Is your Contractor really an Employee?

In order to be eligible to benefit from protections provided to employees under the Fair Work Act it’s necessary for an individual to be an employee. Independent Contractors are specifically excluded, but only where they’re truly an Independent Contractor.

The incorrect classification of a worker can have devastating results for an employer including claims for backpayment of leave entitlements, award entitlements (where an award applies), superannuation, tax and access to unfair dismissal claims. In addition, there’s the risk of fines from the Fair Work Ombudsman for being in breach of minimum entitlements due to the employee and possibly having a ‘sham arrangement’ – i.e. you really knew the individual was an employee but classified him/her as a contractor regardless. The fines are a maximum of $33,000 per offence.

Commissioner Gooley of Fair Work Australia (FWA) recently held that a worker could proceed with an unfair dismissal claim on the basis that he is in fact an ‘employee’, even though classified as a contractor.

The worker regulated his own hours of work and had his own business (including ABN Number, business cards and email address). In addition, he submitted invoices for his services; PAYG taxation wasn’t deducted and he hadn’t received any employment entitlements such as leave, etc. However, FWA determined that the worker was an integral part of the employers’ business and was subject to the employer’s control in performing his work because the employer allocated and supervised the work.

FWA has demonstrated time and time again that it will give effect to the true nature of the agreement between the parties regardless of the form of written contract.

This case highlights the difficulties in distinguishing the differences between contractors and employees, but the relevant degree of control by the employer over the worker will be a integral factor in determining a worker’s status, regardless of the contract.

Key Point: It is vital that employer’s obtain legal advice in relation to the practical and strategic issues of Contractor Agreements and what steps they can take to reduce the risk of the worker being found to be an employee.