. They are encouraged to obtain advice on how best to manage this and any risks that are present, may persist in the future and how best to address these.
Independent contractors should check their written agreements and have them varied so that they align with the current law. These may result in situations where some contractors may be able to enjoy greater independence than they previously had, and which may advantage them.
