Professional Documents
Culture Documents
Contractors
Aaron Magner
Legal Counsel, UNSW
INTRODUCTION
This paper examines the means by which courts, and lay people, can distinguish
between an employment relationship and that of principal and contractor. This
paper also examines some of the legal pitfalls for organisations that attempt to
increase flexibility and reduce costs by manipulating the distinction between
employees and independent contractors.
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but a ship’s pilot, a taxi-man and a newspaper contributor are
employed under a contract for services [independent
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contractors].”
The table below is derived from the two authoritative decisions of the High Court of
Australia in Stevens v Brodribb Sawmilling Co (1986) 63 ALR 583and Hollis v Vabu
Pty Limited (2001) 207 CLR 21. It is intended as a practical guide and summary to
aid in the determination of whether a particular worker is engaged as a contractor
or as an employee.
Stevenson Jordan and Harrison Pty Ltd v MacDonald and Evans [1952] 1 TLR 101 (CA) at
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110-111.
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Employee v Contractor Summary of the Multiple Indicia Test
* There is a degree of circularity in this and other aspects of the test used to
determine whether a worker is an employee or an independent contractor. To use
the right to direct a particular person to perform the work and the right of dismissal
for failure to do so as indicative of the existence of an employment relationship is to
put the rights (and obligations) attendant upon that relationship before the fact of
the existence of the relationship.
Case Note:
Roy Morgan Research Centre Pty Ltd v Commissioner for State Taxation2
• There was little or no scope for the workers to create an enterprise of their
own or to generate goodwill.
However, the factors which tended towards the conclusion that the interviewers
were independent contractors were as follows:
• There was no guarantee that the interviewers would be provided with work.
• The interviewers were not paid unless they completed eight full interviews
over the weekend. In this regard, it has been stated that “undertaking the
production of a given result has been considered to be a mark, if not the
mark, of an independent contractor.”3
• The interviewers were required to provide their own motor vehicle and
telephone.
• Income tax was not deducted and no annual leave or sick leave entitlements
were received by the interviewers.
• Finally, the parties had contracted on the footing that the interviewers were
independent contractors. In this regard, Justice Perry noted that where -
looking at the relationship in its totality - there are competing and equivocal
indicators, a contractual agreement that the worker is an independent
contractor is not to be dismissed lightly.
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World Book (Australia) Pty Ltd v Commissioner of Taxation per Sheller JA.
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His Honour ultimately concluded that the interviewers were independent
contractors, and that as such the $130,000 payroll tax was not payable by RMR. His
Honour reached this conclusion despite the finding of Justice Byrne, of the Victorian
Supreme Court, that RMR interviewers employed in virtually identical conditions in
Victoria ought to be classified as employees.
For instance, in this case, independent legal advice provided to RMR to the effect
that Workers Compensation levies and superannuation were payable to the
interviewers, was not inconsistent with the interviewers being classified at common
law as independent contractors. This was a result of the definition of “worker” and
“employee” in the relevant legislation arguably differing from the common law
definition.
Section 3C of the Payroll Tax Act 1971 (NSW) pertains to that of the “labour-hire”
agency, or “employment agent” as it is referred to in the legislation.
On the one hand, ordinarily there may be no employment contract, in the traditional
common law sense, between the employment agency and the worker whose
services are provided to the client of the employment agency (the “contract
worker”). That is, there is a contract between the employment agency and the
contract worker, but many of the indicia which are indicative of an employment
relationship are absent as between the two. Arguably, the most notable of these is
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the lack of any effective control over, or capacity to control the worker. On the other
hand, whilst the employment agency’s client maintains effective control over the
contract worker, there is no employment contract in the traditional sense, if indeed
there is any contract at all, with the contract worker.
It is important to note that the common law indicia are still relevant in relation to
this provision, as its operation is predicated upon the existence of an employment
contract (“contract of service”) between the worker and the original employer who
is lending or letting on hire its employee to another. The manner in which this
provision broadens the traditional definition of the employment relationship, beyond
that established at common law, is by ensuring that the original employer is
deemed to remain so notwithstanding an arguable giving up of control over the
employee.
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Clause 2 of Schedule 1 of WIM also deems certain workers to be employees
notwithstanding that they might otherwise fall outside of the common law
embodiment of that term. For example, it deems “outworkers” to be employees
even though they provide their services from premises which are beyond the
control of the deemed employer. The same section also deems certain contractors
to be employees for the purposes of WIM.
Having applied the “multiple indicia” test and determined that the nature of the
relevant relationship is that of principal and independent contractor, parties to a
commercial transaction should be aware of the obligations imposed upon it as a
matter of law. It is equally important that you are not only able to distinguish
between employees and contractors, but are also aware of the legal consequences
of the distinction. While it is beyond the scope of this paper to elucidate all the
relevant legal obligations of a principal to a contractor, the following represent a
broad guide.
Occupational health and safety is not a matter for employers alone. Section 10 of
the Occupational Health and Safety Act 2000 (NSW) imposes an obligation upon any
person having control of premises used by people as a place of work, to ensure that
the premises are safe and without risk to health. By virtue of section 22(1) of the
Acts Interpretation Act 1901 (Cth) the obligation under section 10 extends to a
“body politic or corporate” and so applies to local government and its
instrumentalities, whether or not they are incorporated.
Section 11 of the Occupational Health and Safety Act 2000 (NSW) provides that a
person that supplies any plant or substance for use by people at work must ensure
that the plant or substance is without risk to health when properly used and either
provide or arrange for the provision of information in order to ensure its safe use.
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It is a fact of commercial life that parties to commercial arrangements occasionally
default as to the terms of the arrangement. Bills are not always paid. Accordingly,
the Contractors Debt Act 1997 (NSW) serves to assist in sub-contractors’ in securing
payment of outstanding debts. The provisions of the Act apply when a principal
engages a contractor to carry out work or supply materials and that contractor then
engages a sub-contractor to perform some or all of that work.
Should the contractor default in its payments to the sub-contractor, then the unpaid
sub-contractor has redress under the Act to the principal. That is, the money that
the principal owes to the primary contractor may be used instead to satisfy the debt
owed by the primary contractor to the sub-contractor. The Act achieves this more
equitable outcome by way of a two-step process, the effect of which is to assign the
obligation of payment of the outstanding debt to the principal.
The overall effect of the Act, as well as its object and justification, was stated as
follows:
It should be noted that a similar result may be achieved via section 127 of the
Industrial Relations Act 1996 (NSW), however, possibly due to the rather circuitous
route involved in obtaining payment under that section, the Contractors Debt Act
appears to be the more often utilised method of redress.
CONCLUSION
Educated minds often differ on the issue of whether particular facts disclose an
employment relationship or that of a principal / independent contractor. However,
many circumstances will tend overwhelmingly towards a particular conclusion, one
way or the other. The principles discussed in this paper should serve as a reliable
guide in distinguishing between contractors and employees in the majority of cases.
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Aaron Magner
Legal Counsel
a.magner@unsw.edu.au
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