Employee or contractor – which one is it?

The Fair Work Commission (FWC) has once again confirmed that parties cannot alter the true nature of a relationship by putting a different label on it.

It would be hard to find a clearer case where the indicia were so strong as suggesting this to be an employment relationship and not a contractor relationship.  I think it is abundantly clear that this was a sham contracting arrangement and that is my finding.  It’s not a difficult one to reach given the state of the evidence.”

This decision serves as a warning to organisations of the risks of incorrectly classifying a relationship. In this decision the Commissioner indicated that he would refer the matter to the Fair Work Ombudsman (FWO) General Manager as he was concerned that the company may have a number of workers engaged on a similar arrangement to that of the Applicant.

This means that in addition to having to defend a claim for unfair dismissal, the company may also face penalties for breaches of the sham contracting provisions of the Fair Work Act 2009 (Cth).

Background

The Applicant was initially engaged on 8 February 2018 subject to an Independent Contractor Agreement (Agreement) for a term of six months. The Agreement was not renewed, however, the agreement between the parties remained the same until 4 December 2018 when the Applicant was employed.

The Applicant’s employment was terminated on 12 March 2019. The company raised a jurisdictional objection to the Applicant’s unfair dismissal claim, on the basis that the Applicant did not meet the minimum employment period (being six months, or 12 months for a small business employer) to be eligible to bring an unfair dismissal claim. It maintained that for the period between 8 February 2018 and 3 December 2018 the Applicant was a contractor.

This decision dealt with the jurisdictional objection only.

Finding

Relying on previous decisions of the Fair Work Commission (including the Full Bench), Commissioner Lee adopted the multi-factorial approach to identify whether the Applicant was an employee or independent contractor.

Control

  • The Applicant was under the direction of supervisors.
  • There was no evidence that the Applicant had any significant control over the hours of work she performed beyond her capacity to swap shifts or refuse additional work offered if she was unavailable.
  • The Applicant was required to abide by the policies and procedures of the organisation that may be implemented or varied.
  • This weighs in favour of a finding that the Applicant was an employee.

Performs work for others

  • The Applicant was restrained from working in competition with company “with knowledge” she had gained from the company. This would severely limit her ability to carry on a business using her skills in that field.
  • The Agreement did not confer any express right on the employee to perform work for another
  • As a practical matter, the Applicant was not in a position to work for another entity (she worked full-time hours and additional overtime).
  • This weighs in favour of a finding that the Applicant was an employee.

Delegation or sub-contracting

  • The Agreement did not provide a right to delegate or subcontract the work.
  • The swapping of shifts with other people on the staff roster was not subcontracting or delegating.
  • This weighs in favour of a finding that the Applicant was an employee.

Uniform

  • The Applicant was required to wear a uniform that was supplied by the company.
  • This weighs in favour of a finding that the Applicant was an employee.

Salary and tax

  • The Applicant provided a monthly invoice to the company that recorded the hours worked for each particular day. The invoices were not numbered.
  • The Commission noted that “it is hardly surprising that the invoice arrangement and the method of payment was consistent with a contractor relationship since that is what the company at least sought to achieve”.
  • The Commission gave little weight to matters that have the “trappings” of an independent contractor relationship in the circumstances of this case.

Description of the relationship

  • The Agreement described the relationship as a “contractor” relationship.
  • While the description of the relationship is important, it is not determinative. The substance of the relationship and not its form is most important.

Tools or equipment and carrying on a business

  • All tools and equipment were supplied by the company.
  • There was no evidence that the Applicant was involved in any business with other customers who might purchase her services.
  • There was no evidence of any advertising or promotional activities undertaken by the Applicant.
  • This weighs in favour of a finding that the Applicant was an employee.

Taking all of the above into account, the FWC determined that the Applicant was an employee for the entire period she was engaged by the company. On that basis, the Applicant had completed the minimum employment period.

Tips for organisations

  1. Apply the test – the above indicia are a good starting point for assessing whether a relationship is an employment relationship or contractor relationship.
  2. Substance over form –the behaviour of parties to an arrangement is important. For example, if a worker is controlled by a company (in respect of things like hours and days of work), wears the company uniform and is provided with company equipment, they will most likely be an employee.
  3. Review your arrangements – the behaviour of parties can change over time and an arrangement that was once a contracting arrangement can become an employment relationship, particularly if the relationship continues for a lengthy period of time.

For further information please contact our Employment + Workplace Relations team.

Erin Lynch, Partner
M +61 477 330 202
E erin.lynch@vincentyoung.com.au