The Federal Court has found that over 2500 interpreters and translators have been incorrectly treated as independent contractors by their employer over a five year period.

Implications for employers

Points of interest from this case are as follows:

  • The Federal Court lamented the lack of a clear and simple definition which explains the distinction between an independent contractor and an employee, once more bringing this issue to the fore.
  • Consistent with most previous authority, the Court held that while a variety of indicia will be relevant when determining whether an individual is an independent contractor or an employee, the following test should be considered the “focal point”:
    • whether the person has a business; and
    • whether the work or the economic activity being performed is being performed in and for the business of that person.
  • The Court labelled this approach the "Focal Point Test".
  • Employers should remain conscious of this decision when seeking to classify individuals as employees or contractors.

Background

On Call offers the services of interpreters and translators in 120 different languages across Australia.  Interpreters interpret one oral language into another simultaneously or consecutively for clients where two or more people are not speaking the same language, whereas translators are engaged to translate a document or a recorded conversation into another language.  Interpreting and translating work involves different clients. 

In the early years of its operation, On Call treated its interpreters and translators as employees.  On 8 January 1990, On Call received advice from the Australian Taxation Office (ATO) (based on information it had provided to the ATO) that an employer/employee relationship did not appear to exist between On Call and its interpreters and translators.  After receiving this advice, On Call commenced treating the vast majority of its interpreters and translators as independent contractors.

However, the Commissioner of Taxation later made an assessment that On Call was liable to pay the superannuation guarantee charge under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SG Act) in relation to a number of individual interpreters and translators the Commissioner considered were employees and not independent contractors.

On Call then appealed the decision of the Commissioner of Taxation to the Federal Court under the Taxation Administration Act 1953 (Cth).

The Federal Court’s decision

Focal Point Test

Justice Bromberg went through the history of tests used to differentiate independent contractors and employees in some detail, noting that:

“the absence of a simple and clear definition which explains the distinction between an employee and an independent contractor is problematic…..… Workers and those who employ or engage them require more clarity from the law.  That is particularly so when important legislation such as the Fair Work Act ….have steadfastly avoided defining what is an employee, yet demand (on pain of civil penalty) that there be no misrepresentation as to the nature of the work relationship…...”

Justice Bromberg suggested that the question of whether a person is an independent contractor may be expressed as follows:

  1. whether the person has a business i.e. whether the person is conducting a commercial enterprise as a going concern; and
  2. whether the work or the economic activity being performed is being performed in and for the business of that person.

These are the “focal point” for an assessment of an individual’s status.

Other relevant indicia include matters such as (but not limited to) the individual’s ability to subcontract work; whether the individual advertises his or her business; whether the individual sets his or her rates; whether the individual holds his or her own insurance; whether the individual supplies significant assets used in the course of the work; and whether the individual has his or her own insurance. 

Application of the Focal Point Test in this case

Justice Bromberg applied the Focal Point Test and found that On Call had failed to establish that the majority of the interpreters and translators were not common law employees or employees within the extended meaning given in section 12 (3) of the SG Act. 

On Call had called eight very experienced, well qualified and long standing interpreters and translators to give evidence as a representative sample of the 2,500 interpreters.  Both the Commissioner of Taxation and Justice Bromberg were concerned by this selection, on the basis that these interpreters and translators were more likely to be considered independent contractors.  Justice Bromberg was critical of the “highly generalised fashion in which the evidence was presented”.

Justice Bromberg ultimately found that only two of the eight witnesses in fact owned and operated their own businesses.  These two interpreter witnesses did a considerable amount of translating as well as interpreting.  As translators, these witnesses performed work directly for small businesses such as ordinary members of the public, solicitors and exporters and build good will in their business.  They gave evidence of a relatively substantial direct client base.

However, the remaining six witnesses were only engaged in interpreting (and not translating).  They were unable to provide evidence demonstrating that “they had direct clients requiring interpreting services in sufficient numbers to sustain a business”  and were found not to be operating their own businesses.  This was because most clients requiring interpreting services were large institutional and corporate clients who used On Call to limit the administrative burden of calling various interpreters personally to ascertain availability for a specific job.  Justice Bromberg found that the patterns of work of the vast bulk of interpreters were unlikely to be much different to that of casual or part time employees working for a small number of employers.

Justice Bromberg found that “the market for interpreting services is likely to be far less conducive to sustaining a one-person business than is the market for translating services”. 

Accordingly, On Call was liable to the superannuation guarantee charge in respect of those individuals.

On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366