IMPORTANT: Pages dealing with whether a worker is an independent contractor or employee are currently under review in light of the High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 . Please refer to these cases for the current approach to be taken in determining whether a worker is an independent contractor or employee.
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What is a contract?
'The law holds that before any simple contract [including a contract of employment and a contract for services] is enforceable it must be formed so as to contain various elements. These are:
- There must be an "intention" between the parties to create a legal relationship, the terms of which are enforceable.
- There must be an offer by one party and its acceptance by the other.
- The contract must be supported by valuable consideration.
- The parties must be legally capable of making a contract.
- The parties must genuinely consent to the terms of the contract.
- The contract must not be entered into for any purpose which is illegal.'[1]
Valuable consideration can be the payment of money or the promise to perform certain duties.
The contract is to be interpreted objectively according to its terms and not on the basis of the subjective beliefs of the parties.[2]
Independent contractors
Contains issues that may form the basis of a jurisdictional issue
In some cases, even though a person has agreed to be an independent contractor, that person may actually be an employee because the relationship is an employment relationship. Similarly, some people, who were considered to be employees, may not be.
What is an employment relationship?
The employment relationship involves two parties:
- the worker who provides labour, and
- an entity that receives the benefit of that labour.[3]
What is the difference between an employee and an independent contractor?
In an employment relationship, labour (being a combination of time, skill and effort) is traded for remuneration.[4] There is a provider, a purchaser, an exchange and a contract containing terms and conditions that regulate the exchange.[5]
The 'label' the parties have expressly given to their legal relationship is an important consideration.[6] However '[t]he parties cannot create something which has every feature of a rooster, but call it a duck and insist that everyone else recognise it as a duck'.[7]
In particular, an express term that the worker is an independent contractor cannot take effect according to its terms if it contradicts the effect of the terms of the contract as a whole: that is, the parties cannot deem the relationship between themselves to be something it is not.[8]
Courts will look to the 'real substance of the relationship in question.'[9]
There have been many detailed discussions by courts and tribunals about the distinction between an employee and an independent contractor, including what issues should be considered and the way the issues should be decided.
In Hollis v Vabu Pty Ltd[10] it was held that 'the distinction between an employee and an independent contractor is rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own'.[11]
In simple terms, the issue is whether a person works for an employer or works for themselves.
How to determine if a person is an employee or an independent contractor
To help determine whether a person is an employee or an independent contractor, there are a series of factors, referred to as 'indicia', which generally help decide what a person is.
There are no rules as to the weighting given to the indicia in the decision making process.[12] The indicia are just a guide, with the ultimate question being whether the worker is acting for another or on their own behalf.[13]
In considering the criteria, it is necessary to consider the following questions (posed by Bromberg J) in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3):[14]
'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, then the person is likely to be an employee.'
The following table is adapted from the summary of indicia originally provided in Abdalla v Viewdaze Pty Ltd t/a Malta Travel[15] and updated in Jiang Shen Cai trading as French Accent v Do Rozario.[16]
| To be generally considered an employee | To be generally considered an independent contractor |
|---|---|
| Employer exercises, or has the right to exercise, control over the manner in which work is performed, the location and the hours of work etc. | Worker controls how work is performed. |
| Employee works solely for the employer.* | Worker performs work for others, or is genuinely entitled to do so. |
| Employer advertises the goods or services of its business. | Worker has a separate place of work and or advertises his or her services to the world at large. |
| Employer provides and maintains significant tools or equipment. | Worker provides and maintains significant tools or equipment. |
| Employer can determine what work can be delegated or sub-contracted out and to whom. | Worker can delegate or sub-contract any work to other persons to complete. |
| Employer has the right to suspend or dismiss the worker. | Contract may be terminated for breach. |
| Employer provides a uniform or business cards. | Worker wears their own uniform or other clothing of their choice. Worker has own business cards. |
| Employer deducts income tax from remuneration paid. | Worker responsible for own tax affairs. |
| Employee is paid by periodic wage or salary. | Worker provides invoices after the completion of tasks. |
| Employer provides paid holidays or sick leave to employees. | Worker does not receive paid holidays or sick leave. |
| The work does not involve a profession, trade or distinct calling on the part of the employee. | The work involves a profession, trade or distinct calling on the part of the worker. |
| The work of the employee creates goodwill or saleable assets for the employer’s business. | The worker creates goodwill or saleable assets for their own business. |
| The employee does not spend a significant portion of their pay on business expenses. | The worker spends a significant portion of their remuneration on business expenses. |
* Generally referring to full-time employment – some employees may choose to work additional jobs.
The table above is not exhaustive and whether a worker is an employee or contractor may be determined by a factor other than those listed above.[17]
Case examples
Independent contractor
Abdalla v Viewdaze Pty Ltd t/a Malta Travel
Abdalla v Viewdaze Pty Ltd t/a Malta Travel, PR927971 (AIRCFB, Lawler VP, Hamilton DP, Bacon C, 14 May 2003), [(2003) 122 IR 215].
A travel consultant who occupying business space in the respondent’s premises, was paid by commission, and controlled the hours and manner of his work, was found to be conducting his own business and not to be an employee of the respondent.
