Employment Conditions
10.1 Introduction
10.2 The Sex Industry Prior to 2003
10.3 Employment Rights After Decriminalisation
10.3.1 The Status of the Sex Industry
10.3.2 Fines, Bonds and Fees
10.4 Employment Status of Sex Workers
10.5 Employment Contracts in the Sex Industry
10.6 The Formalisation of Employment Relationships
10.7 Next Steps
10.1 Introduction
The illegal status of the sex industry prior to the enactment of the PRA had a marked effect on the employment conditions faced by sex workers. The CSOM study noted that criminalised sex workers had none of the rights accorded to workers in other occupations and, therefore, they were open to coercion and exploitation by managers, pimps and clients. No health and safety guidelines governed working conditions.
One of the purposes of the PRA is to create a framework that ‘safeguards the human rights of sex workers and protects them from exploitation’. When preparing this part of the report, the Committee has sought to ascertain how effectively decriminalisation has achieved this purpose. We conclude that, while progress has been made, there is clearly some way to go before sex workers enjoy the same rights and protections as those working in other industries. The Committee is of the view that an important first step that needs to be taken is the widespread adoption of written contracts that meet best practice standards, either ‘of service’ (employer/employee relationship) or ‘for services’ (independent contractor status) to clarify the employment status and working conditions of sex workers who work in brothels.
The standard position in the industry is that sex workers working in brothels are independent contractors. However, legally, this is by no means certain. Were such sex workers found to be employees, a wide range of rights would automatically accrue to them that they currently do not enjoy.
Clarification can only definitively occur through a determination being made by the Employment Relations Authority or the Employment Court. However, the Committee notes that it is open to brothel operators to offer to make sex workers employees, and would encourage them to consider the option.
10.2 The Sex Industry Prior to 2003
Working conditions in parlours and escort agencies were set by the individual owners and operators of these businesses, operating without the constraints of employment law, and safe in the knowledge that complaints to the authorities were unlikely. As the Committee reported in its first report in 2005, a system of fees being charged to workers became common. Both the Committee, and the Select Committee that heard submissions on the Prostitution Reform Bill, were told of sex workers being charged by brothel operators for the use of towels, laundry and other incidentals. ‘Shift fees’ were also imposed in some brothels, where the sex worker was charged for working a shift. In addition, fines were exacted for being late for work and other misdemeanours.
Finally, most workers were obliged to pay bonds to an operator on commencing employment. These bonds were sometimes not returned, especially if the worker did not remain in the job for long.
In the Committee’s 2005 report, NZPC reported that some employers used these systems of fines, fees and bonds to coerce certain behaviours from their workers. This included making sex workers see more clients or working longer hours than they wished.
The Sex Industry in New Zealand: A Literature Review (Jordan, 2005) quotes a sex worker discussing the industry prior to decriminalisation.
The industry as it is set up, gives power to the management of parlours and agencies. When I am working I am aware I could be busted for prostitution. If I have trouble at work, I am not likely to go to the police. This has resulted in a sex industry culture, a culture that is not inherent in prostitution, but rather is a direct result of the present laws. I’m talking about things like having to work night shifts until 4 or 6 or 7 or 9 in the morning, sometimes regardless of whether there are clients around, sometimes until the clients stop coming in, however late that may be. We are charged bonds to work places; shift fees each night, dress hire, charged fines. A typical fining system, such as the one where I worked, was that if you are late for a shift, you pay half of your money from your first job as a fine. So for a one-hour job, the worker ends up with $25. That’s a $45 fine and $20 shift fee. If you don’t show up for a shift, you pay half of all your jobs that night as a fine. If you don’t give notice when you leave, they will keep your bond, that could be $100 or $200.
(Submitter to the Select Committee on the Prostitution Reform Bill)
Sex workers paid these fines and fees out of the money paid to the workers by their clients. In the 1980s and early 1990s, payment for services was often made directly by the client to the worker, without the involvement of the brothel operator. However, with the increasing use of credit cards, and later the prevalence of EFTPOS in most parts of the country, it soon became standard for the operator to charge an ‘all inclusive fee’ which included sexual services. From this position, the operator could both set the price for sexual services, and extract fines and fees from the workers’ earnings before they were paid.
