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How to identify an employee or contractor?

An Overview on Identifying Employees and Contractors

When determining whether a worker is an employee or independent contractor, in Australia, the Fair Work Act 2009 (Cth) is a statutory regime that applies to relevant employees and employers with mandatory obligations, statutory rights and protection. Whether statutory regimes apply to parties as an employee or employer is an important question to consider when parties are negotiating their contractual relationship and determining whether to characterise their relationship as one of employment or a principal and independent contractor.

In this article, we address the frequently asked questions regarding whether to characterise a relationship as one of employment or principal and independent contractor. The questions, include:

How does the National Employment Standards affect a worker?

The Fair Work Act 2009 (Cth) lists the statutory rights that apply to employees, and the legal requirements that must be satisfied by an employer. These legal requirements include the eleven National Employment Standards set out in section 61 of the Fair Work Act 2009 (Cth). Relevantly, the National Employment Standards include:

  • maximum weekly hours;
  • requests for flexible working arrangements;
  • offers and requests for casual conversion;
  • parental leave and related entitlements;
  • annual leave;
  • personal/carer’s leave, compassionate leave and unpaid family and domestic violence leave;
  • community service leave;
  • long service leave;
  • public holidays;
  • notice of termination and redundancy pay; and
  • fair work information statement.

When assessing whether a worker is an employee or an independent contractor, the totality of the relationship between the parties should be considered when characterising the relationship as one of employment or principal and independent contractor.

There are common legal questions that employers should consider:

  • Is there an agreement, or a contract, between the parties?
  • What are the rights and obligations of the parties in the agreement, or contract?
  • Is the service provided, by a company or an individual?
  • Are the hours of work and place of work, specified in the agreement or contract?
  • Does the worker provide services or labour to other people?
  • Does the worker separately provide equipment or tools?
  • Does the worker separately provide insurance?
  • Does the worker have control over how to perform their work?
  • Is their skill involved in the work performed?
  • Does the worker have an ABN registered?
  • How are invoices and payments arrangement made between the parties?

How to identify whether a worker is an employee or a contractor?

Generally, to identify whether a worker is an employee or independent contractor, “case law” (i.e law made by the Court), is often referred to answer this difficult question. Recent High Court decisions assist in framing the discussion with how relationships with workers should be characterised. Those cases are:

Case Study in the High Court decision of Hollis v Vabu Pty Ltd (2001) 207 CLR 21

In the High Court case of Hollis v Vabu Pty Ltd (2001) 207 CLR 21 (“Hollis”), the worker was held to be an employee.

In Hollis, the facts involved a bicycle courier business. A Vabu courier, wearing “Crisis Couriers” uniform, injured Mr Hollis. As a result, Mr Hollis suffered injuries requiring surgery. The issue was whether the Vabu courier, an employee or an independent contractor?

It was decided by the High Court that the Vabu courier was an employee. In arriving at this conclusion, the High Court examined a number of factors. They included:

FactorsSummary
ControlLittle control was held by the Courier on the manner that the work was performed.
Payment SummariesPayment summaries were given by Vabu to their couriers.
InsuranceInsurance cover were given by Vabu to their couriers.
UniformUniform was worn by the couriers bearing Vabus logo.
Skilled LabourLabour supplied by the couriers did not require special qualifications

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Case Study in the High Court decision of Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 16

In the High Court case of Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 16 (“Sweeney”), the worker was held to be an independent contractor.

In Sweeney, the facts involved a mechanic who was a director of his company, the mechanic was contracted to fix a refrigerator. The issue was whether the mechanic was an employee or independent contractor of Boylan? In short, the High Court found that the mechanic was an independent contractor.

