When is a contractor an employee?

21 September 2017 Topics: Workplace relations and safety

In a recent decision1, the Federal Court of Australia found that a married couple that worked from home for 10 years were employees rather than independent contractors.

Facts

The married couple (the Putlands), were engaged by a heavy motor vehicle repairer to perform home based clerical work, including an ‘accident reporting service’, from 2005 to 2015. During this period, the Putlands provided services exclusively to the repairer. The Putlands were responsible for the accident reporting service 24 hours per day, 7 days per week.

The relationship between the Putlands and the repairer deteriorated over time and the repairer decided to terminate the arrangement.

In response, the Putlands commenced proceedings against the repairer, seeking back-pay under the Clerks – Private Sector Award 2010. The Putlands also sought civil penalties against the repairer for the alleged contraventions of the Fair Work Act 2009 (Cth) (FW Act), including:

  1. failure to pay wages and other benefits in accordance with an award;
  2. failure to provide payslips; and
  3. falsely representing that the Putlands were engaged as independent contractors.

Contractors or employees?

Adopting the well-established multi-factorial approach, Justice Bromwich noted the following indicators supported an argument that the Putlands were independent contractors:

  1. having ABNs, and being paid by issuing tax invoices;
  2. not having any tax deducted from the lump sums paid under the tax invoices;
  3. splitting their income;
  4. working from home; and
  5. not being required to wear uniforms.

However, Justice Bromwich discounted these factors as he considered that working from home was not in itself a strong indicator of a contractor/principal relationship. Similarly, he found that not having to wear a uniform was an insignificant factor because the Putlands’ interactions were mainly over the telephone. He also formed the view that the Putlands setting up ABNs was not a true indicator of their intention to set up a legal entity separate from the repairer.

In support of an employment relationship, Justice Bromwich considered the following ten factors as relevant:

  1. the exclusivity of the Putlands’ service to the repairer;
  2. the fact that the repairer paid for the installation and transfer of ownership of telephone lines at the Putlands’ home;
  3. the repairer also paid the monthly telephone and internet accounts for the Putlands’ home;
  4. emails and other documents that reflected Ms Putland was also involved in the repairer’s business;
  5. the repairer supplied the Putlands with equipment, including scanners, computers and telephone systems;
  6. the payments made to the Putlands by the repairer were more associated with hourly rates than any turn of profit;
  7. the Putlands never advertised their business;
  8. the Putlands did not own or maintain any assets associated with the running of their business;
  9. the repairer accrued the ‘goodwill’ from the work performed by the Putlands; and
  10. there was a lack of true autonomy on the part of the Putlands.

Justice Bromwich considered that, while each of these were significant indicators of an employer and employee relationship, the most important indicator was the authority to control. Based on the evidence, he said it was clear that the repairer’s managing director, Mr Andrews, ‘retained a high degree of discretionary control and authority at all time, which he freely exercised when it suited him to do so.’

Conclusion

Overall, Justice Bromwich found that the weight of the indicia, most significantly the control and authority exercised by Mr Andrews, established an employer and employee relationship. A decision on compensation and any penalties payable by the repairer has been reserved.

This is an excellent reminder to those business that engage individuals using an ABN to perform work as independent contractors. In our experience, many independent contractors are in fact employees at law. We recommend to business that, if there is any doubt about the status of a worker, they obtain legal advice before engaging the worker to ensure they are not inadvertently forming an employer and employee relationship.

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  1. Putland v Royans Wagga Pty Ltd [2017] FCA 910

 

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