Deciding on the terms under which to engage a person to perform services can be a complex task. There are benefits to engaging individuals as independent contractors where there is a particular task, project or specialised kind of work that needs to be performed. But mischaracterising the relationship can have dire consequences for employers.
Employees who are incorrectly treated as independent contractors are entitled to claim certain benefits under workplace laws such as leave and minimum rates of pay.
Resolving the question of whether a worker is an employee or an independent contractor involves a deep dive into the reality of the relationship and, even when a worker is found to be an independent contractor, there are some types workplace laws that will continue to apply, such as superannuation legislation.
Many employers often disregard superannuation considerations when making arrangements with independent contractors, but a recent decision from the Federal Court of Australia has highlighted the importance of paying attention to the extended definition of “employee” in such legislation.
In the case, the Court heard the application of a dental practitioner who claimed that he was an employee and not an independent contractor. The dentist argued that the truth of his relationship with the business was employment, notwithstanding that he had entered into a contractor’s agreement with the company.
The dentist claimed he was entitled to employment benefits under the Fair Work Act 2009 (Cth), long service leave under the Long Service Leave Act 1955 (NSW) and superannuation contributions under the Superannuation Guarantee (Administration) Act 1992 (Cth).
The Court examined the relationship between the parties in accordance with the common law principles for determining whether a relationship is an employment relationship or that of principal to contractor.
The Court noted “there is no one defining factor which places a person into one category or another” and that the common law multiple indicia test must be applied. The test must look at the “totality of the relationship” and consider the “reality of the situation.”
The Court considered cases that had previously applied the test and noted that common considerations include the exercise of control by the employer in how and where work is performed, the employer’s right to dismiss the worker, and whether the worker presents themselves to world at large as an emanation of the employer’s business of their own business.
The Court applied this test to the dentist’s circumstances and found that he was, in fact, an independent contractor. Relevant factors in reaching this decision included:
- The contractor agreement between the parties specified that the relationship was not an employment relationship;
- The dentist worked the hours and days that he wanted and took time off when he wanted, including a 15-week holiday;
- The business did not control how the dentist worked, what patients he saw, or what procedures he performed, meaning he was free to exercise his expertise; and
- The conduct of the business did not display any intent to create an employment relationship with the dentist.
On finding that the dentist was not an employee, the dentist’s claims under the Fair Work Act and the Long Service Leave Act failed.
However, the Court found the Superannuation Guarantee (Administration) Act contained an extended definition of employee that captured the dentist. On that basis, he was an employee for the purposes of this act and its terms applied to him and the business.
Under the superannuation act, “employee” has its ordinary meaning but is expanded to include a person who works under a contract that is wholly or principally for the labour of the person. In those circumstances, the person is an employee of the other party to the contract.
In this case, the dentist worked under a contract that was principally for his labour.
The Court found the dentist’s superannuation claim was successful and ordered the parties to provide draft orders to reflect his decision.
Lessons for employers
When engaging independent contractors, employers often either disregard or entirely forget about their potential liability in relation to superannuation.
It is important for employers to appreciate independent contractors can be deemed employees under certain legislation, even if they are not employees at common law.
This can be a difficult area of the law to navigate and employers in doubt should seek legal advice.