this product is unavailable for purchase using a firm account, please log in with a personal account to make this purchase.

LIV Library, Bookshop & Meeting Rooms are open.

Limited access and COVIDSafe rules apply. 

Find out more
Select from any of the filters or enter a search term
Calendar
Calendar

Workplace law special edition: Employment status: Employee or contractor – the eternal conundrum

Workplace law special edition: Employment status: Employee or contractor  – the eternal conundrum

By Marc Felman and Tessa Duthie

Workplace 

0 Comments


Recent decisions in state and federal courts as well as the Fair Work Commission reveal the challenges that can arise in modern working arrangements such as labour hire, casual employment and workers in the 'gig economy'.

Snapshot
  • While the multifactorial test for determining whether a worker is an employee or contractor is well established, the application of that test continues to invite difficulty.
  • Recent decisions reveal the challenges that can arise when the multifactorial test is applied to less traditional modes of working.
  • There is no one size fits all approach to classification of workers, with the importance of each indicia depending on the circumstances of each case.

Why does the classification matter?

Courts and tribunals have long grappled with the task of characterising workers into one of two binary categories: employees or contractors.

Significant legal consequences flow from the classification of working relationships, with special protections afforded to employees that are not provided to independent contractors. Employees are entitled to the benefits of minimum wages, overtime and penalty rates, leave entitlements (eg, sick, annual or parental leave), redundancy and termination pay, which are conferred by the Fair Work Act 2009 (Cth) (FW Act), state legislation and industrial instruments such as modern awards. Independent contractors, on the other hand, do not enjoy these entitlements and their rights and obligations are instead determined by private contract. Many employees are also protected from the statutory unfair dismissal scheme,2 whereas independent contractors are largely confined to contractual remedies for any alleged wrongful termination. Taxation, superannuation and WorkCover implications and responsibilities also differ between employees and independent contractors.3

More important now than ever?

While the complexities associated with the employee/contractor distinction are not new, the exercise in characterisation has perhaps never been more relevant or difficult than it is now, with the increased prevalence of less traditional, modern working arrangements such as labour hire, casual employment and the rise of the gig economy. As Lee J recently observed in CFMMEU v Personnel Contracting Pty Ltd “as this enquiry, which produces a binary outcome, is forced to accommodate and respond to new and novel labour relationships it might be thought that it’s limitations become more apparent”.

The Report of the Inquiry into the Victorian On-Demand Workforce (commissioned by the Victorian government) made a number of recommendations for legislative reform in a bid to address these limitations, such as the codification of worker status in the FW Act and alignment of that definition across applicable statute books.5 However, as responsibility for workplace laws rests with the federal government and the recently introduced Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Bill6 does not address this issue, for now the common law test remains. 

The test

The test used by the courts and the Fair Work Commission in assessing whether an individual is an employee or independent contractor is well established and may, at a general level, be distilled into the following principles:

  • the test is multifactorial and requires consideration of various indicia (considered
  • below) and an evaluation of the totality of relationship between the parties. This requires regard to be had to the terms of the contract between the parties and the various features and work practices attendant to the relationship7
  • the test is not a mechanical “box ticking” exercise, but rather a matter of standing back and “obtaining the overall picture from the accumulation of detail”.8 No one indicia should be given decisive weight and the significance of each factor will vary depending on the circumstances of the case9
  • the distinction between an employee and a contractor is rooted fundamentally in the difference between a person who serves his employer in the employer’s business and a person who carries on a trade or business of his own.10

While these principles are not particularly contentious, it is their application that frequently invites difficulty. Some of the main indicia considered by courts are discussed below.