NOT an independent contractor
Rabba v PeleGuy Pty Ltd T/A PeleGuy
Rabba v PeleGuy Pty Ltd T/A PeleGuy [2013] FWC 70 (Gooley C, 10 January 2013).
The applicant was a salesperson who worked exclusively for the respondent, was not able to engage others to perform his work, was subject to the respondent’s supervision and control, and sold goods as an integral part of the respondent’s business. The applicant submitted invoices for payment, was paid by commission, was not subject to PAYG taxation, did not receive leave entitlements, and determined his own hours of work. The applicant was held to be an employee of the respondent.
Stanley v Jiarong Lin (Kim) T/A IGA Liquor Plus (SPQR Gourmet Groceries); Carty v Jiarong Lin (Kim) T/A IGA Xpress (SPQR Gourmet Groceries)
Stanley v Jiarong Lin (Kim) T/A IGA Liquor Plus (SPQR Gourmet Groceries); Carty v Jiarong Lin (Kim) T/A IGA Xpress (SPQR Gourmet Groceries) [2012] FWA 2943 (Ryan C, 4 April 2012).
The two applicants had been shop managers who shortly before dismissal had been moved from employee status to independent contractor status. They were found to be employees at the time of dismissal on the basis that the independent contractor arrangement was a sham not genuinely intended by the applicants or the respondent.
Bellia v Assisi Centre Inc
Bellia v Assisi Centre Inc [2010] FWA 2904 (Hamilton DP, 1 June 2010).
A priest who performed religious duties together with considerable pastoral work for the respondent community organisation under its direction and control, and was paid a regular income and provided with other benefits, was found to be an employee.
References
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[1] Re Advanced Australian Workplace Solutions Pty Ltd Print S0253 (AIRCFB, Giudice J, McIntyre VP and Redmond C, 25 October 1999) at para. 49; citing Macken, O'Grady and Sappideen, Macken’s Law of Employment (4th ed, 1997) at p. 74.
[2] Akee v Link-Up (Queensland) Aboriginal Corporation [2015] FWC 555 (Hatcher VP, 9 February 2015) at para. 8; citing Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (11 November 2004) at para. 40, [(2004) 219 CLR 165].
[3] On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 (13 April 2011) at para. 201, [(2011) 206 IR 252].
[4] ibid.
[5] ibid.
[6] Abdalla v Viewdaze Pty Ltd t/a Malta Travel PR927971 (AIRCFB, Lawler VP, Hamilton DP, Bacon C, 14 May 2003) at para. 34, [(2003) 122 IR 215]; citing Stevens v Brodribb Sawmilling Company Pty Ltd [1986] HCA 1 (13 February 1986), [(1986) 160 CLR 16, at p. 37].
[7] Abdalla v Viewdaze Pty Ltd t/a Malta Travel PR927971 (AIRCFB, Lawler VP, Hamilton DP, Bacon C, 14 May 2003) at para. 34, [(2003) 122 IR 215]; citing Re Porter [1989] FCA 226 (23 June 1989) at para. 13, [(1989) 34 IR 179, at p. 184]; Massey v Crown Life Insurance Company [1977] EWCA civ 12 (4 November 1977), [[1978] 2 All ER 576, at p. 579]; approved in AMP v Chaplin [1978] UKPC 7 (14 March 1978), [(1978) 18 ALR 385, at p. 389].
[8] Abdalla v Viewdaze Pty Ltd t/a Malta Travel PR927971 (AIRCFB, Lawler VP, Hamilton DP, Bacon C, 14 May 2003) at para. 34, [(2003) 122 IR 215]; citing AMP v Chaplin [1978] UKPC 7 (14 March 1978), [(1978) 18 ALR 385, at p. 389]; and Hollis v Vabu Pty Ltd [2001] HCA 44 (9 August 2001) at para. 57, [(2001) 207 CLR 21].
[9] On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 (13 April 2011) at para. 189, [(2011) 206 IR 252].
[10] Hollis v Vabu Pty Ltd [2001] HCA 44 (9 August 2001), [(2001) 207 CLR 21].
[11] ibid., at para. 40; citing Marshall v Whittaker's Building Supply Co [1963] HCA 26 (7 August 1963), [(1963) 109 CLR 210, at p. 217].
[12] Sammartino v Mayne Nickless Express t/a Wards Skyroad Print S6212 (AIRCFB, Munro J, Duncan DP, Jones C, 23 May 2000) at para. 58, [(2000) 98 IR 168].
[13] Stevens v Brodribb Sawmilling Company Pty Ltd [1986] HCA 1 (13 February 1986), [(1986) 160 CLR 16, at p. 37].
[14] On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 (13 April 2011) at para. 208, [(2011) 206 IR 252].
[15] PR927971 (AIRCFB, Lawler VP, Hamilton DP, Bacon C, 14 May 2003) at para. 34, [(2003) 122 IR 215].
[16] [2011] FWAFB 8307 (Lawler VP, O’Callaghan SDP, McKenna C, 2 December 2011) at para. 30, [(2011) 215 IR 235].
[17] Abdalla v Viewdaze Pty Ltd t/a Malta Travel PR927971 (AIRCFB, Lawler VP, Hamilton DP, Bacon C, 14 May 2003) at para. 34, [(2003) 122 IR 215].