It was hoped that decriminalisation of the sex industry would eliminate exploitative practices such as these, as sex workers came to enjoy the same employment protections as those enjoyed by workers in other industries. Research indicates that, while this process may have commenced, it is by no means complete.
10.3 Employment Rights After Decriminalisation
10.3.1 The Status of the Sex Industry
A decriminalised sex industry theoretically has the same status as any other industry, and those working in it experience the same sort of employment practices as those in any ‘normal’ industry. However, in reality this is not the case. There is a deeply ingrained moral and social stigma attached to working in the sex industry. The provision of sexual services for money, rather than for procreation or as an expression of love, and the fact that a sex worker (particularly a woman) has multiple sexual partners both draw criticism from a significant sector of the community.
This stigma may still make some sex workers reluctant to complain to authorities, such as the Department of Labour, about exploitative work practices. Their occupation may have previously been unknown to family and friends, and taking a complaint all the way through the legal processes may threaten that privacy. In addition, exploitative practices are long standing in the sex industry, and, in the absence of a legal challenge to them, there remains uncertainty as to their legality amongst many in the industry.
10.3.2 Fines, Bonds and Fees
The general impression of the informants in the CJRC interviews was that brothels who had treated their workers fairly prior to the enactment of the PRA continued to do so, and those who had unfair management practices continued with them.
Nothing has changed here because we’ve always been good. Elsewhere who knows – but you hear lots of stories still of poor management, workers having to have sex with the boss as part of interview, money taken off girls, personal details used to blackmail them if they try to complain or cause trouble. (They ‘out’ them to their families.)
(Brothel Operator, CJRC, 2007)
NGOs were encouraged by some of the brothels that had opened after the enactment of the PRA, which they referred to as ‘the new generation’. These new operators appeared to run things by the book, and had thought of ways to improve the working conditions of the sex workers.
NGOs also commented that a positive effect of the PRA was that it was now possible for sex workers who were unhappy with the conditions in brothels to set up a business and work for themselves.
Some operators have now changed their practices regarding bonds and fines.
Yes, we’ve had to change practices. There are no fines or bonds any more.
(Brothel Operator, CJRC, 2007)
Girls choose which shifts they work and what hours. I get cross though, if they don’t turn up for shift they’re supposed to do (unless they phone in that they’re sick or something). We used to fine them, but we don’t any more.
(Brothel Operator, CJRC, 2007)
Some operators commented how this had made running their business more difficult.
A $200 bond was good in a way (they got it back). And it was useful in managing the business. We knew when she was finishing (‘I’ll take my bond on Friday’). Now, you never know when they are finishing. They just don’t turn up.
(Brothel Operator, CJRC, 2007)
You can’t control the girls now – sometimes they are not here when clients arrive. You can’t run a business like that.
(Brothel Operator, CJRC, 2007)
Other operators used slightly modified versions of financial control, and called bonds by another name.
We don’t take a bond – but we’re firm but fair. We’re clear at the beginning. If a lady is 1–2hrs late, she is sent home – as she will have been replaced for that shift. If there is a ‘no show – no phone’ when a client made a booking, we lose. We charge her the lost room fee. But they are made fully aware of this when they start.
(Brothel Operator, CJRC, 2007)
We no longer charge any fines or shift fees. We still operate ‘bonds’, but call it a banking deposit. If they do a runner we get paid.
(Brothel Operator, CJRC, 2007)
Bonds are illegal, so now they call them ‘indemnity’.
(SOOB, CJRC, 2007)
Workers have to say if they can’t meet the terms of their contract. For example, there’s a $70 infringement fee if they can’t come in. It’s set out in the rules. The owner went to an industrial relations person for advice and uses NZPC as a mediator for disputes.
(Brothel Operator, CJRC, 2007)
Comment
The Committee recognises that the illegality of the sex industry prior to 2003 allowed exploitative employment conditions to develop. These conditions are long-established, and work to the advantage of brothel operators.
Despite decriminalisation, the social stigma surrounding involvement in the sex industry continues. Sex workers continue to be exploited in some brothels. The sex industry does not enjoy the same degree of social legitimacy as other industries, and is different to them to that extent.
