Soanes and Brown v Cardrona Adventure Park Limited, highlights why it is always important to be very clear about terms and conditions from the beginning of any engagement, even when family is involved.
Mr and Mrs Soanes were the owners of an adventure park. They engaged Mr Soanes daughter and her partner (Soanes and Brown) to manage the park for them. Soanes and Brown made a claim to the Employment Relations Authority (ERA) that they were unjustifiably dismissed and owed wages.
The starting point in this case was deciding if Soanes and Brown were employees or contractors as the ERA only has jurisdiction to investigate claims where the parties are or were in an employment relationship. Any dispute related to a contractual issue has to be dealt with by the Disputes Tribunal or District Court.
In this case the ERA looked at the real nature of the relationships by considering:
1. The written terms
The agreement between the parties in this case:
- Referred to “owner” and ‘manager”.
- Only had provision for a “management fee” equalling net profit and not salary or wages. Soanes and Brown assumed full risk but would take any profit. The ERA said the assumption of this risk and profit is a feature of a person providing services in business on their own account and that was strongly indicative of an independent contractor relationship.Provided the managers were subject to the “overall direction and control of the owner” and could not assign or sub contract the contract. The ERA said this was consistent with an employment relationship and suggested Soanes and Brown were employees.
- Stated nothing in the agreement constituted either party being an employee of the other party. The ERA said this indicated the parties did not intend to enter into an employment relationship.
- Provided for resolution of disputes by way of arbitration prior to any legal action. This is not consistent with an employment relationship so the ERA suggested Soanes and Brown were not employees.
The ERA said that overall the written terms suggested the parties had entered into a contract for services, not an employment agreement.
2. Operation of the relationship in practice
Apart from Soanes and Brown deciding to pay themselves wages (which was not allowed for in the agreement), there was no deviation from the written terms and conditions in the agreement.
3. Control test
This test requires the ERA to consider how much control the engaging or employing party had over the person doing the work. More control will usually be indicative of an employment relationship. Although the agreement provided Soanes and Brown were subject to the owner’s control, the ERA said that they acted almost entirely autonomously – they decided how to run the business, when to open, what services to provide etc. There was no evidence the owners directed or controlled the work. The ERA said this favoured the existence of an independent contractor relationship.
4. Integration test
This test requires the ERA to asses to what extent the party making the application to the ERA is an integral part of the business. The ERA found this test to be neutral.
5. Fundamental (or economic reality test)
This test assesses how much the party making the application is in business on their own account. Soanes and Brown were able to profit if the business was doing well, and took a risk not being paid a wage or salary because their sole remuneration was a management fee based on the profits of the business. The ERA said this test pointed towards Soanes and Brown being independent contractors.
6. Industry practice
There was no evidence of industry practice so no conclusions were drawn about it.
7. Common intention
The ERA said there was no common intention to enter into an employment relationship and no discussion about payment or salary or wages. The ERA said this suggested the parties had entered into an independent contacting arrangement.
Soanes and Brown had not set themselves up for tax purposes as if they were in business on their own account. The ERA said this indicated they were more likely to be in an employment relationship.
9. Wage payments
Ms Soanes processed “wage payments” for both of them, but was not authorised or entitled to do so. The ERA said that although this would normally indicate an employment relationship, the circumstances under which they were paid did not support the existence of an employment relationship.
Tools and equipment
All plants, tools and equipment needed to run the business remained on site so the ERA said this was a natural factor because the nature of the business meant this could apply to both independent contractors or employees.
The ERA said that weighing all factors favours that it was more likely than not that the parties were not in an employment relationship, but were independent contractors. For that reason the ERA did not have jurisdiction to investigate their claims.
This decision highlights how important it is to have good advice from the outset of engaging someone – even when you consider it is low risk because family are involved.
The costs of defending any action can mount up, and the implications of owed holiday pay and tax can also be very costly. If you are considering taking on a new person give us a call first so we can advise you on the facts particular to your situation.