"Widespread abuse" of employment law means tens of thousands of builders may be missing out on their basic employment rights and protections.
The employment court has found in favour of an Auckland builder, Ross Barry, who challenged his status as an independent contractor while working for building company CIB.
The court found the "real nature" of the relationship was one of an employee, based on the hours and the work he was doing.
It follows a case last year brought by a courier driver, Mike Leota, who took a case on the same grounds, and also won.
The ruling was described as a landmark decision by lawyer Garry Pollak, who called on the government to do more to ensure workers were being treated fairly.
"This is the second landmark case of the Employment Court where the court has had to decide whether somebody who was labelled an independent contractor is in fact a contractor or is in fact an employee.
"For the second time, the employment court has found that Mr Barry is an employee, and was always an employee, despite the label that was given to him," Pollak told Checkpoint.
"It really is a lesson to those in the building industry that you can't avoid employment obligations by simply labelling somebody an independent contractor.
"Two parties can't simply agree to avoid employment obligations just like two parties can't agree to avoid tax," Pollak said.
"That is part of the construct of these independent contracting relationships, where it suits one party but not the other to avoid tax avoid PAYE, avoid maternity leave, health and safety obligations, holiday pay, etc, etc.
"And that's why this industry has tens of thousands of independent contractors."
Pollak said one the key problems was that bargaining power favoured the business in employment arrangements.
"The bargaining power between the parties is not equal. Here Mr Barry just like Mr Leota [in the similar case of courier drivers] had agreed to be independent contractors, but simply because they agreed that doesn't mean that was the legal reality of the relationship.
"It is not up to parties simply to come up with some words or a contract that describes them as one thing when in fact they are something else.
"Mr Barry, he worked for one party, he had no business, he didn't involve himself in GST. He didn't buy a business, there was nothing he could sell, he worked under his employer's control.
"For all practical purposes, he was an employee and operated like an employee. He wasn't conducting any sort of independent business. Now that might be different to, say, an electrician who tenders for work on a construction site and submits an invoice, gets paid at the 20th of the month, and goes from site to site, exercising skill and care, and providing electrical services.
"Mr Barry didn't do that. He simply worked for one business for a number of years, he wasn't able to work for anybody else. He didn't have time to.
"Without those fundamentals, you cannot be said to be conducting a business, they're just grateful for the work."
In the court judgment, Judge Christina Inglis noted that Barry had not worked for several years, and appreciated the opportunity to get into work again with flexibility of hours, so he had agreed to be considered an independent contractor.
"But the party's intention is only one factor in the overall assessment," Pollak said.
"Simply because people decide to label a relationship one thing, that doesn't mean that's the reality of the relationship."
The court judgment also noted that CIB included Barry as an employee in its application for the Covid-19 wage subsidy. Judge Inglis said despite Barry's 'independent contractor' label, it showed just how integrated into the company Barry was.
"There are tens of thousands of New Zealanders who work in the construction industry on exactly this arrangement," Pollak told Checkpoint.
He said the court judgment was a general reaction to the "widespread abuse" of the independent contractor label.
"Increasingly I know that they're not called employees. They have this label of independent contractor, and that absolves the employer of all the obligations that would necessarily arise if they were an employee.
"For the businesses, they avoid union membership so they don't have to bargain for collective agreement, they don't have to cover maternity leave, they can dismiss at will, health and safety is sheeted home to the contractors not to the building company, there's no holiday pay, and importantly for the government, there's no PAYE deducted.
"There are dozens of obligations that arise in an employment context that do not arise on a contracting relationship."
Pollak said it was something the government must look at.
"There is a significant part of the New Zealand workforce who are deprived of their employment rights. Is that fair? I don't think it is."
