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How to know when a duck is really a rooster

DISTINGUISHING between employees and independent contractors is a constant concern for all business.

The difficulty in this area is that it does not matter what the contract says. As one Federal Court case once put it, you cannot create something that has every feature of a rooster but call it a duck and insist that everybody recognise it as a duck.

This is a colloquial way of putting the age-old rule in this area – that the court is concerned with substance over form, and will consider the totality of a relationship when determining its legal character. Courts will look at various aspects of the relationship, such as who owns the tools of trade and whether the company controls the manner in which the job is done, to determine whether the person is an employee or an independent contractor.

The High Court’s decision in August last year in Hollis v Vabu Pty Ltd is a good example of how difficult it is to ascertain the status of a person carrying out work for a company. In that case, the majority of the High Court held that a bicycle courier was an employee and not an independent contractor. The employer, therefore, was vicariously liable for the courier’s negligence in injuring a pedestrian.

In the Vabu case, the courier provided and maintained his own bicycle, was paid per delivery and did not receive annual or sick leave entitlements or superannuation from the company. However, the company closely controlled the way in which the courier worked and required him to wear a company uniform. According to the majority of the Hight Court, the courier was identified as representing the company’s enterprise rather than running his own enterprise. In fact, because the courier disappeared after the accident, the sole means of linking the company to the accident was the courier’s uniform.

There have been a number of decisions in other courts since the Vabu decision that have further illustrated the difficulty. In one NSW case, a couple who operated a tennis centre were found to be employees and not independent contractors. They were, therefore, entitled to long service leave, annual leave and superannuation.

The difficulty of being able to predict or fashion the relationship in a reliable manner is significant in a wide range of areas, including industrial relations, workers’ compensation, working conditions, superannuation, PAYG tax deductions, annual and long service leave entitlements, payroll tax and even constitutional law in relation to the extent of the Commonwealth Parliament’s “industrial disputes power”.

Businesses need to take particular care in laying a sound foundation for the type of relationship they wish to create with a person who will provide services, whether it

is one of employment or independent contractor.

Achieving the desired result in this grey area can be difficult. Worst of all for businesses, establishing a regime that might be accepted by, for example, the Tax Office, as non-employment doesn’t guarantee that an industrial tribunal will agree whether there is a claim for employee entitlements or an unfair dismissal claim.

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