Over the last decades there has been a significant increase in the number of independent contractors (as contrasted with employees) in the workforce.

Independent contractors are workers who either work under their own name, or through companies. Often they will hold an ABN and provide those to their principal.

Independent contracting arrangements can range from systems which are essentially just employment under a different name (and in this context are of dubious legality) to arrangements which are clearly appropriate sub-contract arrangements (such as for example the engagement of a person to do a particular task).

What is the difference between independent contractor and an employee?

The question as to whether a particular person is engaged as a contractor or as an employee can be difficult to determine.

The law will look to the substance of the relationship.

There have been a number of cases that have run all the way to the High Court that have considered the issues.

The High Court decided that the issue  should be determined by reference to “the totality of the relationship between the parties” the question about how the parties themselves characterised the relationship is relevant but not determinative.

Using the totality of the relationship approach the question is often expressed as one of a decision between whether a person is “performing the work as an entrepreneur who owns and operates a business”; (a contractor) or if they are “performing the work in and for another persons’ business as a representative of that business and not the business receiving the work” (an employee).  In practice the task is performed by considering a number of ‘indicia’ that assess the distinction between the two forms of engagement.  The normal indicia are:

  • the degree of control the principal has (the more control, the more likely the person is an employee)
  • the mode of remuneration (are they paid by reference to hourly rates, or by reference to a task being completed)
  • provision and maintenance of equipment or resources (contractors traditionally supply their own equipment)
  • obligation to work (contractors generally have no obligation to attend at any particular time)
  • delegation of work by contractor or exclusivity of performance (a contractor traditionally can delegate the performance of their work to another, while an employee cannot)
  • hours of work and entitlements to leave (employees tend to have fixed or agreed hours, and defined leave entitlements)
  • provision for holidays
  • deduction of income tax;.

The question can be crucial in many disputes as being an employee brings with it certain rights under the Fair Work Act (for example to annual and sick leave), and minimum rates of pay under Awards.

The issue is further confused because some areas of law (most notably superannuation law) create “deemed employees”.  Deemed employees are defined as employees for the purpose of that Act alone (they may or may not be employees as a matter of law).  Deemed employees are entitled to benefits of employment.  In superannuation, deemed employees are persons include contractors who contract for the provision of thier labour.

The Fair Work Act

Whilst the Fair Work Act primarily covers employees, there are a number of provisions, including in particularly the adverse action provisions that provide actions for independent contractors.

These include provisions that prevent a person from terminating an independent contractor for an unlawful reason, and other provisions relating to the engagement of employees as independent contractors.

The Independent Contractors Act

The Independent Contractor Act provides independent contractors the capacity to approach the Federal Court and Federal Circuit Court and seek to have the terms of any contract vary in the event they are unfair.

The provisions used have been of limited use since being introduced in 2007.  However, David Taylor, a principal of Segelov Taylor Lawyers, had conduct of the first successful matters for applicants.

Under the Independent Contractor Legislation a party must establish that the independent contract is unfair, and then seek to have to Court vary the contract so as to render there. In the same proceedings the party can then seek damages for breach of the varied term.

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