When engaging people to perform work, businesses must be aware of the distinction between an employee and an independent contractor as there are varying legal rights, obligations and entitlements which apply to the respective working relationships.
For example, employees who are incorrectly treated as independent contractors will have access to certain protections under the Fair Work Act 2009 (Cth) (FW Act), as recently demonstrated in the decision of Aspire 2 Life Pty Ltd v Tidmarsh [2024] FWCFB 28.
The Full Bench of the Fair Work Commission (FWC) was required to consider the appeal of a decision of Deputy President Roberts who had initially found that a person engaged as an independent contractor was actually an employee who had standing to access the general protections provisions of the FW Act.
The worker provided disability care services for Aspire 2 Life Pty Ltd (Aspire) in accordance with two contracts which described her as an independent contractor (the Contracts).
The worker applied to the FWC alleging that Aspire had taken adverse action against her by unlawfully dismissing her when it terminated the Contracts. Aspire raised a jurisdictional objection to the application on the grounds that the worker was not an employee capable of being dismissed as she was an independent contractor.
At first instance, the Deputy President found that the worker was not an independent contractor and was instead integrated into Aspire’s business in the way an employee would be.
In coming to this position, the Deputy President applied the test established by the High Court in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and focused his analysis on the legal rights and obligations created by the Contracts rather than the totality of the parties’ conduct.
The Deputy President acknowledged that there were several terms contained in the Contracts which pointed to an independent contracting arrangement, such as the requirement for the worker to have an ABN, submit invoices for payment, pay her own tax and superannuation, and supply her own equipment.
However, the Deputy President found that these terms had “little to no weight in the overall analysis” of the Contracts when compared to other terms which pointed to the worker serving in, and being integrated into, the business of Aspire.
In particular, the Deputy President considered the following terms to weigh in favour of the worker being an employee of Aspire:
- the worker was required to provide care services to clients which were sourced, contracted, negotiated and managed by Aspire;
- Aspire determined the worker’s hourly rate having regard to funding and client negotiations;
- the worker was obligated to submit weekly timesheets to Aspire and payments were made directly by Aspire in accordance with their hourly rate;
- the worker was restricted to perform the services during agreed hours and she was unable to change her hours without providing two weeks’ notice; and
- Aspire exercised a degree of control over the worker. For example, the worker did not have a contractual right to determine the way in which work was performed for clients and instead, Aspire directed how work was carried out in accordance with its own care standards, processes, policies and contractual obligations.
On appeal to the Full Bench, Aspire claimed that the Contracts were not properly considered by the Deputy President.
The Full Bench conducted its own review of the contractual rights and obligations contained in the Contracts and ultimately reached the same conclusion as the Deputy President in finding that the relationship between the parties was one of employer and employee.
In doing so, the Full Bench rejected Aspire’s contention that the Deputy President mischaracterised its business and the extent to which it had control over the work undertaken by the worker. Instead, the Full Bench agreed that Aspire’s ability to direct and control the work performed by the worker was central to its business of providing care services to its clients.
The Full Bench found that Aspire exercised control by sourcing clients, negotiating client services and fees, and managing the services to be provided to clients. The Full Bench agreed that Aspire managed client services through the use of the worker by directing which services were to be performed and how they were to be carried out in accordance with its contractual obligations to the client.
The Full Bench also agreed with the Deputy President’s consideration of contractual indicia which pointed to the worker being an employee. It further found that the terms of the Contracts restrained the worker from refusing work from Aspire and therefore, restrained her capacity to subcontract or provide services to a competing business as an independent contractor would be able to do.
The Full Bench concluded its deliberation by finding that there was no error in the Deputy President’s findings that the rights and obligations under the Contracts weighed in favour of an employment relationship and dismissed the appeal.
Lessons for employers
Employers should be aware of the legal ramifications of mischaracterising an employee as an independent contractor, in particular, the potential for claims of protections and entitlements under the FW Act.
This decision also serves as a timely reminder that from 26 August 2024, the FW Act will be amended to reflect a new test for determining whether a person is an employee or an independent contractor.
After a period of relative certainty as to what a contractor was compared to an employee, the new changes made by the Federal Government will once again create confusion in the engagement of people to perform work.
The new test, rather than examining the terms of the contractual relationship per Personnel Contracting, will require an assessment of the real substance, practical reality and true nature of the relationship. The assessment will include not only the terms of the contract but also the manner in which the contract is performed. This re-creates and enhances the uncertainty that existed in this area before Personnel Contracting.
Unfortunately then for employers and hirers of people, all current relationships should now be re-examined to assess risk and to consider whether a contracting arrangement should be varied to employment to reduce risk (or surprises) at a later stage.
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