The competing indicia

Control

While no longer the “sole criterion” it once was,11 the extent to which control is exercised over a worker by the principal is an important consideration in assessing the nature of the relationship between two parties.12 Control extends not just to the actual exercise of control but also the right to exercise control13 and is, therefore, no longer confined to strict notions of day to day supervision and direction. Rather, control “in its legal sense refers to the identification of a right deriving from the employer which subordinates the employee in a position of service to the employer”.14 

However, as the Supreme Court of Appeal in Eastern Van Services Pty Ltd v Victorian WorkCover Authority (Eastern Van)15 made clear, “although a measure of control is the hallmark of an employment relationship it does not follow that principals are not able to maintain control over independent contractors without the contractual relationship becoming one of employment”.16 Further, in modern employment relationships control may be less significant, or reflected in different ways.17 For example, in a labour hire arrangement the employer may retain little practical control over the worker day to day and control may therefore assume less significance in the overall assessment of the relationship.18 

Contractual terms

Many contracts between a putative principal and contractor contain an express term to the effect that the contract does not create a relationship of employment and that the relationship is one of principal and contractor.19 

There are conflicting judicial views on the importance of these contractual provisions. Some decisions have considered such contractual terms as not very relevant, particularly where there is disparity in contractual bargaining power between the parties.20 However, other decisions have suggested that contractual terms can cast light on the truth of the situation, and should not be “informed by undue scepticism”, particularly where there is no suggestion of dissimulation.21 Indeed, in circumstances where the competing indicia are evenly balanced, the parties own understanding of the relationship, expressed in part via the contract, can be of considerable importance.22

Personal service: the ability to delegate

A contract of employment is, at its essence, a work/wages bargain where “the irreducible minimum of mutual obligation necessary to create such a contract is an obligation on the one side to personally perform the work or services, and on the other side to pay for such work or services”.23 Personal service is, therefore, indicative of an employment relationship and the right to delegate work will point against an employment relationship.24 An ability to delegate may be considered a particularly important factor if it is indicative of a principal’s intention to secure the services of a contractor more broadly, rather than the services of a particular individual.25 

However, in Jensen v Cultural Infusion (Int) Pty Ltd Wheelahan J noted that “the inverse situation does not carry equal force. That is, the fact a worker cannot delegate the performance of work is not necessarily a strong indicator that the worker is not an independent contractor”.26

Exclusive service

A lack of exclusive service, that is where an individual is not required to provide exclusive service to the principal and is free to accept work from others, including competitors, points to independent contractor status. The exclusivity indicia may overlap with the question of control and whether the worker is conducting their own business, as an absence of a requirement for exclusive service may be reflective of the level of independence enjoyed by the worker over their own work affairs.27 

Taxation

Many contracts purporting to engage contractors require the worker to be responsible for paying their own tax on the income received from the principal. Such an obligation points to independent contractor status. However, the weight to be given to the taxation affairs of parties is another area of some controversy. In ACE Insurance Ltd v Trifunovskni28 Buchanan J considered that less weight should be given to taxation arrangements as, like contractual provisions, they may simply be reflective of the views of one or more of the parties on the relationship rather than informative as to its actual status of the relationship.29 However, in Tattsbett Limited v Morrow30 Jessup J gave taxation arrangements more weight, stating that “if the parties to the contract have sought to equip their regulatory and taxation obligations on a particular basis and there is no contrivance in them doing so, then there is no good reason to treat those matters as no more than a reflection of self-interest or convenience”. In Eastern Van the latter approach was endorsed with the observation made that “there is little reason to downplay how the parties to the contract have acted and how they have treated the relationship in regulatory or revenue contexts”.31

Conducting a business

While the question of whether a worker is working in their own business or the business of another is not of itself decisive, it is nonetheless an important factor which can helpfully inform the analysis of the working relationship. The weight to be given to whether the worker is conducting their own business is “to be assessed in light of the whole picture and will, of course, vary on a case by case basis”.32

Like the assessment of whether a worker is a contractor or employee, determining whether a person runs their own business requires “an evaluative assessment of a range of relevant facts”. These factors include whether a worker is able to generate goodwill from their work, whether the worker has their own fixed place of work separate from the principal, or whether the worker has their own terms of trade and stationery.33 

Leave

Finally, an absence of leave entitlements may point to a contractor status.34 However, limited weight may be attributed to leave arrangements as, like contractual terms, they could be said to simply reflect the intention of the dominant party. Further, leave arrangements assume even less relevance when assessing the contractor/casual employee distinction.35

