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In brief - Independent contractors must be "in
business" and truly independent
There are significant contrasting features between a person who
is an employee and an independent contractor. An employee is in a
relationship of personal service. An independent contractor is a
business person.
Independent contractors being "in business" is
critical
Many people who are appointed as contractors are not really in
business or truly independent, but rather are dependent on a
principal.
In fact between about one quarter and 40% of all supposed
independent contractors are in fact dependent and work for one
entity.
Appointing independent contractors who are working under
disadvantageous conditions may be good in the short term, but such
relationships usually do not work out in the long term and tend not
to be permanent.
Appointing independent contractors: look at the whole
relationship
Entities that appoint contractors need to have a look at the
whole relationship and all the indicia that make it up. Are you
really appointing a true independent contractor ? This is a
significant question.
There is not a lot of legal guidance as to what makes up an
independent contractor. The High Court's most significant
decision was in Hollis v Vabu Pty Limited (2001) 207 CLR 21.
This case involved bike couriers who were engaged by a courier
company as contractors. When considering whether the bike couriers
were in fact contractors or not, the High Court looked at the
totality of the relationship between them and the appointing entity
and concluded that the bike couriers were really employees.
Factors to consider when considering appointing
contractors
In Hollis v Vabu, the Court held that the following
were significant indicia of an independent contractor:
Who owns the business?
Who controls the operation / work?
Who owns the office space?
Who owns the tools?
Who does the contractor provide duties to?
Does the independent contractor bear a risk of profit or
loss?
Is there a creation of goodwill?
How is the independent contractor paid?
The bike couriers had some features of an independent
contractor, but not all of them. Essentially the bike couriers were
not operating a business. The Court concluded, as one of the judges
stated, that merely labelling a dog as a duck does not convert the
dog into another creature.
Sham contracting arrangements prohibited by Fair Work Australia
(FWA)
Notwithstanding the fact that the law is somewhat lax, the FWA
has provisions that outlaw sham arrangements.
However, principals (employers) can defend themselves if they
are able to show that "they did not know or were not reckless
as to whether the true nature of the relationship was actually
employment".
Implications for superannuation payments
The most recent developments have emerged in cases involving the
recovery of superannuation payments.
Here translators were allocated jobs, often by law firms. The
usual arrangement was that a client would call the principal (On
Call) for a language translator to assist them.
On Call would direct the translator to the client. The
translator would perform the work and then On Call would invoice
the client. On Call would then pay the contractor upon receipt of
the fees from the client.
Even though there was no control in the way that the translator
did the work, the Court held that the translator was not in
business and accordingly was not really an independent
contractor.
The court determined that On Call had to make the outstanding
superannuation payments on behalf of its language translators, who
were deemed not to be independent contractors.
Clearly, decisions of this nature can have a devastating effect
on a business. The On Call case underlines the importance of
determining correctly whether your workers are employees or
contractors.
Appointing contractors: general principles you should
follow
If the supposed independent contractor is not "in
business" then they may not in fact be an independent
contractor.
If there is any doubt when you appoint an independent
contractor, then you should pay a portion of the contractor's
invoices towards the contractor's superannuation.
The wording of an independent contractor's contract should
set out the actual business arrangements. There should not,
however, be any reference to the payment of statutory entitlements
(holiday pay and sick leave) for an independent contractor.
There should be an emphasis in the written appointment
arrangements that the independent contractor actually has a
business.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A court has determined that an employee had a workplace right under the Fair Work Act 2009 to make a complaint entitling the employee to proceed with her general protections claim.
