Change is upon us – redefining contractor status to the New Zealand Federation of Commercial Fishers
Last week Troy Stade, associate at Dawson & Associates, presented to delegates at the New Zealand Federation of Commercial Fishers conference in Wellington about recent changes to employment law as it relates to contractor status.
There has been a significant change to the Employment Relations Act and how contractor status is determined. It stands to directly impact how maritime operators engage crew onboard New Zealand vessels, with particular relevance to fishing operators.
Contractor fundamentals
Contractors are different to employees, and the two should not be confused – contractors are self-employed, can work for multiple parties, are largely responsible for their own taxes and levies, and the Employment Relations Act for the most part does not apply to them. As such they are not subject to minimum wage in the same way as an employee, cannot bring personal grievances, and are administratively less complex than an employee for whom an employer needs to manage PAYE, holiday pay, etc. The flip side of this is that contractors generally charge a premium for this. Contracting provides a way for operators to bring in specialized expertise and skillsets, over a fluid or short-term period, and in a way which has significantly less administration than an employee arrangement.
Changes to contractor status – the gateway test
From February 2026 there has been a new concept introduced of “specified contractor”. Specified contractors fall outside of the definition of employee, and thus largely the application of the Act. This raises the question of how does an operator know if someone is a specified contractor or an employee?
To answer this question the amendment introduced the “five limb gateway test”. In broad terms a contractor agreement must be able to demonstrate the following principles:
Operators must evidence a clear written contract. This is an obvious area of vulnerability for the marine sector, particularly fishing, where unwritten agreements are commonplace.
Contractors must be allowed to work for other parties without any repercussion. While most operators would likely not have an issue with this, there are complications for the maritime sector where crew are tied to vessels or sailing times; factors which are less relevant for terrestrial operations.
Unlike employees who are given hours of work where they must show up, contractors can select their own hours. Similarly, contractors are able to subcontract their work without the operator vetting the subcontracted party except for qualifications and criminal records.
Aligning with the third limb, contractors are able to choose whether or not to pick up additional work without their decision terminating the contractor arrangement. Put differently, in a contractor relationship, contractors can turn down additional offers of work and not have their engagement terminated.
Opportunity for independent legal advice. This limb is more procedural than the others but needs to be clearly evidenced in writing. What “reasonable” means is not defined, and it will depend on the circumstances, but we suggest a full week at least is a good rule of thumb.
Application of the gateway test to worker contracts
Failing to meet any of these five steps will cause the test to fail, at which point the orthodox (common law) analysis will be applied. This involves the Employment Relations Authority or Employment Court assessing the operator’s degree of control over the worker, how integrated the worker is in the operation, the economic reality, and what the expressed intention is of the parties. Through this analysis it is possible, even if the parties both say the worker is a contractor, for the worker to be deemed an employee.
For example, a worker could be determined as being absolutely crucial to the business (for example a core manager rather than a specialist who comes in for a specific task and then leaves), or the operator could be seen to be controlling when they can and cannot work, or be responsible for the worker’s income taxes, levies, and other fees. All of these circumstances would likely end with the worker being found to be an employee, not a contractor, even if both parties had explicitly agreed (including in writing) that the worker was a contractor.
Failing the gateway test does not mean that a worker will automatically be found to be an employee, but meeting and passing the test will be the easiest way to demonstrate that a worker is a contractor. In this way, the February amendment has clarified the law and made it more certain that a worker will be found (or not found) to be a contractor.
It is important to note, however, that the gateway test will not validate existing contracts, nor will it replace the orthodox test entirely – it is about providing a new, clear, test for assessing contracts. It is important to note as well that the Courts and Authority will look beyond the wording on the page and assess what is actually happening on the water. Operators and workers will need to ask themselves “does the work feel like an employee, or a contractor, in reality?”. Operators who cannot clearly say “contractor”, are vulnerable.
In a maritime context there are likely to be several pressure points for seafarer contracts, for example:
Exclusivity (crew being tied to a vessel)
Control over crew sailing days and availability
An ingrained organisational expectation to accept trips
The absence of an independent advice clause
How are operators vulnerable?
Having gone through the gateway test and its broad application, the final topic is around how operators might be vulnerable if their worker is found to be an employee, not a contractor.
The implications are potentially severe for operators, who could find themselves now exposed and liable to back pay, ACC levies, and holiday/annual leave entitlements. Similarly, operators could find themselves running afoul of the Minimum Wage Act if the worker’s earnings, divided by the number of hours worked, represents less than the minimum wage. Further to this, employees have access to the personal grievance regime of the Employment Relations Act, and so operators could find themselves subjected to a claim for conduct or grievances.
While exposure will vary significantly between operators and their individual circumstances, the scope for risk is potentially very large and could have massive impact on cashflow and/or ongoing viability.
Conclusion
The principle behind the amendment is a good one – there is now a clear compliance and assessment pathway compared to just using the orthodox approach. However that clarity comes at a cost in that it is now significantly harder to argue that a worker is a contractor – fi the gateway test is not met. This hammers home a key point – operators are strongly recommended to review their contracts to ensure compliance with the gateway test as this is the most straightforward way to demonstrate that a worker is a contractor, not an employee.
It is also important to keep in mind, however, that this is not just a paperwork exercise. While aspects of the test are paperwork-centric, the February amendment emphasizes the importance of systems and behaviour in terms of how operators integrate their workers into their operations.
Dawson & Associates regularly assist clients with contracts for employing and engaging crew in both employee and contractor contexts, across the maritime sector. If you have questions about your existing contracts, need assistance in drafting new contracts, have a dispute with your crew, or have questions about the February amendment and the changes to the definition of contractor, please contact Peter Dawson by email peter@maritimelaw.co.nz; phone +64 27 229 9624 or Troy Stade by email troy@maritimelaw.co.nz; phone +64 27 368 6730.