Conclusion

The application of the multifactorial test continues to be an area of uncertainty with no one size fits all approach. However, as the distinction between employees and contractors is “too deeply rooted to be pulled out”,36 practitioners and courts must continue to grapple with the challenge of applying the multifactorial test in various contexts, and more frequently, to less traditional modes of working. ■


Marc Felman is a barrister at the Victorian Bar, specialising in employment and industrial law. He appeared as counsel in Eastern Van and Personnel, and is currently acting for Deliveroo in various employee/contractor characterisation disputes. 

Tessa Duthie is a barrister at the Victorian Bar, specialising in employment and industrial law. She is reading with Marc Felman.

  1. See eg, CFMMEU v Personnel Contracting Pty Ltd [2020] FCAFC 122 at [61] Lee J.
  2. FW Act, Part 3-2.
  3. Taxation, superannuation and WorkCover legislation also extend statutory definitions of “workers” beyond that of a common law, which go beyond the scope of this article.
  4. Note 1 above.
  5. Inquiry into the Victorian On-Demand Workforce (Final Report, June 2020), 189, 193-194.
  6. Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Bill (Cth).
  7. See eg, Gupta v Portier Pacific Pty Ltd [2020] FWCFB 1698 at [55], Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at [24], Personnel at [11]-[12] and [73], Howard v Merdaval Pty Ltd [2020] FCA 43 at [14]-[15].
  8. See Gupta at [64], Personnel at [18]-[20] and [74], Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC at [6] and Jensen v Cultural Infusion (Int) Pty Ltd [2020] FCA 358 at [130].
  9. Personnel at [73].
  10. See eg, Personnel at [13] and [89]-[96], Tattsbet Limited v Morrow [2015] 233 FCR 46 at [61], Hollis at [40], Jamsek at [6]-[8] and [181] and Jensen at [85]-[90] and [113].
  11. See eg, Personnel at [81] and Howard at [30].
  12. See eg, Hollis at [49] and [57], Merdaval at [18] and [103], Eastern Van at [93].
  13. See eg, Personnel at [82] and Gupta at [55].
  14. Personnel at [86].
  15. [2020] VSCA 154 at [36].
  16. Note 15 above, at [102].
  17. Note 15 above, at [104].
  18. Note 16 above.
  19. See eg, Jamsek at [183]-[184].
  20. See eg, Personnel at [18].
  21. Note 15 above, at [170].
  22. See eg, Note 15 above, at [168]-[172] and Jensen at [75].
  23. See Automatic Fire Sprinklers Pty Ltd v Watson [1946] 72 CLR 435 at 465.
  24. See eg, Jamsek at [228].
  25. Note 15 above, at [142].
  26. Jensen at [79]. 
  27. See eg, Howard at [30].
  28. (2013) 209 FCR 146 at [25] (Ace Insurance).
  29. Note 30 above.
  30. (2015) 233 FCR 46.
  31. Note 15 above, at [161]. 
  32. Personnel at [96].
  33. Jensen at [115] and On Call Interpreters at [212]-[215].
  34. See eg, Howard at [40].
  35. See eg, Jensen at [45] and [120].
  36. Sweeney v Boylan Nominees Pty Ltd [2006] 226 CLR 161 at 173 [33].

Views expressed on liv.asn.au (Website) are not necessarily endorsed by the Law Institute of Victoria Ltd (LIV).

The information, including statements, opinions, documents and materials contained on the Website (Website Content) is for general information purposes only. The Website Content does not take into account your specific needs, objectives or circumstances, and it is not legal advice or services. Any reliance you place on the Website Content is at your own risk.

To the maximum extent permitted by law, the LIV excludes all liability for any loss or damage of any kind (including special, indirect or consequential loss and including loss of business profits) arising out of or in connection with the Website Content and the use or performance of the Website except to the extent that the loss or damage is directly caused by the LIV’s fraud or wilful misconduct.

Be the first to comment