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IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-1419

BETWEEN	D 
	Appellant

AND	ACCIDENT COMPENSATION CORPORATION
Respondent

Hearing:	9 September 2010

Appearances: Mr D   appears in person (with his partner, Ms Stancliffe) A Barnett for the respondent

Judgment:	14 September 2010	at 3.30 pm

JUDGMENT OF MALLON J

Contents

Introduction............................................................................................................... [1] District Court judgment ............................................................................................ [3] District Court leave application ................................................................................ [5] My assessment .......................................................................................................... [6] Result ...................................................................................................................... [20]

D V ACCIDENT COMPENSATION CORPORATION HC WN CIV-2010-485-1419  14 SEPTEMBER
201 14 September 2010

Introduction

[1]       Mr D   is a professional stunt man.  He suffered an accident while working on a film production set for Sad Flutes Limited.  The accident is covered by ACC under the Accident Compensation Act 2001.   The District Court determined that Mr D  ’s weekly compensation was to be determined on the basis of the statutory formula for a self-employed person.  Mr D   seeks to appeal this decision because he considers he was an employee of Sad Flutes Ltd at the relevant time.

[2]       Mr D   needs special leave of this Court to bring his appeal, the District Court having declined to grant him leave.   To be granted leave Mr D   has to show that there is a question of law capable of serious and bona fide argument. Mr D  ’s submissions focussed on why he was an employee rather than self- employed under his contract with Sad Flutes Ltd.  Under employment law, provided the correct legal test is applied to the facts, a relevant matter has not been overlooked and an irrelevant matter has not been taken into account, this is ordinarily a question
of fact rather than law  unless the conclusion on the facts is clearly untenable.

However, it is apparent that the District Court Judge considered his interpretation of the Accident Compensation Act to be determinative of the issue as to whether the weekly compensation was to be assessed as an employee or as a self-employed person.  If there is a serious and bona fide argument that this interpretation of the Act was incorrect, that would be a question of law which could be appealed to this Court.

District Court judgment

[3]       In the District Court, counsel for ACC submitted that on the facts Mr D   was self-employed and further that a person’s tax status with Inland Revenue determines their status for ACC purposes.  Inland Revenue’s advice at the time of the District Court hearing was that Mr D   had been treated as self-employed and that  their  earlier  communication  otherwise,  which  had  been  relied  on  by  the Reviewer, was in error.   Counsel for Mr D   submitted that employment law

principles, rather than a person’s status with Inland Revenue, should determine the matter.  Applying those principles, counsel for Mr D   submitted that on the facts he was an employee.

[4]       The District Court Judge (Judge  Beattie)  found  that Mr D   was self- employed.  The Judge rejected the submission that the issue should be determined by employment law principles.  He said that the Accident Compensation Act signalled that a person’s status for weekly compensation was inextricably tied up with their income tax position.  He said that whatever income is returned for tax purposes is used by ACC.  He said that if a person’s tax status is incorrect there is a procedure available under the tax legislation to have that status changed.  In that event ACC would need to re-visit its calculations.

District Court leave application

[5]       On the application for leave to appeal made to the District Court, the District Court Judge (Judge Barber) said “[p]ossibly, in the present case, the appellant is an employee rather than an independent contractor, but Judge Beattie’s decision turned on the aspect that ACC must abide by the way a person’s income is treated for income tax purposes by the IRD”.   As to that the Judge said “[i]t seems to be accepted that [Mr D  ’s] status for calculation of weekly compensation is that of his status as a taxpayer at the time of the accident. [Mr D  ’s] current issue seems to be that he should not then have been regarded by the IRD as an independent contractor and was an employee”.  The Judge considered that Mr D   should have pursued this with Inland Revenue.  The Judge dismissed the leave application.

My assessment

[6]       On the application to me Mr D   and his partner (who assisted Mr D   with  his  submissions)  made  a  number  of  submissions  mainly  directed  to  why Mr D   was an employee under employment law principles.  For present purposes I think the relevant submissions can be summarised as follows:

a)        the Inland Revenue status should not determine the matter because that  depends  on  how  the  employer,  here  Sad  Flutes  Ltd,  treated Mr D   for tax purposes;

b)        Sad Flute’s approach (which Mr D   and his partner considered to be an incorrect approach but one which employees across the film industry have no choice but to accept if they want to work in the film industry) was inconsistent with the Inland Revenue’s “Self-employed or an employee? How to work out your tax status” booklet and other material issued by Inland Revenue which said that a person’s employment status for tax purposes is the same as under the general law; and

c)	Inland Revenue had been inconsistent in its responses to whether Mr

D   was an employee or was self-employed.

[7]       Judge Barber viewed it as at least arguable that Mr D   was an employee of Sad Flutes Ltd.  For present purposes I accept (without deciding) that is so, which in turn means that it is arguable that Mr D  ’s status for tax purposes, in relation to his employment with Sad Flutes Ltd, was incorrect.  Whether that makes a difference to the weekly compensation entitlement under the Accident Compensation Act depends on an interpretation of the relevant provisions of this Act.

[8]       Under the Act, a person who has cover and who lodges a claim for weekly compensation is entitled to receive such compensation if ACC determines that the claimant is incapacitated and the claimant is eligible under one of the specified sections of the Act or one of the specified clauses in Schedule 1 to the Act (s 100(1) of the Act).  For present purposes, the relevant provision is clause 32 of Schedule 1 which provides for weekly compensation for an “earner” (which is defined as meaning a person who engages in employment whether or not as an employee).