There is evidence that the sex industry is adapting to its new status, and that some brothel operators have changed their employment practices in an effort to comply with their legal obligations. However, this does not appear to have been universally adopted. In addition, some of those who have tried to comply might be found, if challenged through the courts, to have not gone far enough.
While there appears to be a general awareness amongst sex workers and brothel operators that workers’ employment rights have increased, it is unclear how much detailed knowledge about such rights and their enforceability exists in the industry. This may contribute to ongoing exploitative practices.
The Committee has considered whether legislative amendment, such as the prohibition of bonds, fines and similar practices would be helpful to deal with this issue, and rejected the option. The general employment and criminal law is adequate to regulate the sex industry, if it is understood and applied by those in the industry. To this end, we recommend that developing relationships with NGOs and government agencies, and continuing education of those in the industry, be encouraged.
Proposed changes to the brothel operator’s certification system, as discussed in chapter six, will also improve knowledge of appropriate management practices and operators’ obligations under the PRA and employment legislation.
10.4 Employment Status of Sex Workers
Street-based sex workers and those who work in SOOBs are generally self-employed, and their employment status is clear. They set their own work conditions, have responsibility for paying their own tax and ACC levies and, under the HSE Act, for reporting any serious harm that they suffer as a result of their work to the Department of Labour.
The considerably more difficult question is the employment status of sex workers who work in the ‘managed sector’ of the industry (i.e. brothels other than SOOBs). They may be either independent contractors who have a contract for services with brothel operators, or employees with a contract of service.
Traditionally, and certainly prior to the enactment of the PRA, sex workers in brothels have been treated as independent contractors by brothel operators. However, one reason for this arrangement was related to the illegality of the industry: operators believed (erroneously) that this more distant arrangement protected them from allegations of living off the earnings of prostitution or operating a brothel. Obviously, such concerns are no longer a consideration.
The Inland Revenue Department (IRD) also treats brothel workers as independent contractors, in the absence of Pay As You Earn (PAYE) payments being made on their behalf by brothel operators. It has recently been sending letters to brothel operators, reminding them of their tax obligations.
Whether someone is an employee or an independent contractor is determined under the Employment Relations Act 2000 (the ERA). Section 6 of the ERA defines an employee is ‘any person of any age employed by an employer to do any work for hire or reward under a contract of service’.
At the time of entering an employment relationship, it is up to the sex worker and the brothel operator to agree what the nature of that relationship will be. But if a dispute arises at a later date as to the true nature of their relationship, the only way of definitively resolving it is to take it to the Employment Relations Authority. If either party is unhappy with that body’s decision, the matter can be taken up with the Employment Court. When determining the true nature of the relationship between them, the Authority or the Court must consider all relevant matters, including the intention of the parties, but is ‘not to treat as a determining matter any statement by the persons that describes the nature of their relationship.’
While the ERA provides the legislative framework for defining employment status, it is up to the Authority or the Court to decide specific cases. Some ‘traditional’ tests have developed at common law for making this decision, and these were recently confirmed in a case that went to the Supreme Court (James Bryson v. Three Foot Six Limited SC CIV 24/2004). Applying these tests, some employment relationships that have traditionally been thought to be of one type have been found to be of the other by the Court.
While there are elements of a contract for services (independent contractor) relationship in the usual relationship between brothel sex worker and operator, and an expectation, at least on the part of the operator, that this is an accurate description of the relationship, there are also elements of a contract of service (employee/employer) relationship.
The distinction is crucial. Only an employee can take a personal grievance action to the Authority or Court, and only an employee is automatically guaranteed minimum rights such as holiday pay, sick pay and others. An employee has tax deducted automatically from their earnings, and no Accident Compensation Corporation (ACC) or Goods and Services Tax (GST) obligations. An employee has different rights and fewer responsibilities under the HSE Act than an independent contractor, which work to an employee’s advantage.
A contractor, on the other hand, negotiates a contract for services with a brothel operator under far fewer restrictions. She or he enforces their contract through the civil courts, must pay their own tax, ACC levies and GST (though she or he can claim for expenses such as for condoms and business use of cell phones, towels and industry-specific medical expenses), set their own working conditions, hours of work, and fees. She or he has significant responsibilities under HSE, and failure to take action to meet these may have serious financial consequences.
