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The Full Court of the Federal Court of Australia recently considered whether an agency contractor was an employee or an independent contractor in the case of Tattsbet Limited v. Morrow [2015] FCAFC 62. Overturning the lower court, the Full Court found that a former agency contractor had been engaged as an independent contractor. In reaching its decision, the Full Court applied a multi-factor test to determine the status of the worker, rejecting the entrepreneur test.

The worker in question, Sharyn Morrow, was engaged by Tattsbet Limited in 2004 pursuant to an agency agreement to manage and operate a betting agency. The lower court, the Federal Circuit Court, concluded that Morrow was an employee of Tattsbet, placing emphasis on the question of whether the putative employee operated someone else’s business (indicative of an employee), or if they conducted the business as an entrepreneur (more consistent with independent contractor status). The lower court determined that the following factors provided a strong indication that an employment relationship existed:

  • The agency operated out of the premises provided by the appellant;
  • Appellant provided plant, equipment and some consumables;
  • Appellant had “tight control” over how the agency was conducted;
  • Ms. Morrow was not permitted to provide services to other businesses, i.e., she was only able to work for Tattsbet and was not free to engage in work for others;
  • Appellant had control over the identity of individuals employed by the agency;
  • Appellant reserved the right to approve leaves of absence;
  • Appellant required certain supplies be purchased by the agency from appellant;
  • Appellant provided reimbursement for payroll taxes for her employees for some period of time.

On appeal, the Full Court acknowledged that there were a number of factors which indicated the existence of an employment relationship, but nevertheless determined that Respondent Ms. Morrow was an independent contractor and not an employee of Appellant Tattsbet Limited. The Full Court applied a multifactor test and took particular note of the following factors, all consistent with the respondent’s status being that of an independent contractor:

  • The agency agreement provided that the respondent was an independent contractor;
  • The agreement was the fourth entered into by the parties, suggesting that both parties were fully aware of and understood the nature of their relationship;
  • Respondent was paid to operate the agency and was not for her work and skills alone – she was able to employ others to do the work of the agency;
  • Respondent employed staff and undertook the obligations of an employer – outside of the terms of the agency agreement, she had an active membership of the employers’ association and executed an enterprise agreement with the trade union covering her employees;
  • Respondent’s net personal income was only a third of the gross revenue of the agency suggesting that the work and skill of Morrow was not what the appellant had paid for and was not the “essence” of the relationship as is usually the case in an employment relationship;
  • The tax situation – Respondent’s conscious participation in the Goods and Services Tax (GST) system and the significant amount of time she expended preparing the Business Activity Statement (BAS) for the agency suggest she characterized herself as an independent contractor.

The Full Court stressed the need to keep sight of the ultimate question: whether the worker is an employee or not. It confirmed that a multifactorial test, taking into account all the particular circumstances of the case, should be applied, rather than focus on the limited question of whether the putative employee conducted the business an entrepreneur or not.

Consistent with this recent opinion, careful consideration should be given to all the terms of engagement with an independent contractor and the proposed written agreement prior to the commencement of the relationship. Keeping the above-noted factors in mind when drafting the terms of and establishing such a relationship should help minimize the risk of unwittingly establishing an employment relationship, with its attendant costs and responsibilities.