Employee or contractor for fair work laws?

What is the legal distinction between a contractor and an employee? Here is the answer.

“Are the Applicants National System Employees or Independent Contractors?

[9] The High Court of Australia in Jamsek and Personnel Contracting determined the case

of whether a person is an employee or contractor.3 The characterisation of the relationship is to

be determined by reference only to the parties’ legal rights and obligations.

[10] Where a comprehensive written contract is in place, this will be the primary source of

the parties’ legal rights and obligations, and it will be decisive in characterising the relationship.

This will apply unless the contract is a sham, varied after it was made, or post agreement

conduct, or context demonstrates that a term is legally ineffective.4

[11] Where no comprehensive written contract is in place, the High Court stated in Jamsek

that the “multifactorial” test remains appropriate in identifying the applicable legal rights and

obligations which is not derived from the post contract conduct.5

Therefore, a multifactorial

approach is to be adopted. In reliance on a considerable body of case law developed, general

legal principles are applied to specific circumstances.

6 Multiple indicia are to be considered,

though none alone are determinative. Analysis of the totality of the relationship between the

parties is required to determine whether the relationship was one of an employee or independent

contractor.

[12] The often-cited passage penned by Windeyer J in Marshall v Whittaker’s Building

Supply Co7

later quoted by the High Court of Australia in Hollis v Vabureads:

“the distinction between an employee and an independent contractor is ‘rooted

fundamentally in the difference between a person who serves his employer in his, the

employer’s business, and a person who carries on a trade or business of his own’.”8

[13] In Roy Morgan Research Pty Ltd v Commissioner of Taxation, the Full Court of the

Federal Court quoted with approval the following passage from Hall (Inspector of Taxes) v

Lorimer:

“The object of the exercise is to paint a picture of the relationship from the

accumulation of detail. The overall effect can only be appreciated by standing back

from the detailed picture which has been painted, by viewing it from a distance and

by making an informed, considered, qualitative appreciation of the whole. It is a

matter of the overall effect of the detail, which is not necessarily the same as the sum

total of the individual details. Not all details are of equal weight or importance in any

given situation. The details may also vary in importance from one situation to

another”.9

[2023] FWC 1096

3

[14] The Full Bench of the Commission adopted this passage in Jiang Shen Cai trading as

French Accent v Michael Anthony Do Rozario, and summarised the general approach to

distinguish between employees and independent contractors as follows:

“(1) In determining whether a worker is an employee or an independent contractor the

ultimate question is whether the worker isthe servant of another in that other’s business,

or whether the worker carries on a trade or business of his or her own behalf10: that

is,

whether, viewed as a practical matter, the putative worker could be said to be conducting

a business of his or her own11 of which the work in question forms part? This question

is concerned with the objective character of the relationship. It is answered by

considering the terms of the contract and the totality of the relationship.12

(2) The nature of the work performed and the manner in which it is performed must

always be considered. This will always be relevant to the identification of relevant

indicia and the relative weight to be assigned to various indicia and may often be

relevant to the construction of ambiguous terms in the contract.13

(3) The terms and terminology of the contract are always important. However, the

parties cannot alter the true nature of their relationship by putting a different label on

it.14 In particular, an express term that the worker is an independent contractor cannot

take effect according to its terms if it contradicts the effect of the terms of the contract

as a whole:15 the parties cannot deem the relationship between themselves to be

something it is not.16 Similarly, subsequent conduct of the parties may demonstratethat

relationship has a character contrary to the terms of the contract.17

(4) Consideration should then be given to the various indicia identified in Stevens v

Brodribb Sawmilling CoPty Ltd and the other authorities as are relevant in the particular

context. For ease of reference the following is a list of indicia identified in the

authorities:

  • Whether the putative employer exercises, or has the right to exercise, control over

the manner in which work is performed, place or work, hours of work and the like.

Control of this sort is indicative of a relationship of employment. The absence

of such control or the right to exercise control is indicative of an independent

contract. While control of this sort is a significant factor it is not by itself

determinative. In particular, the absence of control over the way in which work

is performed is not a strong indicator that a worker is an independent contractor

where the work involves a high degree of skill and expertise.18 On the other

hand, where there is a high level of control over the way in which work is

performed and the worker is presented to the world at large as a representative

of the business then this weighs significantly in favour of the worker being an

employee.19

“The question is not whether in practice the work was in fact done subject to a

direction and control exercised by an actual supervision or whether an actual

[2023] FWC 1096

4

supervision was possible but whether ultimate authority over the man in the

performance of his work resided in the employer so that he was subject to the

latter’s order and directions.”20 “[B]ut in some circumstances it may even be a

mistake to treat as decisive a reservation of control over the manner in which

work is performed for another. That was made clear in Queensland Stations Pty.

Ltd v Federal Commissioner of Taxation, a case involving a droving contract

in which Dixon J observed that the reservation of a right to direct or superintend

the performance of the task cannot transform into a contract of service what in

essence is an independent contract.”21

  • Whether the worker performs work for others (or has a genuine and practical

entitlement to do so).

The right to the exclusive services of the person engaged is characteristic of the

employment relationship. On the other hand, working for others (or the genuine

and practical entitlement to do so) suggests an independent contract.

  • Whether the worker has a separate place of work22 and or advertises his or her

services to the world at large.

