Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

When does the law see a worker as an independent contractor?

How a single worker is classified as an employee or independent contractor is of critical importance and has been dealt with at great length by Australian courts. The rationale for the courts looking beyond the façade of the legal construct in such cases is a policy one, captured succinctly in the oft referred passage in Re: Porter; Re Transport Workers Union of Australia¹⁵³: , "…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."  Expressing that rationale within the rigid confines of the common law has however proved problematic.

In Stevens v Brodribb Sawmilling Company Pty Ltd ¹⁵⁴ the issue of whether a worker was an employee or independent contractor was determined by looking at the totality of the relationship as well as the key factor of control. Hollis v Vabu Pty Ltd¹⁵⁵ moved away somewhat from reliance upon whether a worker was under the control of the person who had hired them and introduced the multi-factor test.  This involves considering the totality of the relationship with guidance from multiple factors or indicators. No single factor will be determinative of the relationship. However, a key factor in the test is still ‘control’ – that is does someone else exercise control over the worker or is the worker able to exercise control over their own work?

Application of the test to the same set of facts and circumstances by different people can lead to different results. There is also scope for the various indicia to be manipulated so that a particular or desired outcome is achieved. This demonstrates that the test is not clear cut and can lead to confusion and inefficiency in its application.

An illustrative example is the decision of Justice Bromberg in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 (On Call). The case concerned a business that provided interpretation and translation services to clients. The interpreters and translators had previously been deemed to be independent contractors by On Call and this had previously been confirmed by the ATO in 1989. However, the ATO later determined that the interpreters and translators were in fact employees and that they were owed superannuation contributions. Justice Bromberg said:

“However, the absence of a simple and clear definition which explains the distinction between an employee and an independent contractor is problematic. It is troubling that in the circumstances of the bicycle couriers dealt with in Hollis, the parties involved needed to travel to the High Court to obtain a clear exposition of the legal status of the couriers.”¹⁵⁶ 

Table usefully summarises the key factors in the multi-factor test between independent contractors and employees.

Table : Indicia and the multi-factor test

Indicia	Independent Contractor	Employee
What are the terms of the contract between the worker and the boss?	Contract specifies it is for service. Says 'independent contractor'.	Contract specifies it is of service. Says 'employment', 'employee' etc.
What was the intention of the parties at the time of making the contract?	Intention was to create an independent contracting relationship, a relationship at arm’s length	Intention was to employ the worker, to create an employment relationship, to integrate the worker into the employer's business
How much control does the 'boss' have over the work the worker does?	No specifications about hours of work, perhaps a specification about when the work will be completed by	Set hours to work within, e.g. 38 hours per week, core hours between 9 am and 5 pm, sets out times for lunch etc.
Is tax deducted from payments?	No tax is taken out	Tax is taken out of wages paid
Can the worker engage another person to do the tasks of the job?	The worker can sub-contract the work, that is they can get another person to do it, personal performance is not required	The worker must do the work themselves, they cannot get anyone else to do it
Is the worker paid superannuation?	A contractor may not paid superannuation (unless wholly or principally contract for labour of the person – see ss12(3) SGA Act)	An employee receives superannuation guarantee payments
Does the worker receive paid sick, carer's, annual or long service leave?	A contractor does not receive paid leave. They must administer their own leave	An employee is entitled to paid personal/carer's leave, annual leave, long service leave
Who provides the tools or equipment required for the work?	A contractor provides their own tools and equipment and pays to up keep	An employee uses their employer's tools and equipment and the employer pays for the upkeep
Does the worker have to wear a specific uniform?	A contractor wears their own clothing, they are not required to wear the uniform of an employer	An employee may be required to wear their employer's uniform
Can the worker do work for anyone else?	A contractor can work for any number of principals	An employee can generally only work for the one employer
Does the worker have to comply with any manuals, policies, procedures?	A contractor does not have to comply with policies and procedures of the principal	An employee may have a contractual obligation to comply with all policies and procedures of their employer
How is the worker paid? Lump sum when they finish the work, weekly, hourly, after they submit an invoice?	A contractor usually invoices the principal at the completion of the job and is paid sometime after sending the invoice	An employee is paid by the hour and receives payment either weekly, fortnightly or monthly
Who bears the risk for profit or loss?	A contractor bears their own risks for making a profit or loss	An employee does not bear risk in relation to whether their employer makes a profit or loss
How integrated is the worker into the 'bosses' business?	A contractor is not part of the principal's business	An employee is part of the employer's business
Who pays workers compensation premiums?	A contractor pays their own workers compensation	An employee's employer must be insured for workers compensation which the employee is eligible to access
Who is responsible for maintaining tools and equipment?	A contractor must pay to upkeep their tools and equipment	An employee uses the employer's tools and equipment and the employer pays for their upkeep
What is the arrangement in relation to goodwill created through the work?	A contractor is running their own business and keeps the goodwill they create from doing business	An employee generates goodwill for their employer, not for themselves

This complicated state of affairs rightly begs the question as to whether there might be a more certain or reliable mechanism for the law to give effect to what is, essentially, an effort by the courts to give primacy to substance over form.