Tavendale Article Employer vs Contractor February 2025

Coach Profile

In November we announced our partnership with Tavendale + Partners, a national law firm with a highly regarded Sports Law Practice led by Sports Law specialist Henry Moore.

Our partnership with Tavendale + Partners provides our members with a free consultation with their Sports Law team and access to expert guidance across both professional and personal matters.

In addition, over the coming months, Tavendale + Partners will provideadvice on legal matters that a coach should be mindful of as they navigate their professional coaching career. This content will be presented in our monthly newsletter Coaches Kōrero and will be hosted on our website.

The article below focuses on your rights, responsibilities and options in the Employee v Contractor arrangement.

Employee vs. Contractor: Unpacking Your Rights, Responsibilities, and Options

Not everyone who works for someone else is technically an employee. It’s an important nuance to understand because it determines an individual’s legal entitlements, including things like minimum wage and annual leave.

For this very reason, “workers” often go to court seeking a declaration that they are an employee. The Uber drivers who succeeded in their legal action to be classed as employees against Uber here in New Zealand last year is a case in point. Despite being labelled independent contractors in their contracts, the Court of Appeal confirmed they were indeed employees.

Understanding the difference between an employee and a contractor is fundamental to making an informed – and appropriate – decision around the best fit for your circumstances. In the context of a coaching, the below outlines the key provisions in a coaching contract you should be alive to, to ensure your status is accurately reflected.

Employee definition

Broadly, an employee is defined as a person who is employed to do paid work under a “contract of service” (an employment agreement). They serve the employer’s business; there’s typically a high level of control by the employer and they’re integrated into the organisation. Employee status grants a variety of minimum protections which cannot be reduced, even if less is agreed to on paper. You cannot contract out of the legal minimum wage, for example. And employee cannot be fired without a justification and a fair process.

Contractor definition

Conversely, a contractor is an individual hired to provide services under a “contract for services”, often known as an independent contractor agreement/contract. Unlike employees, contractors are not covered by employment laws and do not have the same rights and responsibilities. They may be paid less than the minimum wage per hour but are typically paid more than employees, in part because they don’t receive paid annual leave or sick leave. Independent contractor agreements typically allow for a “no fault” termination – i.e. no justification is required in ending the contract.

Understanding the Legal Nuances

Agreements

Employees are covered by either an individual employment agreement (IEA) or a collective agreement (CA) if they belong to a union. By law, these agreements must be in writing, outline the key terms of employment, and comply with the minimum legal standards.

In contrast, the law does not regulate the format of a contract between a principal and an independent contractor. Commercial contracts often vary significantly from contract to contract.

Legal protections and benefits

The Employment Relations Act governs all employment agreements (individual or collective). It provides protection to all employees, regardless of their role within an organisation. In return, employees are required to comply with the provisions of the Act as their corresponding responsibilities – such as the obligation to act in good faith. Only employees are entitled to the benefits and protections under the Employment Relations Act, Holidays Act, Parental Leave, and Employment Protection Act and Wages Protection Act.

These statutory benefits and protections do not automatically apply to independent contractors. Any desired benefits these Acts provide must be negotiated and recorded in a contract for services. Normally, any day off work (whether for sickness or a funeral) is unpaid for a contractor.

Good faith duty

An employee-employer relationship creates a duty of good faith. This term broadly means that both parties must act honestly and openly, without misleading one another. Both must be active and constructive in maintaining a positive working relationship.

This obligation does not typically apply in the relationship between a principal and a contractor, just as it doesn’t in other commercial contracts. Consequently, a principal can terminate the contract with a contractor without needing to fulfil any fairness requirements, other than any that are recorded in the contract.

Access to grievance and dispute procedures

A personal grievance is one of the legal avenues available to employees who believe their employer has treated them unfairly or unreasonably. This is a key difference between employees and contractors. Employees can use the personal grievance process if they feel they have been unjustly dismissed or subjected to unfair actions, such as unreasonable suspension, receiving a written warning, or being demoted or fired without good cause. Personal grievances can also be filed in cases of discrimination or sexual harassment. As an employee, they can seek reparations such as financial compensation for hurt and humiliation.