  • Whether the worker provides and maintains significant tools or equipment.23

Where the worker’s investment in capital equipment is substantial and a

substantial degree ofskill or training isrequired to use or operate that equipment

the worker will be an independent contractor in the absence of overwhelming

indications to the contrary. 24

  • Whether the work can be delegated or subcontracted.25

If the worker is contractually entitled to delegate the work to others (without

reference to the putative employer) then thisis a strong indicator that the worker

is an independent contractor.26 This is because a contract of service (as distinct

from a contract for services) is personal in nature: it is a contract for the supply

of the services of the worker personally.

  • Whether the putative employer has the right to suspend or dismiss the person

engaged.27

  • Whether the putative employer presents the worker to the world at large as an

emanation of the business.28

Typically, this will arise because the worker is required to wear the livery of the

putative employer.

  • Whether income tax is deducted from remuneration paid to the worker.

[2023] FWC 1096

5

  • Whether the worker is remunerated by periodic wage or salary or by reference to

completion of tasks.

Employees tend to be paid a periodic wage or salary. Independent contractors

tend to be paid by reference to completion of tasks. Obviously, in the modern

economy this distinction has reduced relevance.

  • Whether the worker is provided with paid holidays or sick leave.29
  • Whether the work involves a profession, trade or distinct calling on the part of the

person engaged.

Such persons tend to be engaged as independent contractors rather than as

employees.

  • Whether the worker creates goodwill orsaleable assetsin the course of his or her work.
  • Whether the worker spends a significant portion of his remuneration on business

expenses.

It should be borne in mind that no list of indicia is to be regarded as

comprehensive or exhaustive and the weight to be given to particular indicia

will vary according to the circumstances. Features of the relationship in a

particular case which do not appear in this list may nevertheless be relevant

to a determination of the ultimate question.

(5) Where a consideration of the indicia (in the context of the nature of the work

performed and the terms of the contract) points one way or overwhelmingly one way

so as to yield a clear result, the determination should be in accordance with that result.

However, a consideration of the indicia is not a mechanical exercise of running through

items on a check list to see whether they are present in, or absent from, a given situation.

The object of the exercise is to paint a picture of the relationship from the accumulation

of detail. The overall effect can only be appreciated by standing back from the detailed

picture which has been painted, by viewing it from a distance and by making an

informed, considered, qualitative appreciation of the whole. It is a matter of the overall

effect of the detail, which is not necessarily the same as the sum total of the individual

details. Not all details are of equal weight or importance in any given situation. The

details may also vary in importance from one situation to another. The ultimate question

remains as stated in (1) above. If, having approached the matter in that way, the

relationship remains ambiguous, such that the ultimate question cannot be answered

with satisfaction one way or the other, then the parties can remove that ambiguity a term

that declares the relationship to have one character or the other.30

(6) If the result is still uncertain then the determination should be guided by “matters

which are expressive of the fundamental concerns underlying the doctrine of vicarious

liability” including the “notions” referred to in paragraphs [41] and [42] of Hollis v

Vabu.”31

[2023] FWC 1096

6

[15] The Respondent tendered a document titled ‘Management Agreement for Verano

Resort, Noosaville’ (the Agreement) which sets out the terms of the relationship between the

parties. There are no words in the Agreement that state the Applicants are independent

contractors or employees.

[16] The Agreement sets out the following terms of the relationship:

  1. A minimum term of two years and commencing on the 30 April 2021.
  2. It included a 3-bedroom home located on the complex with a car space.
  3. Annual Leave of 20 days was available but must be taken in one week blocks every

2-3 months. The leave could not be taken during peak seasons.

  1. The Remuneration was to be $60,000 per annum and were paid a weekly amount of

$1,153.86.

  1. A mobile phone and a company credit card would be provided.
  2. A bonus scheme was also applicable for unit sales which was 50% of the profit after

conveyancing, advertising and other associated expenditure if the Applicants were

able to sell the units.

  1. The requirement to wear a uniform and name badge.
  2. The list of duties that the Applicants were required to undertake.

[17] Although the Agreement purports to be a ‘management agreement’ I note the following

contractual terms are favourable towards determining an employment relationship existed:

  1. The Respondent exercised control over the manner in which the Applicants’ work

was performed, hours of work and the location.

  1. The Applicants could not perform work for others and were expected to report to

Ms Stephanie Charlton for all invoices and payment of suppliers.

  1. The Applicants were required to wear work uniforms.
  2. The Applicants were paid a weekly amount on a salary basis.
  3. The Applicants were provided 20 days of annual leave.
  4. The Applicants were provided some equipment to undertake their role. The role also

required a car which was not a substantive part of the role.

  1. The Applicants were provided with the company credit card to make purchases that

were consistent with their role. They did not utilise business expenses.

[18] There are some contractual terms which are favourable towards finding a contracting

arrangement existed:

  1. The Applicants were required to provide an ABN.
  2. The Applicants appeared to delegate their work when they were unavailable. In this

case, to Ms Sue Barden and Mr Geoff Barden

  1. The working period between the Applicants and Respondent was subject to a two-year

limit.

[19] With consideration of all the contractual terms above, I find overall that the Agreement

is reflective of an employment contract more than a contracting arrangement. I will now

determine the merits of the matter.”

 

Stevens v Pecker Maroo Verano Pty Ltd [2023] FWC 1096 delivered 31 July 2023 per Lake DP