The Committee notes that, since 1 December 2004, the line has been slightly blurred by the insertion into the ERA of section 144A by the Employment Relations Amendment Act (No 2) 2004. This provision allows the Department of Labour to offer dispute resolution services to parties in working relationships that are not employment relationships.
This means that an ‘independent contractor’ sex worker and the ‘principal’ (brothel owner/operator) that she or he has a contract with can avail themselves of a State-funded mediation service under the ERA, just as though they were in an employee/employer relationship. However, this free mediation service is only one small aspect of the rights and responsibilities that the employee/employer relationship confers, and extending it to contracting parties does not alter the fundamental fact that the two types of employment relationship offer very different advantages and disadvantages to the parties.
Brothel-based sex workers must work to the hours, conditions and for the fees set by the operator. In these terms, the traditional relationship between brothel-based sex worker and brothel operator falls within the margins of the employer/employee relationship.
As far as the Committee is aware, no sex worker has taken a case to the Authority or the Court to have their employment status clarified. It would certainly assist in promoting the employment rights of sex workers if this was to occur, whatever the outcome.
However, the matter may never be entirely resolved for the industry as a whole, as while some of the Court’s decisions are considered to be relevant to an entire industry or type of contract, others are only relevant to the particular arrangement between one employee and one employer. Because the Court must look at all the relevant facts in a case, rather than just the words of a contract, a difference between the overall experiences of one individual worker and another might mean that a decision on the status of one sex worker is only determinative of that worker’s status, rather than that of all managed sex workers.
Comment
The Committee recognises that contractor vs employee issue is crucial when discussing the employment conditions of sex workers working in brothels. Many other questions and issues hang off it.
However, it would be inappropriate for the Committee to make a declaration of what it believes the employment status of all sex workers who work in brothels should be. This is, and should be, a matter of choice for individual sex workers and brothel operators, with disputes to be dealt with through the courts. Some workers would prefer the benefits and certainty of employee status, some the freedom and flexibility of independent contractor status. The enactment of the PRA has empowered sex workers by removing the taint of criminality from their occupation, and part of that empowerment is allowing them to take control of their employment relationships.
Equally, it would not be appropriate for the Committee to recommend legislative prescription of this relationship. This would be contrary to the philosophy of the ERA (which does not prescribe rules for specific industries) and to the notion that sex workers, like all workers, have the right to negotiate their own conditions of employment.
What is important is that sex workers and brothel operators have the choice and the capability to negotiate the employment relationship that is most appropriate for them, and that the resulting relationship does not allow for sex workers’ exploitation.
As with many other industries, there is room for both independent contractors and employees in the sex industry. Both modes of operation could and should have workers’ rights and responsibilities built into them, together with appropriate dispute resolution mechanisms. In an industry with a history of exploitation of workers, that has only recently been decriminalised, it is important that the rules under which each sex worker operates are clear. Clarification of employment conditions would be much assisted by the increased use of formal written contracts, as discussed below.
10.5 Employment Contracts in the Sex Industry
Prior to 2003, written employment contracts for sex workers were rare, as they could be used against both the operator and worker as evidence of prohibited activity. However, the enactment of the PRA has opened the industry up to employment practices that are commonplace in other industries, including written contracts for services and, less commonly, contracts of service.
During the course of researching the sex industry, the Committee visited brothels in Auckland, Wellington and Christchurch, and spoke with brothel operators and owners. Information received indicates contracts of service are probably limited to receptionists/managers and drivers – those not directly involved in the provision of sexual services. All of the commercial brothel operators interviewed for the CJRC Key Informants report (25 operators) considered the sex workers at their establishments to be self-employed contractors rather than ‘employees’. They typically sign a contract with the brothel operator agreeing to provide specific services. They were seen to be responsible for filing their own tax returns.
While written contracts are becoming increasingly common, they are by no means found in all brothels in New Zealand. Verbal contracts are binding at law and, even though the ERA provides that all employment contracts must be written[81], the Court of Appeal has held that this does not render oral employment contracts invalid.[82] The difficulty with unwritten contracts is that terms, conditions and rights are not clearly established. This makes enforcement of a contract, and the resolution of disputes, very difficult.