[9]       The calculation of the weekly compensation is then determined by reference to whether a person was an “employee” or a “self-employed person” immediately before  their  incapacity.    In  the  case  of  an  “employee”  the  formula  uses  their

“earnings as an employee” in the 52 weeks immediately before the incapacity.  In the case of a “self-employed person” the formula uses their “earnings as a self-employed person” in the immediately preceding 31 March tax year.

[10]     The difference in the relevant 52 weeks used as between an employee or a self-employed person does not inherently favour one kind of an earner over the other.  From this perspective, ACC is neutral to whether a person is classified as an “employee” or as a “self-employed person”.  In the present case this difference in the relevant year is important to Mr D   because his earnings were much higher in the
12 months immediately prior to his incapacity than in most recent 12 months ending

31 March before his incapacity.

[11]     Because the calculation depends on whether a person is an “employee” with “earnings as employee” or a “self-employed person” with “earnings as a self- employed person”, the amount of weekly compensation depends upon the definition of these terms in the Act.

[12]     Section 6 of the Act defines “employee” as follows:

employee means a natural person who receives, or is entitled to receive,—

(a)   any amount that is treated as income from employment, as defined in paragraph (a) of the definition of “income from employment” in section YA 1 of the Income Tax Act 2007; or

(b)   any salary, wages, or other … income to which section RD 3(2) to (4)
of the Income Tax Act 2007 applies

[13]     Section 9 defines “earnings as an employee” as follows:

Earnings as an employee: what it means

(1)   Earnings as an employee, in relation to any person and any tax year, means all PAYE income payments of the person for the tax year.

[14]     It  can  be  seen  that  the  definition  of  “employee”  depends  upon  amounts received  by a  person  that  are  “treated”  as  income  from  employment  under  the Income  Tax  Act.     Thus  the  status  of  a  person  for  the  purposes  of  weekly

compensation depends upon the Income Tax treatment of the amounts they receive. Similarly, their earnings for the purposes of weekly compensation is calculated by reference to their PAYE income payments.  Thus, if PAYE income payments have been paid to Inland Revenue then there are “earnings as an employee”.

[15]     This carries through with respect to a “self-employed person”.   Section 6 defines a “self-employed person” as meaning “a natural person who has earnings as a self-employed person”.  Section 14 defines “earnings as a self-employed person” as follows:

(1)   Earnings as a self-employed person, in relation to any person and any tax year,—

(a)   means A minus B, A being the amount described in subsection (2)
and B being the amount described in subsection (3); and

(b)   does not include any earnings as an employee or earnings as a shareholder-employee.

(2)   A is the amount of … income (if any)—

(a)   that the person derives in the tax year for the purposes of the
Income Tax Act 2007; and

(b)   that is dependent on the person's personal exertions.

(3)   B  is  all  amounts  that  the  person  is  allowed  as  deductions  for  the purposes of the Income Tax Act 2007 because of the person deriving the income described in subsection (2).

[16]     Thus  a  person  has  self-employed  earnings  only if their  earnings  are  not

“earnings as an employee”.

[17]     I agree with the submissions for ACC that this interpretation is consistent with  the  scheme  of  the  Act.    Weekly  compensation  is  funded  from  the  Work Account (for work related injuries) and the Earners Account (for non-work related injuries).  Employers and self-employed persons must each pay levies which are paid into these accounts.  If a person could claim weekly entitlements based not on how their income had been treated under the Income Tax Act, but on whether under employment law they were an employee or an independent contractor, levies paid to the Work Account and the Earners Account would be incorrect.  In the present case, if Mr D  ’s earner status for weekly compensation payment was determined by

ACC, the Reviewer, the District Court or this Court by employment law principles, and if those principles meant that he was an employee, he might wish to claim back the levies he paid as a self-employed person and ACC might wish to claim levies from Sad Flute Ltd.  Sad Flute Ltd would therefore be affected by such a decision and  yet  ordinarily would  not  be  a  party to  the  decision  which  had  determined Mr D  ’s status.   This raises administrative difficulties which ACC submits, I consider correctly, were not intended.

[18]     I agree with the District Court that if Mr D   wishes to challenge his status for the purpose of weekly compensation he must do so via the Inland Revenue.  I understand from Mr D   and his partner that their solicitor made an approach with the Inland Revenue but was unable to get very far.  I acknowledge that it may not be easy to follow through with the Inland Revenue, but nevertheless that is the route that is open to Mr D  .   I also understand that a personal grievance was not pursued by Mr D   against Sad Flutes Ltd under the Employment Relations Act
2000, which would have required a determination to be made as to whether he was an employee, because the legal costs were prohibitively expensive.  It is unfortunate that Mr D   has struck these difficulties with these other processes.   However these difficulties  do  not  provide a proper reason  for  permitting the issue to  be determined in proceedings under the Accident Compensation Act when the words and scheme of the Act indicate otherwise.  I note that if Mr D   is able to pursue these other procedures, and if he is successful in having his status changed, counsel for ACC is confident that the weekly compensation would then be adjusted.

[19]     For  these  reasons  I  consider  that  the  proposed  appeal  does  not  raise  a question of law under the Act which is capable of serious and bona fide argument.

Result

[20]     The application for leave to appeal is dismissed.

Counsel:
A Barnett, Wellington, adbarnett@xtra.co.nz
Copy to:
S D  , Wellington

Mallon J