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ARE YOU A CONTRACTOR, OR ACTUALLY AN EMPLOYEE?

CONTRACTOR OR PERMANENT EMPLOYEES IN MELBOURNE

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Are you a Contractor, or actually an Employee?

When identifying the issues to answer the question it is necessary to determine the correct common law test.  

CONTROL TEST

Under the control test, one is an employee, if that person is subject to the employer's commands, e.g. the employer can designate the actual work, hours, place of work, and how an employee is to perform the work.

While actual control is important, the right to control is critical for professional work. Professionals may exercise their own judgment and discretion on how to perform their tasks [1] . However, if the authority to command remains in incidental or peripheral matters, (such as hours of duty) then one is an employee.

“The real question is one of the degrees of control exercised by the person employing…and this means not only the amount of control but the nature of that control and the direction in which it is exercised” [2] .

Latham CJ stated that the distinction between employee and contractor “is…that in the case of a servant an employee has power, not only to direct what work the servant is to do, but also to direct the manner in which the work is done” [3]

In the case of someone possessing a special skill and expertise, it may be difficult to determine actual control. The case of  Zuijs v Wirth Brothers Pty Ltd [4]  established that a mere right to control rather than the actual exercise of control could lead to the existence of a contract of employment.

In  Stevens' case, [5] although there was a great deal of control exercised over the worker Mason J emphasised that “it is the totality of the relationship between the parties that must be considered”. It is necessary to examine all the terms of the contract to determine if it is a contract for services or a contract of services.

Although in the case of  Vabu Pty Ltd v Commissioner of Taxation [6]  the court held that, the drivers were contractors primarily because they were required to supply and maintain their own vehicles and the company paid them by the job and not the hour, despite that, the control was considerable, regarding the hours they had to work, company uniform etc. Organisation or Integration Test

Determining whether a person is part of or integrated into the operation of the business for which they are working helps the courts determine whether the authority to command exists. Independent workers can demonstrate that they are really in business for themselves.  

RISK TEST

The more commercial risk borne by contractors, the more likely they are in business for themselves. This can be measured by looking at the ownership of assets, the method of payment, the responsibility and liability for any injury or defect arising from the work, and so on.  

DELEGATION TEST

Contractors who are prevented from delegating their work to others (e.g. to sub-contractors) are much more likely to be employees.  

CONTRACTS FOR TASKS VERSUS CONTRACTS FOR LABOUR

Businesses complete a specified task e.g., a task won through a tender process, whilst employees are more likely to be engaged on an ongoing basis (even if fixed term) where a variety of tasks is to be completed. Where the contract is only for skilled labour this is an indicator of employment. Contractors would regularly be considered employees if they are only selling their labour, are undertaking only one contract and it is long term and not for a specified task.

In determining whether you are an employee or in business for yourself, the courts consider the totality of the relationship between the parties. This involves the terms of the written contract, but as only one of the criteria.

“The parties cannot create something which has every feature of a rooster but call it a duck and insist that everybody else recognise it as a duck” [7]

Lord Denning MR stated, “…if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it...” [8] ,

Although in the case, the true intention of the agreement was to establish Massey as being self employed.

Ferguson v John Dawson and Partners (Contractors) Ltd [9]  Megaw and Browne LJJ held that, despite the fact that both parties labelled Ferguson a “…self-employed labour only subcontractor…'', the reality of the relationship between them was that of employer and employee.

In the  J Walter Thompson case , [10] the court held that actors in a radio play were employees of the radio station even though they had other employment during the week and were not paid an hourly rate, as they were required to attend rehearsals for which they were not paid, and received payment for the performances that they did. In  Morgan’s Case , [11]  the court noted that a doctrine of joint employment, or of joint employers [12] . In   Stevenson Jordan & Harrison Ltd v Macdonald and Evans [13] Denning LJ stated, “…under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas under a contract for services his work, although done for the business is not integrated into it, but is only accessory to it…”.

In  PRS v. Palais de Danse [14]  the Court held that band members engaged to perform, were employees of the occupier of the dance hall as the agreement “the right of continuous, dominant, and detailed control on every point, including the nature of the music to be played.”

Indicative Criteria

Employee

   Contractor

Does one have the right to control the work & the way it is done

Is the worker ‘integrated’ into the organization

Must the worker supply or maintain tools or equipment

Is the worker paid on task completion instead of wages for time worked

Does the worker risk loss, or making a profit

Can the worker work for others at the same time

Can the worker subcontract or delegate performance to others

Is taxation deducted from the worker’s pay

Is the worker responsible to insure for work-related injury

Does the worker receive paid holidays or sick leave

CONCLUSION

“A court determining a particular relationship…of employment or … other kind can resort to the process of balancing all these factors. Although the parties are free to choose the nature of the contract, which they make, their own characterisation of that contract is not conclusive. A court will always look at all of the terms of the contract to determine its true essence and will not be bound by the expressed choice of the parties as to the label to be attached to it.” [15]

[1]   Zuijs v Wirth Brothers Pty Ltd  (1955) 93 CLR 561

[2]  Gould v Minister of National Insurance  (1951) 1 KB 731 at 734

[3]   Federal Commissioner for Taxation v J Walter Thompson (Australia) Pty Ltd  (1944) 69 CLR 227 (at 231)

[4]  (1955) 93 CLR 561

[5]  Stevens v Brodribb Sawmilling Company Pty Ltd  (1986) 160 CLR 16

[6]  (1996) 81 IR 150

[7]  Re Porter: Ex Parte TWU   (1989) 34 IR 179 at 184

[8]   Massey v Crown Life Insurance Company  1978 1 WLR 676

[9]  [1976] 1 WLR 1213

[10]   FCT v J Walter Thompson (Australia) Pty Ltd  (1944) 69 CLR 227

[11]  WJ  Morgan v Kittochside Nominees Pty Ltd  (AIRC) PR 918793 13/06/02

[12]   www.airc.gov.au/research/annual/ar2002/airc/scas/scas15.html

[13]  [1952] 1 TLR 101

[14]  Performing Right Society Ltd v. Mitchell and Booker (Parlays de Danse) Ltd [1924] 1 KB 762

[15]   Re Election in the Transport Workers’ Union of Australia; ex parte Porter  [1989] AILR 388:

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