Even when the employment relationship between a sex worker and a brothel operator is governed by a written contract, it appears that such contracts do not necessarily meet standards of best practice. The Committee has viewed a contract for services used in a currently operating brothel that retains many of the exploitative practices of the pre-decriminalisation era, and would be surprised if there were not more such contracts throughout the industry.
The absence of written contracts, or their questionable quality, may act to discourage brothel operators and sex workers from taking employment disputes that the parties cannot resolve themselves to the appropriate authority (i.e. the Department of Labour[83] or to civil court). However, there are other reasons for the absence of legal challenge to sex workers’ employment conditions. Sex workers know that there is a demand for their services, and that they can leave one brothel for another with ease. Many brothels place advertisements saying that they are constantly hiring, and there is little incentive to take a brothel owner to court over working conditions when a worker can have another job in a matter of hours.
There is also the possibility of publicity if a matter is taken to court, with the stigma that is still attached to sex work providing a powerful disincentive to taking such action.
Comment
The Committee acknowledges that there are strong disincentives for sex workers considering challenging brothel owners/operators in court. It is to be hoped that these will reduce as the public becomes more accepting of the sex industry, but this will be a slow process. In the meantime, it is the responsibility of brothel operators to improve the prevalence and quality of written contracts in the sex industry, with the assistance of the Department of Labour and NGOs such as NZPC.
10.6 The Formalisation of Employment Relationships
There may be some resistance within the sex industry from those who do not want the responsibilities that come with formal employment contracts. This is most likely to be the case when a traditional employer/employee relationship is proposed. Formalising the employment status of sex workers would increase costs for brothel operators. Making brothel operators responsible for paying tax, ACC levies, holiday and sick pay for each worker would certainly decrease the profitability of running a brothel.
Equally, sex workers may be hesitant to sign contracts and become ‘official’, due to concerns about confidentiality and maintaining their autonomy. Some sex workers are concerned about brothel operators passing their personal information on to other authorities, such as the Inland Revenue Department. NZPC reports that some sex workers are concerned that they will be assessed for back taxes if they become known to IRD and, in a meeting between IRD and the Committee’s secretariat, IRD reported that there had been some calls from sex workers for a tax amnesty for their earnings before the industry was decriminalised. This was confirmed by NZPC.
There have also been concerns expressed to and by NZPC that adopting employee status might reduce the effectiveness of the protections provided by sections 16 and 17 of the PRA, namely the right not to be induced or compelled to provide commercial sexual services, and the right to refuse to do so. NZPC advocate raising awareness that this is not the case.
From the government’s point of view, the benefits of formal employment agreements in the sex industry include increased tax and ACC compliance from both workers and operators. In addition, the government has a duty to protect all its citizens, and the existence of formal contracts for sex workers helps to meet that duty by lessening the risk that they are the victims of exploitative employment conditions.
Comment
The Committee believes that concerns over increased compliance costs and loss of profitability as a result of formalising employment relations in the sex industry should not be regarded as an acceptable barrier to that process. The sex industry has been decriminalised; those who operate within it must now experience the advantages and disadvantages under the law that all businesses experience.
Any fears that sex workers might have about losing the right to say no to sex if they adopt employee status are groundless. Brothel operators and sex workers cannot contract out of the protections provided by sections 16 and 17 of the PRA (the right not to be induced or compelled to provide commercial sexual services, and the right to refuse to do so). Any such contract will be illegal, and shall have no effect under the Illegal Contracts Act 1970. A best practice employment contract or contract for services must reflect the statutory framework set up by the PRA, which includes section 16 and 17’s protections. If there is any attempt to force a worker to work against her or his will, using the worker’s contractual obligation as a justification, it can be resolved in court.
The formalisation of employment relations would provide more certainty with regard to the payment of tax by sex workers. It has become apparent to the Committee that some employers are not taking their responsibilities in respect of employment arrangements seriously. They have a role to play in regularising the contract arrangements with managed workers. This includes employment status and the provision of best practice employment arrangements. Brothel operators must recognise the new legal status of the sex industry, and align their practices with other industries in the service sector.
