What to know about working for your family

Source: Radio New Zealand

As margins tighten, some small and medium-sized businesses are turning to family members to help keep their operations running.

However, legal risks can arise when a family “helper” is later found to have effectively been an employee.

Employment lawyers say that when a family relationship unravels due to issues such as divorce, disputes, business failure or succession, a business can face substantial liability if an employment status claim is brought, including back pay and holiday pay owed to the family member.

So where is the line between a relative simply “helping out” and being treated as an employee, and what can business owners do to avoid disputes?

Is it legal to ask a family member to “help out” in a business without pay?

The answer is not straightforward and largely depends on the arrangement.

Jeanie Borsboom, manager of specialist inspection for the Labour Inspectorate at Employment New Zealand, said it was not unlawful to ask a family member to work for free.

But whether that arrangement was lawful depended largely on whether both sides clearly understood and accepted it as being voluntary, she said.

“To avoid disputes, people need to be really clear with each other what the arrangement is,” she said.

“It could be purely voluntary, with no expectation of reward, so the person who is working does not expect to be paid. If they agree to that, then that’s not an unlawful arrangement,” she said.

“But if they agree that the person will be paid [and] rewarded for it, then they need to comply with all of the employment laws,” she said.

“They’ll need to pay them the minimum wage, holiday pay and have an employment agreement.”

Borsboom advised people to watch for dynamics such as power imbalances, children helping out or any indication that family members were being made to work without pay.

She said those were situations that should raise concern and, in some cases, be reported.

“People should also be aware of that imbalance of power,” she said.

“It may seem like a voluntary relationship, but if the person who’s doing the work does not feel they are volunteering and has not been able to speak up about it, that can be a bit of a danger area.”

What is the line between a family member “helping out” and being treated as an employee?

Multiple employment lawyers RNZ spoke with agreed that there was no clear-cut line between “helping out” and being an employee.

Jessie Lapthorne, a partner at Duncan Cotterill, said the law assessed the real nature of the relationship.

If a family member was being treated as an employee in practice, they were likely to be treated as one in law, Lapthorne said.

“The Employment Court has recognised that family arrangements can differ from the norm,” she said.

“There is a presumption that family members do not intend to create legal relationships and instead rely on family ties and mutual trust.

“However, that presumption is not decisive and can be overridden where the reality of the arrangement points towards employment, particularly if there is an imbalance of power or a risk of exploitation.”

Lapthorne said each case would be assessed on its own facts, including the level of control exercised, whether there was payment or some other form of reward, how regular and essential the work was, and what the parties reasonably expected.

“If a restaurant owner’s daughter works at the counter every weekend, with an expectation that she will be there, is paid or receives some form of reward, and is subject to workplace control, for example by needing permission not to work on a particular weekend, that arrangement if tested could well be treated as one of employment, even if the business thought of it as their daughter simply ‘helping out’,” she said.

Rosie Judd, a senior associate at Wynn Williams, agreed.

Judd said a family relationship did not preclude an employment relationship under New Zealand law.

She said courts assessed the real nature of the relationship, using the same tests applied in any other employment status claim, including the control test, the integration test and the fundamental test.

The control test examined who directed the work, while the integration test looked at whether the individual was part of the business in the same way as other staff, she said.

The fundamental test examined whether the individual was working for the business or whether they were operating independently on their own account, she said.

The parties’ intentions were also relevant, she said, though they were not necessarily determinative.

If a family member only helps occasionally or irregularly, can they still be covered by employment law?

This depended on the situation, said Jennifer Mills, director of Jennifer Mills & Associates.

Mills said whether a family member who occasionally helped was covered by employment law depended on a range of factors, including whether they could decline a request for assistance, whether they were subject to direction over their duties and hours, and whether they received any form of benefit in return for the work performed, including non-monetary benefits.

“A family member may be covered by employment law even if they help occasionally or irregularly as a casual employee,” she said.

What should a family member think about before agreeing to “help out” in a family business?

Judd said a family member could legally agree to work without pay if they were genuinely doing so with no expectation of reward. In that case, they would be regarded in law as a volunteer rather than an employee.

However, family members should be alert to how that arrangement may change over time, Judd said.

What started as occasional unpaid help could become more frequent or turn into something more onerous, she said.

“A family member should think about whether they will be expected to turn up regularly, what sort of work they will be doing, how relationships might be affected if they no longer want to help out and whether they will feel that they can say ‘no’,” she said.

“If there is any uncertainty there, they might consider a written agreement so that expectations are clear.”

What are the main risks for family business owners?

Lapthorne said the main risk for employers was that a family “helper” might later be found to have been an employee, with all the legal obligations that followed, even where the arrangement was intended to be informal or voluntary.

She said such cases usually emerged after a relationship broke down, or where there was unacceptable conduct by either the family member or the business owner.

If a family member was deemed to be an employee, the employer must comply with employment law requirements, including minimum wage obligations, leave entitlements, and fair disciplinary and dismissal processes, she said.

“Failure to do so can expose the business to claims for unjustified dismissal, unpaid wages or other employment breaches,” she said.

What can business owners do to avoid later disputes?

Mills noted that an increasing number of businesses appeared to be relying on unpaid or underpaid family labour because of rising costs and economic pressures.

She said migrant families and family-run migrant businesses were particularly vulnerable to this kind of problem.

“Migrant families or family-run migrant businesses may be less familiar with New Zealand employment law,” she said.

“Cultural expectations and potential moral obligations of helping the family business can materially increase the risk that informal family labour unintentionally crosses the threshold into employment.”

Mills said business owners should clearly set out the arrangement with the family member in writing before any work was undertaken, whether as a genuine volunteer arrangement, a properly documented employment relationship or, in limited cases, an independent contractor engagement.

“A clear paper trail is strongly recommended to avoid later disputes as to expectation, hours, remuneration and role boundaries,” she said.

Judd agreed, saying business owners should discuss with family members the real nature of the arrangement from the outset.

“Does the business owner expect the family member to work regular hours, seek permission before taking time off and follow the business owner’s directions? If so, they are probably an employee,” Judd said.

“If they have more freedom and flexibility, and do not expect to be paid, they might be a volunteer.”

Judd said that business owners employing family members should ensure there was a written employment agreement, proper payroll and record-keeping were in place, and expectations were clearly understood.

– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand