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8 2

E L E C T R I C A L CO N N E C T I O N

S P R I N G 2 0 16

TIPS

O

ne would have hoped that

after all the test cases, court

judgments and definitions set out

by Parliament in statute, there would

be a simple answer as to whether a

person is an employee or an independent

contractor.

The debate over ‘sham contracting’

and whether a person is, in reality, an

independent contractor or an employee

has continued to receive legal and political

attention. This can cause confusion for

working people and often results in

errors which can have financial and legal

consequences.

Personnel engaged by a company

can be put at a disadvantage by being

described as independent contractors

as this enables the company to avoid

paying employee entitlements such as

sick leave, annual leave, superannuation

and workers’ compensation insurance.

Additionally, employee numbers and

employment opportunities are lost

when a company engages independent

contractors in place of employees.

Some companies mistakenly believe

that with one or two small steps they can

avoid many employment obligations.

To counter this misconception, the

Australian Tax Office (ATO) has issued

on its website a series of tests to be

considered when differentiating between

the two types of engagement.

Included in its advice is a list of

common myths which the ATO believes

have led people to form the view that

any one of the steps is sufficient to make

a person a contractor. That includes,

for example: a contract between the

parties asserting that it is an independent

contractor relationship; or that the

person doing the work has an ABN; or a

registered business name; or is engaged

only in short-term work or extra work for

busy periods (the last could also be an

example of a casual employee).

The matter is further complicated by

the fact that various statutes (such as

tax) often deem parties to be employees

for the purposes of imposing statutory

obligations, or impose these obligations

on personnel whether they are employees

or independent contractors, such as

superannuation, thereby blurring the

lines further.

COMMON LAW TEST

There are a number of recent leading

case law authorities one can look to for

guidance in assessing a relationship. It

is unfortunate that in each of the cases,

the facts or criteria which appear to point

to one form of relationship or the other

are often given different weight within the

different cases by different judges, which

could lead to a conclusion other than what

might be anticipated.

There is a criticism that this may be

because a court instinctively forms a

view of the nature of the relationship and

then simply arranges its interpretation

on all the different facts to support that

conclusion. This is not helpful to the

working person trying to decide if theirs

is an employment or independent

contractor relationship.

Courts over the years have tried to

express or create a simple overriding

test or question to be answered when

undertaking the analysis of a relationship.

Some examples are:

ǩ

The ‘control’ test: can the company tell

the other party not only what to do but

how to do it?

ǩ

The ‘four corners’ test: can the other

party be said to be within the boundary

of the company’s operation?

ǩ

The ‘organisation’ test (closely allied to

the four corner’s test):is the other party

really a part of the organisation?

However, a leading court has cast

doubt on the validity of such attempts

and indicated that they are simply one

part of all the matters a court has to take

into account when coming to its decision

INDEPENDENT CONTRACTOR

OR EMPLOYEE?

The debate over how to

differentiate between an

independent contractor and

an employee has raged long

and hard. Gadens partner,

Ian

Dixon

takes a closer look at

the issue and outlines some

common misconceptions.