The ability to file a personal grievance is a protection available only to employees, not contractors.

While the pathway to resolution for Employment disputes is through the specialist employment bodies – the Employment Relations Authority (ERA) and the Employment Court – contractors’ contractual disputes must be pursued in the ‘ordinary’ civil courts – the Disputes Tribunal, District Court, and so on up the chain of appeals.

Vicarious liability

In general, an employer is vicariously liable for the actions and omissions of employees. This means that employers are usually responsible for what their employees do while performing their duties, offering greater protection to employees in case of damage to the employer’s property or third-party claims.

In contrast, principals are not liable for the actions of independent contractors. As contractors are considered independent workers, they are personally responsible for their own actions and any resulting liability. Independent contractor agreements typically require the contractor to hold professional or public liability insurance to cover any serious negative consequences caused by their actions.

Deductions from earnings

Employers are responsible for making PAYE tax deductions from their employees’ wages or salaries, paying fringe benefit tax on the benefits provided to employees, and making accident compensation levy deductions on their behalf. Employees are also entitled to KiwiSaver contributions from their employer.

Independent contractors must calculate their own pay and issue an invoice to the organisation, handle their own tax and accident compensation levies directly with Inland Revenue. Independent contractors can deduct certain expenses incurred in earning assessable income. They must also comply with the Goods and Services Tax (GST) Act if the services they provide are part of a taxable activity and they are registered for GST. They are responsible for their own retirement savings.

Make sure your formal engagement is fit-for-purpose

The law requires that any employment agreement includes the name of the employer and employee, a description of the work performed, the place of work, agreed hours of work, the wage rate or salary and how it will be paid, information about holiday entitlements, and the process for resolving any employment problems, including personal grievances.

If the agreement you have been offered does not mention paid holidays or personal grievances, it is likely that the organisation intends for you to be an independent contractor. You should consider whether that status is what you also want, taking into account the pros and cons. If it’s not, raise it before signing.

The same principle applies if you have been offered an employment agreement, but you prefer to be an independent contractor.

Job description or description of services: Ensure the responsibilities match your expectations, and don’t omit key duties or include ones you don’t want to do. Your performance will be judged against this description. You won’t want to be found to be lacking down the track, potentially giving cause for the end of your tenure.

Notice period: The notice period specifies the amount of time, typically in weeks or months, that an employee must give before resigning and that the employer must give to the employee when ending their employment or engagement. These can be different lengths of time. As noted earlier, an employee cannot be dismissed without good cause. In the case of serious misconduct, an employee can be dismissed without notice, which is called a ‘summary dismissal’. Contracts for independent contractors typically contain two ways to end the contract, available to both sides, each with its own conditions: ‘no fault’, with a longer notice period, and ‘with cause’, involving a short notice period.

Pay and working hours: For employees, benefits such as holiday pay, KiwiSaver, a mobile phone or vehicle, and any bonus are part of this consideration. On the other side of the ledger, for a contractor, would be factors such as the burden of invoicing and tax, and their pay needing to stretch to cover any days off work.

Restraint of trade clause: In sports organisations, protecting commercially sensitive information such as training techniques, player data, and strategic plans is crucial. To safeguard this, employers may include a restraint of trade clause, limiting a coach’s activities after leaving the organisation. This can include a non-compete clause, which prevents a former coach from working for a competing team, and a non-solicitation clause, which restricts the coach from recruiting former players or colleagues. For these clauses to be enforceable, they are usually limited by a specific geographic area and time period after employment ends. While these clauses protect the employer from competition, they must not be overly restrictive, preventing a coach from seeking further employment in their field. It is important to consider any restraint carefully – just how much will it restrict your activities after you leave the organisation? Aim to negotiate something you can live with, which might be no restraint.

Whether a worker is an employee or a contractor is a legal status that only the courts can decide, ultimately. Having a written contract that supports your intended status is an important starting point navigating the minefield that is employee vs contractor.

If you would like further advise on this matter or would like some legal advice on another matter, please contact Andrew Gaze our General Manager – 021 443 523 or [email protected] and he can provide the appropriate introductions to the Tavendale + Partners team.