Making Sense of the Contractor vs. Employee Relationship

In a recent decision of the Federal Court (On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 (13 April 2011)), Justice Bromberg has tried to simplify and clarify the test for whether a person is an independent contractor or an employee. He did so after observing that workers and those who employ workers require more clarity from the law, especially when legislation demands that there be no misrepresentation of the nature of the relationship.

After detailed consideration of the relevant authorities and the “totality test”, Justice Bromberg stated:

“Simply, expressed, the question of whether a person is an independent contractor in relation to the performance of particular work, may be posed and answered as follows:

Viewed as a “practical matter”:

• Is the person performing the work an entrepreneur who owns and operates a business; and,
• In performing the work, is that person working in and for that person’s business as a representative of that business and not of the business receiving the work?

If the answer to that question is yes, in the performance of that particular work, the person is likely to be an independent contractor. If no, the person is likely to be an employee.”

The case went to the Federal Court on appeal against an objection decision made by the Commissioner of Taxation. The decision was that the deemed employer was liable to pay the superannuation guarantee charge, in relation to a number of people that the Commissioner considered were employees of the deemed employer. The appeal was dismissed.

This decision is timely with the Fair Work Ombudsman recently announcing that it is conducting a national education and compliance campaign targeting sham contracting. The Fair Work Ombudsman has also recently launched a prosecution against two companies for alleged sham contracting. The companies that are the subject of the prosecutions are alleged to have engaged call centre workers and door-to door salespeople as independent contractors when they should have been classified as employees.

Sham contracting is dealt with under the Fair Work Act 2009 (Cth) and imposes an obligation on employers not to misrepresent employment as an independent contracting arrangement. The maximum penalty per breach of the sham contracting provisions is $33,000.

If you would like more information, please contact National Workplace Lawyers on +61 2 9233 3989. 

National Workplace Lawyers

Note — this is for information purposes only and does not purport to be comprehensive or to render legal advice.