If a bird has every feature of a chicken, one cannot call it a duck, and insist that everyone else sees it as a duck!
Employers are trying to change the way they build their workforce and how they deal with Workers. Both Employers and Employees want greater flexibility and mobility in the workplace and they must take care in preserving their rights in changing or adopting practices and arrangements that fall outside the normal workplace.
Some Employers who traditionally relied on Employees now seek to contract out of their obligations by purporting to enter contracts with the so-called “Independent Contractor”. Increasingly more businesses hire through employment agencies, engage Independent Contractors for their specific expertise, or contract out certain services. The benefits to business of this greater flexibility are substantial. However, Employers must ensure they correctly make a distinction between Independent Contractors and Employees, and not fall outside their legal obligations and duties.
EMPLOYEE OR INDEPENDENT CONTRACTOR
There are businesses that want to avoid true employment relationships by unlawfully insisting that an Employee is an Independent Contractor. This practice of “ calling the chicken a duck
” is an attempt to avoid the legal obligations they owe to the Employee. Employers have a legal responsibility to their Employees for negligence; industrial awards, unfair dismissal laws, leave entitlements, superannuation, and WorkCover. Independent Contractors are not entitled to receive these benefits, protection, and entitlements.
IS IT AS SIMPLE AS CALLING ONE AN INDEPENDENT CONTRACTOR?
The Australian Industrial Relations Commission (“AIRC”) handed down its decision in the case, where the Worker lodged an unfair dismissal claim and the Employer objected on the basis that the Worker was not an Employee but an Independent Contractor. The business had engaged the services of the Worker under an “Employment Contract”, identified the Worker on taxation documents and group certificates as an “Employee”, and made superannuation contributions. Despite these factors, AIRC determined the Worker was not an Employee but an Independent Contractor. The reason for this finding was because the business had little control over the hours or manner, in which the Worker worked, and because the Worker did not receive a weekly salary, and instead received commission. The underlying relationship was that of the Worker carrying on his own business enterprise.
The AIRC said that when deciding whether the relationship in question is that of an Employer and Employee, the Courts and Tribunals would look beyond the terminology used in an employment agreement and assess the practical effect on the parties.
Therefore, even if there is an express term in an agreement that a person is an Independent Contractor, but that Worker has no actual sign of independence, the Court will find the person is an Employee.
ISSUES COURTS & TRIBUNALS CONSIDER
When determining the true character of the contractual relationship, Courts & Tribunals consider the:
a) Relationship as a whole to find out if a person is carrying out work for the Employer or on his own behalf
b) Nature of the work, how to perform the work in the context of control, and who controls how to carry out the work
c) Terms of any agreement, in view of the true nature of the relationship and not the label and
d) Relevant characteristics within the relationship
CHARACTERISTICS OF AN INDEPENDENT CONTRACTOR
An Independent Contractor is more likely to:
a) Exercise their skill and judgment to carry out work, and has control over how to carry out the work
b) Delegate, can delegate, or subcontract the work
d) Provide & maintain tools & equipment (and using special skills)
e) Receive commissions for work completed rather than receive salary or wages
f) Take on the financial risks and liabilities as well as profits
CHARACTERISTICS OF AN EMPLOYEE
An Employee is more likely to:
a) Carry out work under supervision or direction
b) Carry out work exclusively for one person, and be put forward as carrying out work for that person
c) Be paid a set salary regardless of the work completed
d) Have tax deducted and be entitled to long service, annual and sick leave, superannuation and WorkCover
e) Be subject to suspension or dismissal
INTERPOSING COMPANIES BETWEEN EMPLOYERS AND WORKERS
More and more Employers want to move away from the employment relationship, and want to utilise the workforce through an interposing legal entity, by forcing Workers to register companies or businesses and enter contractual arrangements which appear as contracts with Independent Contractors rather than contracts of employment.
In this situation, the Employer receives most of the benefits to the detriment of the Worker. The Employer enjoys greater flexibility and does not need to provide entitlements normally reserved for Employees. The Worker may derive some benefit through business deductions and company tax rates.
Workers face unnecessary costs to maintain the companies, and taxation laws penalise companies that are set up by Workers who do not meet the minimum criteria for the provision of personal services.
The Courts, Tribunals & Taxation Authorities will dissect the characteristics of the relationship and look beyond whatever the parties call themselves; especially if it is obvious, that using the company is a means to avoid an Employer’s obligations and duties in the relationship.
EMPLOYERS' LEGAL RESPONSIBILITY FOR WORKERS
How the Courts and Tribunals view the characteristics of the relationship between Employer and Worker can depend on the circumstances in which the issue of legal responsibility for the Worker arises. The High Court recently looked at a claim in negligence arising from an injury against an Employer for the actions of a Worker. In that case, the Employer carried on a courier business and one of its Workers (courier) ran into and injured a pedestrian. The pedestrian suffered permanent injuries because of the collision and sought to claim against the Employer, relying on the accepted principle of law that an Employer is liable for the negligence of its Employees which occurred within the course of the employment. The Employer argued that all its couriers were Independent Contractors and therefore, it was not legally responsible for the courier’s (Worker’s) negligence.
Many of the characteristics pointed towards the couriers being Independent Contractors, including the fact that they had to supply their own tools of trade, being their bicycles. However, the amount of control the Employer had over the time and type of deliveries made, and the fact that the couriers were required to wear uniforms were key factors in the High Court’s decision that the couriers were Employees and the Employer was legally responsible. The wearing of uniforms was significant because this represented to the public that the couriers were Employees.
Independent Contractors do not carry out work as a representative of the Employer but on their own account.
IF A BIRD HAS FEATURES OF A CHICKEN, ONE CANNOT CALL IT A DUCK, AND INSIST THAT EVERYONE ELSE SEES IT AS A DUCK!
In conclusion, no matter how you dress it, call it, or want others to view it, it is unlikely that without proper and careful structuring of the relationship between the Employer and Worker, the Courts, Tribunals, and Taxation Authorities can disregard these arrangements and impose their own interpretation of the arrangement.
NEED MORE INFORMATION
Behan Legal advises and assists on these important issues. For an appointment, call 03 9646 0344