Selected cases

Employment Court of New Zealand · [2025] NZEmpC 48

Brown v The Clinician Holdings Ltd

Under this agreement, Mr Brown provided financial advisory services, while a subcontractor, Michael Huang, handled day-to-day financial tasks.

Employment Court of New Zealand17 Mar 2025

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Quick read

  • If your business engages independent contractors, ensure their working arrangements do not resemble those of employees.
  • Craig Brown, a chartered accountant, operated a consultancy business, Surestart Consulting Ltd, providing virtual CFO and financial advisory services to startups.

Use this to check

  • The real nature of a working relationship determines employment status, not just the written agreement.
  • Control, integration, and business risk are key factors in determining whether a worker is an employee or contractor.
  • Misclassifying workers can lead to significant legal and financial consequences for businesses.

Decision snapshot

  1. What happened

    • Craig Brown, a chartered accountant, operated a consultancy business, Surestart Consulting Ltd, providing virtual CFO and financial advisory services to startups.
    • In 2021, Surestart entered into an independent contractor agreement with The Clinician Holdings Ltd (TCHL), a medical information technologies startup.
    • Under this agreement, Mr Brown provided financial advisory services, while a subcontractor, Michael Huang, handled day-to-day financial tasks.
    • Surestart invoiced TCHL monthly for these services.

  2. What the court had to decide

    • The legal issue in this case was whether Craig Brown was an employee or an independent contractor of The Clinician Holdings Ltd (TCHL) under section 6 of the Employment Relations Act 2000.
    • The court had to determine the real nature of the working relationship, considering factors such as control, integration, and business risk.

  3. What the court decided

    • The Employment Court ruled in favour of Craig Brown, declaring that he was an employee of TCHL from 1 June 2022 to 31 March 2023.
    • The court found that Mr Brown's working conditions, including full-time commitment, integration into TCHL's operations, and entitlement to leave benefits, aligned with those of an employee.
    • Costs were reserved pending further submissions.

Practical impact

Practical read

  • If your business engages independent contractors, ensure their working arrangements do not resemble those of employees.
  • Factors such as control over work hours, integration into the business, and exclusivity can lead to a court reclassifying the contractor as an employee, exposing your business to employment law obligations.

Useful next steps

  • The real nature of a working relationship determines employment status, not just the written agreement.
  • Control, integration, and business risk are key factors in determining whether a worker is an employee or contractor.
  • Misclassifying workers can lead to significant legal and financial consequences for businesses.
  • Businesses should regularly review contractor agreements to ensure compliance with employment laws.
  • Seek legal advice if there is uncertainty about the classification of workers.

The story

In this case, Craig Brown worked full-time for The Clinician Holdings Ltd (TCHL) under conditions that resembled employment, despite having a contractor agreement. The court examined the real nature of the working relationship, focusing on factors such as control, integration, and business risk.

Mr Brown's lack of control over his work, inability to grow his consultancy business, and entitlement to leave benefits led the court to conclude that he was an employee. This decision underscores the importance of aligning working arrangements with the terms of any written agreements.

What the court decided

The Employment Court applied the tests under section 6 of the Employment Relations Act 2000 to determine whether Mr Brown was an employee. These tests include:

  • Control: The extent to which the business controls the worker's tasks and hours.
  • Integration: Whether the worker is integrated into the business's operations.
  • Fundamental test: Whether the worker is in business on their own account.

The court found that Mr Brown was subject to significant control by TCHL, was fully integrated into its operations, and did not bear the risks typically associated with being in business for himself. As a result, the court declared that Mr Brown was an employee of TCHL.

What employers should learn

This case serves as a reminder for businesses to carefully structure their relationships with contractors. Misclassification can lead to significant legal and financial consequences, including back pay for wages, leave entitlements, and penalties for breaching employment laws.

Businesses should regularly review their contractor agreements and working arrangements to ensure they reflect the true nature of the relationship. If a contractor is treated like an employee, they may be deemed an employee under the law, regardless of the written agreement.

Practical checks

To avoid disputes over worker classification, consider the following:

Sense check

  • Ensure contractors have control over their work and are not subject to the same level of supervision as employees.
  • Avoid requiring exclusivity unless it is essential and clearly documented in the agreement.
  • Do not provide benefits typically associated with employment, such as annual leave or sick leave.
  • Regularly review contractor agreements to ensure they align with the actual working relationship.
  • Seek legal advice if there is any uncertainty about the classification of a worker.

Common questions

Why did the court rule that Mr Brown was an employee?

The court found that Mr Brown was an employee because his working conditions, such as full-time commitment, integration into TCHL's business, and lack of business risk, aligned with those of an employee rather than an independent contractor.

What can businesses do to avoid misclassifying contractors?

Businesses should ensure that independent contractors have genuine independence, such as control over their work, the ability to work for other clients, and bearing business risks. Written agreements should reflect the true nature of the relationship.

What are the risks of misclassifying an employee as a contractor?

Misclassification can lead to legal disputes, backdated employment entitlements, penalties, and reputational damage. It may also affect tax and ACC obligations.

Can a worker be considered an employee despite having a contractor agreement?

Yes, even if a written agreement states that a worker is an independent contractor, the court will look at the actual working relationship to determine their status.

Related topics

Employment & WorkplaceRegulatory ComplianceContractors & Worker StatusWages, Leave & PayrollDisputes, Enforcement & RemediesConstruction Contracts & PaymentHealthcare & Regulated Professions

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