Independent contracting relationships are increasingly common, especially within industries such as:

  • construction;
  • medical and healthcare consulting;
  • transport and logistics; and
  • emerging “sharing economy” business such as Uber.

However, the distinguishing line between an employee and independent contractor can be a fine one.

The parties to an independent contracting arrangement need to ensure that the relationship is correctly classified. Incorrect classification as a contractor can have unintended and potentially serious consequences, including:

  • Breaches of the “sham contracting” provisions of the Fair Work Act 2009 (Cth) (FW Act);
  • Access to the FW Act unfair dismissal regime;
  • Claims for unpaid entitlements; and
  • Taxation and superannuation implications for both the employer and individual.

The relevant authorities dealing with the distinction between an employee and an independent contractor are fairly well established, and were very recently articulated by Deputy President Binet in the Fair Work Commission (FWC) decision of Petrie v Grant Johnson Pty Ltd [2016] FWC 6407.

This case involved an unfair dismissal application brought by Mr Petrie, a roof tiler. The respondent, Grant Johnson Pty Ltd (Johnson), raised a jurisdictional objection claiming that Mr Petrie was engaged as an independent contractor and therefore ineligible to be protected from unfair dismissal under the FW Act.

In considering this issue, Deputy President Binet cited the FWC full bench decision of French Accent v Michael Anthony Do Rozario [2011] FWAFB 8307, which summarised the general law approach to deciding employee/contractor status as follows:

  1. In determining whether a worker is an employee or an independent contractor the ultimate question is, considering the terms of the contract and the totality of the relationship, whether the worker is conducting a business of their own or is a servant of another in that other’s business.
  2. The nature of the work performed and the manner in which it is performed must be considered.
  3. The terms and terminology of the contract are important. However, the parties cannot alter the true nature of their relationship by putting a different label on it.
  4. Consideration should then be given to the various indicia (identified in Stevens v Brodribb Sawmilling Co Pty Ltd and other authorities) as are relevant in the particular context.

In addressing the indicia, Deputy President Binet identified that there are no rules as to the weight to be given to the various indicia, being just a guide, with the ultimate question being whether the worker is acting for another or on their own behalf.

In applying this principle and deciding that Mr Petrie was an employee not an independent contractor, considering the relevant indicia the Deputy President identified that:

  • Johnson controlled the time and manner of work performed, and Mr Petrie worked exclusively for Johnson;
  • Johnson exercised control over the location and type of work performed by Mr Petrie via the preparation of roof restoration contracts for clients, which Mr Petrie completed. Any discretion Mr Petrie might have had over the work was limited to minor variations and amendments.
  • Mr Petrie had little to no control over his start times and that his finishing times depended on the work he performed and the weather.
  • Mr Petrie did not promote his services, nor did he have a business website or any other advertising material.
  • Johnson also provided him with business cards and pamphlets that he was expected to give to customers.
  • Mr Petrie did maintain his own vehicle, but was required to display Johnson’s logo on the van.
  • Johnson described Mr Petrie as its “worker” to its clients.

In some cases, it can be difficult to determine if a worker is an employee or an independent contractor, because it is often the case that some of the relevant indicia may point towards an employment relationship, while other indicia may point to an independent contractor relationship.

To limit the risks of incorrect characterisation, the parties to an independent contracting relationship should turn their minds to creating certainty in the relationship from the outset.

This may include careful consideration of the above indicia when drafting any independent contractor terms of engagement.

Given the difficulty, complexity and potential risks of incorrect classification, the parties to an independent contracting relationship should consider seeking legal advice when entering into such arrangements, especially where an assessment of the above indicia generates some uncertainty.