BlogDavid TaylorEmployment & Industrial lawSmall business & independent contractors

When is an independent contractor really an employee?

Gig economy companies such as Uber, Deliveroo and Airtasker all have one thing in common: they all use an independent contractor model for their workers. In other words, workers who deliver services through such platforms are not employees but are instead independent contractors.

Independent contractors either work under their own name or through a company, and often hold an ABN which they provide to those who they complete work for.  They are not entitled to many of the benefits and protections given to employees under such legislation as the Fair Work Act. This includes sick pay, annual leave, or notice of termination. Since independent contractors are not employees, they are also not entitled to a minimum hourly rate.

Gig economy companies and independent contractors have recently found themselves back in the news with the Federal Labor Party’s proposal to give more rights and entitlements to gig economy workers who are undertaking ‘employee-like work’. These rights include the ability to accumulate paid leave, as well as the right to a minimum wage, collective bargaining, and unfair dismissal rights.  This proposal has been criticised by the Federal Government, who argue that the costs of such a change would be astronomical for the businesses who currently utilise an independent contractor model for their workers.

Sham Contracting

Although companies in the gig economy are famous for using an ‘independent contractor’ model, many companies use independent contractors instead of employees. Indeed, since independent contractors do not need to be paid a variety of employee entitlements, and do not need to be paid a minimum wage, the independent contractor model is attractive to whole range of employers in a variety of industries.

Some companies seek to cut costs by simply calling their employees independent contractors, thereby avoiding paying a range of entitlements. However, just because you are called an independent contractor does not necessarily mean that you are one.

If you are in fact an employee of your company, but your employer merely labels you an independent contractor to avoid having to pay you the correct amount, this is known as sham contracting. It is also sham contracting if an employer fires you from your role for the purpose of re-engaging you as an independent contractor. Under the Fair Work Act, sham contracting is illegal, and there can be serious penalties for employers who intentionally or carelessly misrepresent the nature of a worker relationship. If you are the victim of sham contracting, you may be able to pursue legal action to recover the money owed to you.

Determining Whether a Worker is an Independent Contractor

The question of whether a worker is an independent contractor an employee can be difficult to determine. In the High Court case of Hollis v Vabu [2001] HCA 44, it was decided that the nature of a worker relationship should be determined by looking at the totality of the relationship, with the label the parties put on the relationship far from the deciding factor.

In determining whether a worker is in fact an independent contractor, the Court will consider a range of factors as important, including the following:

  • The level of control and independence a worker has in going about their work (i.e., do they choose how they approach their tasks, or do they merely follow the directions they are given?)
  • How remuneration is determined (whether it is by reference to an hourly rate, or by a per task basis)
  • Whether the workers are obliged to provide and maintain their own equipment (employees are less likely to provide their own equipment)
  • Whether the worker has an obligation to complete work at any particular time (independent contractors generally have no obligation to stick to set hours)
  • Whether or not the worker is permitted to delegate their work to someone else (employees generally cannot do this, while independent contractors generally can)

Generally speaking, the less control a principal has over their worker, the more likely it is that the court will find that the relationship is a genuine independent contractor/ principal relationship.

Each case considered by the Court will turn on its own facts, meaning that the Court can reach opposite conclusions on work relationships that, at first glance, may seem very similar. Both Uber drivers and Uber Eats delivery drivers, for instance, have been found to be genuine independent contractors, while a case against the now defunct food delivery company Foodora came to the opposite conclusion – that its delivery drivers were in fact employees, not independent contractors. Due to the complexity of this area of law, it is of the utmost importance to have an expert employment lawyer who will be able to assist you in achieving the best outcome possible.

When is an Independent Contractor an Employee for the Purposes of Receiving Superannuation?

The issue of when an independent contractor will be found to be an employee is further complicated by the fact that, in some areas of the law, independent contractors will be ‘deemed’ to be employees for certain purposes.

One of the major areas in which this is occurs is in superannuation law. The Superannuation Guarantee (Administration) Act 1992 (SGA Act) expands the definition of employee for the purposes of superannuation. Under section 12 of this act, contractors who work under a contract that is “wholly or principally for labour”, will be entitled to receive superannuation contributions from their principal. ‘Labour’ in this context does not only mean physical labour, but also includes mental effort and artistic effort. Determining whether a worker is an employee for the purposes of superannuation can at times be difficult.

Dental Corporation Pty Ltd v Moffet

For instance, in the recent case of Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118, Dr Moffet sold his dental practice to Dental Corporation Pty Ltd  and then continued to work at his practice as an independent contractor for the company under a services agreement. This services agreement contained a number of benefits for Dental Corporation Pty Ltd, which included the following:

  • That Dr Moffet would continue to provide his services as a dentist at the practice; and
  • That if the practice did not achieve a minimum monthly income, then Dr Moffet’s own income would be reduced to make up the relevant shortfall.

In spite of the contract for services covering issues beyond that of simply ‘labour’, it was found by the full bench of the Federal Court of Australia that the services contract was still “wholly or principally for labour”. Thus, Dr Moffet was entitled to receive superannuation contributions.

This case illustrates the difficulty that can occur when trying to determine whether or not you quality as an employee, either as common law or under specific legislation. If you believe you have been wrongly categorised as an independent contractor, it is a good idea to explore your legal options to see if you have a strong claim for compensation.

Segelov Taylor Lawyers Can Help

If you require advice regarding a services contract, and whether or not you are entitled to any additional payments or rights, Segelov Taylor can provide guidance and advice regarding your legal options.

Segelov Taylor principal David Taylor is an accredited specialist in employment law. If you have concerns about your current employment status or other issues related to employment, please get in touch by email david@segelovtaylor.com.au or by phone  (02) 8880 0500.

This information is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters.

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