The only concern that the Committee had with recommending the wholesale adoption of professionally prepared written contracts is that it might lead to a two tier industry emerging, of those who insist on a proper contract, and those willing not to do so. Even if such a system did not arise within and between particular brothels, the introduction of formal contracts might drive some workers onto the street, which would be undesirable.
However, the Committee is of the view that, if its recommendation that no particular type of employment relationship become an industry standard, or be prescribed by law, the chances of this occurring are relatively small. By leaving each sex worker to negotiate a best practice-based employment contract of some sort, and allowing the industry to develop its own standards within the law, a wide enough variety of employment conditions should remain available to meet most sex workers’ individual needs.
10.7 Next Steps
The Committee recognises that, even with government intervention, change in any industry happens slowly. This is usually for the best, provided there is a framework in place that protects the rights and promotes the interests of all involved in it. In the Committee’s view, the sex industry should be allowed to evolve naturally, without radical government intervention beyond that which has already occurred (i.e. decriminalisation).
However, having best practice employment relationships would be an excellent way to foster the ‘normalisation’ of the industry that the PRA foreshadows. As a first step, the Committee considers that extra information on employment matters could be included when providing brothel operators with brothel certificates. This is discussed further in chapter six.
As discussed in chapter five, the Committee sees a need for properly funded NGOs to act as brokers for sex workers as they access mainstream services. These include services provided by the Department of Labour, Work and Income New Zealand, employment consultants and recruitment agencies. But equally, the Department of Labour and other government agencies such as ACC and IRD have an important role in providing information and advice on employment rights and responsibilities to those involved in the sex industry. If more and better information is provided to brothel operators about their responsibilities under the PRA, as employers or contractors of sex workers, undesirable management practices will become rarer, and sex workers will be empowered to challenge unfair conditions.
The Committee is very conscious that the sex industry has been an illegal and stigmatised industry for a very long time, and that many sex workers had negative experiences with government agencies and the authorities in general. This has led to a high level of mistrust of authorities amongst some sex workers, which will not disappear overnight. In order for the sex industry to develop a culture of voluntary compliance with employment and tax law, it is crucial that constructive, positive relationships are carefully developed by government agencies with the sex industry. Emphasising the positive aspects of being within the law, or at least correcting some misconceptions about the negative aspects (e.g. must be an independent contractor because IRD says you are; will lose right to say ‘no’ if enter an employment contract), would be useful stating points for government agencies.
Employment law expertise may need to be bought in to NGOs willing to work in this area, and extra funding may therefore be required. However, Community Law Centres may be able to assist with advocacy, and the relevant government agencies, such as the Ministry of Health and the Department of Labour, can continue to provide educational material and assistance as required.
It is in society’s interest that the sex industry operates under lawful, fair employment conditions, in terms of both the health and safety of New Zealand citizens, and New Zealand’s international reputation as a promoter of human rights.
The Committee notes that street-based workers and workers in SOOBs are self-employed, and do not have employment contracts to negotiate. However, as self-employed workers they have tax, ACC and OSH obligations that they must meet.
Recommendations
As regards brothel-based sex workers, the Committee recommends that:
the sex industry be encouraged through education, consultation and advocacy to move to the situation where brothel-based sex workers have a best practice-based written contract with a brothel operator;
the decision as to whether to enter a contract of service or a contract for services be left entirely to the parties to the contract, with general employment law, the Employment Relations Authority and the Employment Court available as for any industry;
the Department of Labour and IRD work with the sex industry to clarify any misconceptions about the right to say ‘no’ and the choices that are available to them regarding their employment status; and
Information to be provided to brothel operators during the certification process about their employment responsibilities should include providing information to sex workers about their employment rights.
Footnotes
81 Section 65(1)(a) Employment Relations Act 2000.
82 Warwick Henderson Gallery Ltd v Weston (no 2), Court of Appeal, Hammond, Baragwanath, Potter JJ, 14 November 2005.
83 Either under section 144A ERA for independent contractors/principals, or through the usual mechanisms for those in employee/employer relationships.