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"Employee" or "contractor"? That is the question

Employment Law News | October 2014

The law in this area covers volumes as it has been developed by a number of different courts and tribunals and commissions as well as legislation. Here we provide a "snippet" of some recently considered characteristics to assist you in identifying employment or contractor relationships.

Identifying whether a person is an employee or a contractor must be considered from the outset of any relationship where a person provides services to a business. The nature or character of the relationship will affect the contract between the parties, and the terms of that relationship will govern how the "worker" will conduct themselves in providing the services.

Sometimes the boundaries are blurred and this causes difficulties when the worker makes claims for "employee entitlements" during or after the relationship has ended. Also there are obligations sometimes placed on the business owner by outside authorities like the ATO, and the Workers Compensation authorities regarding the engagement of "contractors" of which the worker is unaware, and for which the business [and in some cases the directors of the business] will be liable.

The Federal Court of Australia and the High Court have shed some light on the meaning of an "employee" in the 3 cases of On Call Interpreters and Translators Agency Pty. Ltd. V. Commissioner of Taxation (No3) [2011]FCA 366 ["On Call"] which concerned the characterisation of the engagement of interpreters and translators in hospitals, health serves and welfare services providers and others in hospitals, Roy Morgan Research Pty Ltd. V. Commissioner of Taxation [2011] HCA 35 ["Roy Morgan"] which concerned the engagement of interviewers for market research and ACE Insurance Ltd. V. Trifunovski [2013] FCAFC 3 ["Trifunovski"], which concerned insurance agents.

In the case of On Call, the court found that the interpreters and translators were "employees" for superannuation levy obligations of the business owners for the following reasons:

  • The business owner had some control over how the workers performed their duties
  • The workers represented themselves as a part of the On Call business
  • Any goodwill that the workers attracted from clients was passed onto the business of On Call
  • The evidence did not show that the workers could delegate their duties
  • The workers did not carry risk for loss.

The court in this case paid little or any regard to the proportion of total income earned by each worker from On Call, which traditionally has been a relevant consideration in characterising "employees" and "contractors". The fact, in this case, that the Business had previously engaged some of the workers as "employees" but had later changed the status to "contractor" for no substantive reason was another consideration.

In the case of Roy Morgan, the court analysed similar characteristics as to the On Call case, as well as other factors including facts which arose in the evidence concerning the following issues:

  • The interviewers could not work for a competitor whilst working for Roy Morgan
  • The interviewers could not represent that they worked for themselves, but at all times had to represent that they worked for Roy Morgan
  • Roy Morgan did not engage the interviewers on the basis that they were obtain a particular result

The court considered the facts that may have supported an independent contractor relationship including the fact that some interviewers used their own car and were paid per kilometre, the fact that the interviewers could decline to work at certain times when offered work by Roy Morgan, and the fact that some interviewers were "companies" and had separate ABNs.

Notwithstanding these facts of this case the Court found that the interviewers were "employees" were tax purposes.

In the case of Trifunovski, the case was decided in favour of the "employee" relationship of the insurance agents to the business owner, consistently from the trial judge to the appeal to the full Federal Court. The facts of this case showed that there were numerous traditional characteristics which described an independent contractor relationship including:

  • the agent could employ their own assistants to conduct "support services" like administrative and secretarial work;
  • the agent incurred their own costs and expenses and had to indemnify the head contractor for loss; and
  • the agent could refer work to other agents in their territory where the work had been allocated by the head contractor.

However the court at each stage of the proceedings offset these characteristics with evidence that the "overwhelming impression" of the engagement of the insurance agents was one that included the following characteristics of an "employee" relationship, most notably:

  • the agents were constantly trained in the Business Owners' techniques and products and conducted themselves under strict supervision of the Business Owner;
  • they acquired the goodwill for the business owner and not themselves; and
  • there was no real independence from the business owner.

It is therefore the "global" view of the relationship between the agents and business owner that led to a decision in favour of the "employment" relationship in this case.

Forum Law would like to acknowledge the source of this review of cases namely Nick Gangemi, barrister-at-law at 2 Selborne Chambers in his paper entitled 'Employees vs contractors' dated 9 October 2014. Nick specialises in tax law as well as other areas of law and can be contacted on 02 8228 2038.

Forum Law, solicitors, can advise and assist business owners in setting up and conducting their legal relationships with employees and contractors to optimise their desired outcome and to advise the owner of the consequences of the relationships they develop with their workers. Call Annette at Forum Law to discuss employment and contractor relationships.

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