Uncertainty surrounding the distinction between ’employees’ and ‘independent contractors’ is a very problematic feature of the current employment landscape in Australia.

The constant, high-profile legal challenges faced by gig-economy innovators, such as Uber, are the tip of the iceberg. Businesses with predominately ‘traditional’ attitudes towards the engagement of workers are up against it too.

Employers routinely face penalties for having incorrectly treated their workers as independent contractors when, in fact, they are considered employees by law.

But the most sobering risk of all stems from provisions in the Fair Work Act 2009 which allow for directors and other sufficiently ‘involved’ individuals to be held personally accountable for the mischaracterisation of workers.

Two recent decisions, made by two different legal institutions, illustrate the need for employers, senior employees and directors to be vigilant and to take advice when establishing, maintaining and varying relationships with their workers.

Worker entitled to bring unfair dismissal claim

In the first decision, the Fair Work Commission (FWC) found a worker, who “negotiated” her hours on a weekly or fortnightly basis over the course of a three-year period, was an employee capable of bringing an unfair dismissal claim.

Commissioner Wilson applied 13 of the guiding “indicia” established by numerous judicial decisions to reveal the worker’s legal status. There was no written agreement between the parties and, interestingly, only three of the 13 factors pointed towards an employment relationship. This demonstrates not all relevant circumstances will be accorded equal weight. Those which proved determinative in this instance were that the worker:

  • received pay slips showing regular hours;
  • had PAYG tax deducted from her remuneration; and
  • generally worked at the company’s offices.

This decision explicitly endorses the increasing focus upon whether a “worker could be said to be conducting a business of his or her own“. The indicia most relevant to this inquiry will generally assume greater importance.

Alleged breach of statutory entitlements

The second case – a decision of the Federal Circuit Court of Australia (FCCA) – revolved primarily around claims of underpayment made by a dentist.

The written independent contractor agreement relied upon by the respondent company purported to operate from seven years prior to the date on which it was executed.

Nevertheless, after considering the evidence, Judge Kelly was satisfied that the agreement basically formalised the practical arrangements that were in place already. His Honour was persuaded by the fact that the worker:

  • was paid by reference to commission, rather than an hourly or monthly salary;
  • had her own Australian Superannuation account and paid money directly to it;
  • conducted her tax affairs as a business operator;
  • did not accrue (and had never sought to take) sick, annual or long service leave; and
  • paid for insurance, education and work seminar expenses personally.

Accordingly, the FCCA found that the worker was an independent contractor rather than an employee.

Employer lessons

  1. When characterising a worker’s status, courts and tribunals will consider a wide range of indicia. They are interested in the totality of the circumstances and will place differing emphasis on various interrelated factors. This process involves some subjective discretion and is rarely (if ever) straight-forward. It is imperative to seek legal advice in order to understand and minimise corporate and personal
  2. Written agreements are an indispensable risk management tool. They should be drafted carefully to reflect the intentions and objectives of the parties, but they must also be appropriately tailored to reflect actual practices. A court or tribunal will not hesitate to disregard an agreement regarded as “fictional” and carelessly worded agreements can create further problems associated with sham contracting. If circumstances change, agreements must be varied or replaced.
  3. It is important to stay up-to-date about the financial and other penalties that can be imposed upon businesses and individuals for getting it wrong, even where there has been no deliberate wrongdoing.