In arriving at this conclusion, the High Court looked at similar reasoning discussed in Hollis v Vabu Pty Ltd (2001) 207 CLR 21 which, included:

FactorsSummary
ControlThe tools and equipment were owned by the mechanic, and the mechanic controlled how the work was to be completed.
Payment SummariesInvoices were prepared by the mechanic and issued to Boylan. In contrast with Hollis, payment summaries were issued by Vabu to the couriers.
InsuranceWorkers’ compensation and public liability insurance were independently maintained by the mechanic. In contrast with Hollis, insurance was issued by Vabu.
UniformThe mechanic was not presented as an emanation or employee of Boylan. In contrast with Hollis, the couriers were required to wear logos
Skilled LabourSkilled labour was provided by the mechanic. In contrast with Hollis, the work required limited skills only.

Case Study in the High Court decision of Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) v Personnel Contracting Pty Ltd (2022) 398 ALR 404

In the High Court case of Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) v Personnel Contracting Pty Ltd (2022) 398 ALR 404 (“Personal Contracting”), the worker was held to be an employee.

In Personal Contracting, the worker was engaged by a labour hire company, Personnel Contracting Pty Ltd. The worker was offered ad administrative services agreement with the labour hire company, and wad described as a “self-employed contractor”.  The worker was assigned to work on construction sites by the company’s client and was directed under the supervision of the company’s client.

Notwithstanding the labels that the parties had chosen to describe the relationship, when the High Court considered the facts in this dispute, the Court held that the worker was an employee. In reaching this decision, the Court looked at a number of factors affected the characterisation of the relationship, including:

  • the worker was engaged by the labour hire company to supply his labour to the company’s client and was paid for at an agreed hourly rate. The worker supplied his labour to the business, however, was not in a meaningful business for himself; and
  • the worker was subject to the direction and control of the labour hire company’s direction and control, by reason of the administrative services agreement.

Case Study in the High Court decision of ZG Operations Australia Pty Ltd v Jamsek (2022) 398 ALR 603

In the High Court case of ZG Operations Australia Pty Ltd v Jamsek (2022) 398 ALR 603 (“ZG Operations”), the workers were held to be independent contractors.

In ZG Operations, two truck drivers, originally employees, were requested to become contractors and provide their own trucks. Without transitioning as contractors, the truck drivers could not be guaranteed jobs moving forward. The employees entered into the company with a written contract, called, “Contract Carriers Arranagement”.

Originally, when the dispute was heard, the primary judge held that the truck drivers were not employees of the company. However, in the Full Federal Court, the truck drivers were held to be employees. The issue was appealed to the High Court of Australia, and the question was raised whether the truck drivers were employees or independent contractors.

When the High Court reached the decision that the truck drivers were independent contractors, a number of factors were considered, in particular, with reference to the “Contract Carriers Arrangement”:

  • the truck drivers were required to maintain public liability insurance, motor insurance policy, and to pay all legal costs (including, tax and duty) for their vehicles.
  • the truck drivers agreed not to offer their vehicles with any guarantee that work would be provided after
  • the truck drivers were able to work for other parties if the work was not detrimental to ZG.
  • payment for work was invoiced to ZG for work carried out in the preceding week.
  • control of work was power to give directions to make delivers, rather than direction to how work should be done.

As an employer, we recommend that:

  • you should carefully examine your agreements or contracts, and ongoing administrative procedures with your workers to determine the legal relationship that you may have with them; or
  • if you are uncertain about the nature of the legal relationship you have with your workers, or you do not have written agreements with them, then seeking legal advice early will ensure that the legal relationships are clearly set out as part of your business structure.

Read More: Relevant to employment law is the topic of restraint of trade clauses, and this is generally explored in our legal topic, “What is an enforceable restraint of trade clause?“.

Notes and Further Information

When considering employment agreements or independent contractor agreements to characterise the legal relationship with a worker, related topics that explores the general legal concepts of contracts and agreements, include:

Restraint of Trade |

Do you need legal advice? Call us on (03) 5331 1244 to get in touch and arrange an appointment with one of our lawyers.

You can also connect with us by filling out your details and telling us about your information for legal advice below:

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Authored by:
Ben Franklin, Managing Partner (LIV Accredited Specialist – Property Law), &
Matthew Tran, Lawyer.

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