Lord of the Ring lessons for all employers

Wednesday 15 December 2004

The decision of the Court of Appeal in Three Foot Six Ltd v Bryson (McGrath, William Young, O'Regan JJ, 12 November 2004) has its beginnings in the fictional world of Middle Earth - but provides employers with useful real world direction concerning the test to determine the validity of independent contractor arrangements.

James Bryson was a model maker who was engaged to work on the Lord of the Rings. He signed an agreement which expressly said that it was not intended that he become an employee. The standard form agreement - referred to as a 'crew deal memo' - is used widely in the film industry.

When downsizing occurred Bryson found himself out of a job. He said that, in fact, he had been an employee - and that he had been made redundant without his employer following the proper processes associated with redundancy. Bryson filed a claim against Three Foot Six Limited in the Employment Relations Authority.

Three Foot Six took issue with the fundamental premise underlining Bryson's claim - namely, it said that he had no standing to bring a claim in the employment jurisdiction because he was an independent contractor. In the Employment Relations Authority, this preliminary issue was resolved in the company's favour. Bryson appealed successfully to the Employment Court (which held that he was an employee). The company then appealed to the Court of Appeal.

There was industry concern that film making would be undermined if it was not recognised that, as a matter of commercial necessity, workers such as Bryson had to be retained as independent contractors. In her decision, Judge Shaw had given some weight to this issue - but had simply resolved that a blanket rule should not apply to every situation and that she was simply making a decision on the individual relationship before her.

Court of Appeal decision

The majority of the Court of Appeal adopted an approach quite distinct to that of Judge Shaw. In general, the majority seemed to accept that Three Foot Six exerted a significant amount of control over Mr Bryson and he appeared to be largely integrated into their business. In this way, it was accepted that an application of the control, integration and fundamental tests would be likely to lead to a conclusion that Mr Bryson was an employee. The two aspects on which the majority disagreed with Judge Shaw were, however, the significance of the contract and industry practice.

The Court of Appeal considered the significance of the stated intention in the contract and the contractual scheme. In particular, the Court recognised that the most relevant terms were those stating that it was one of independent contractor and the terms giving effect to this label - such as the taxation arrangements. The Court recognised these contractual provisions were not determinative of the status, however, it was appropriate to place more emphasis on these provisions than Judge Shaw had in her decision.

The majority gave consideration to the wide and significant implications of this decision for the film industry in New Zealand. In particular, the majority recognised that industry practice was an external reality that was relevant to determining the real nature of the relationship. In this way, industry practice was not simply a matter that may assist the Court in determining intention - it was effectively a test in its own right. On this basis, the Court concluded that Mr Bryson was an independent contractor.

What this means for employers

The approach of the Court of Appeal in Bryson serves as a useful reminder to employers about the importance of the contract governing any intended contract for services.

The majority's approach placed a significant emphasis on the expressed intention and the structure of the arrangement. To protect the integrity of the stated intention, therefore, employers should ensure that their contracts for service reflect an independent contractor arrangement as much as possible. Factors indicating the individual is in business on their account, such as the ability to work concurrently for other organisations, should be included and highlighted in the contract to support a conclusion that the arrangement is not one of employment.

The decision also provides some guidance for employers who operate in industries that have a predominant practice towards either employment relationships or independent contractor arrangements. Despite the relevance accorded to this practice in Mr Bryson's case, it remains to be seen how relevant this factor will be in other industries. This uncertainty simply heightens the importance of getting the contract right.