Do you Engage Contractors in your Business?

Posted by on Apr 17, 2013 in Blog, Legal Services | Comments Off

Employment Laws in Australia are always changing-and risks for you have increased substantially-don’t risk your business.

Contractors or Employees

Employers must be careful when employing contractors. There is often confusion over the issue of whether a worker is a contractor or an employee. Even if a worker is considered a contractor by the business the Court may still deem the worker an employee after looking at factors of the employment.

Many businesses hire contractors mistakenly thinking they can reduce the regulatory burden of employing staff and paying their entitlements such as overtime, annual leave and sick pay. However, these arrangements may fall foul of the ‘sham contracting’ provisions of the Fair Work Act 2009 (Cth). If a worker is considered an employee and yet has been engaged as a contractor it may carry significant Penalties for the employer business.

There are a number of factors which the Courts consider when determining whether the worker is a contractor and truly independent, or if they are an employee including;

Is the contractor building a business and for whom is good will created?
Does the worker have control of how they perform the work?
Who provides the ‘tools of trade’?
Who does the worker report to?
Is there the risk of profit or loss?
How is payment made?
Has goodwill been created?
These issues were considered in the High Court case of Hollis v Vabu[1] where bicycle couriers where engaged by Vabu as contractors. The Court held that despite having some degree of independence, and providing their own bikes the couriers were not operating an independent business, that they were still under the direction of Vabu and so were considered employees.

More recently, the Full Federal Court in ACE Insurance Limited v Trifunovski [2013][2], decided that five former insurance sales agents were entitled to unpaid leave as they were unlawfully engaged as independent contractors rather than as employees. Each agent had been with for the company for an extended period of time and one of the sale agents had been with the company for more than 24 years.

The Court based its decision on the fact that the company had control over how and when the work was to be performed and their work enhanced the goodwill of the company rather than their own businesses.

The Court ordered the Company pay more than $490,000.00 in unpaid entitlements and issued $10,000.00 in penalties for ‘sham contracting’. Under the Fair Work Act 2009 (Cth), an employer cannot;

knowingly make a false statement to persuade or influence an employee to become an independent contractor;
dismiss or threaten to dismiss an employee to re-engage them as an independent contractor to do substantially the same work; or
misrepresent an employment relationship or proposed employment relationship as an independent contracting arrangement.
Employers can be fined up to $33,000 for each sham contracting arrangement and a lack of knowledge does not release the employer from their obligations.

If you have workers engaged as contractors and you are uncertain about your obligations Demir Legal can review your agreements and policies to ensure compliance with the ‘sham contracting’ provisions which apply to you under the Fair Work Act (2009).

To review your workplace practices contact Kathryn Lewis  kathryn.lewis@demirlegal.com.au

[1] Hollis v Vabu Pty Limited (2001) 207 CLR 21

[2] ACE Insurance Limited v Trifunovski [2013] FCAFC 3