‘Am I an employee or independent contractor?’ It’s an employment question as old as ‘when do I ask for a pay raise?’ It’s also misunderstood – as two recent High Court cases show.
Getting the classification of workers wrong is serious. If you’re an employer, incorrectly treating your employee as an independent contractor means you could be underpaying entitlements such as annual leave and sick leave. This leaves you wide open to legal action.
As a worker, you could be missing out on those employment benefits. Or if you’re an independent contractor, you should have more independence in how you get your job done.
Certain workforces can be more at risk of blurring the lines between contractor and employee.
MV Law special counsel in the employment, industrial relations and safety team, Alison Spivey says the industries involved in this year’s High Court cases – construction and transport – are always vulnerable because of their wide scope of working arrangements.
But she says more people are choosing to be independent contractors across a huge range of fields.
“Over the last 10 or 15 years we’ve seen a transition to more independent contracting arrangements,” Alison says. “Irrespective of the industry, the sheer quantity of people looking at moving out of traditional employment relationships – all those situations are going to run a bit of a risk.”
She says the two cases before the High Court have made it more abundantly clear that when deciding whether a worker is a contractor or an employee – what’s in the written contract carries the most weight.
“There was a period there where the courts were having regard to a number of factors, including how the post-contractual relationship between the worker and the person contracting them played out.
“You could establish it based on actuality… rather than what was happening at the time the relationship was entered into, to make a call on what the relationship really was.”
As a result, getting the contract clear from the start has never been more important.
“Now the High Court has come out and said – not once, but twice – that the primacy is to be given to what is in the written document… that document has to be reflective of the intention of the parties now moreso than ever.”
There are risky areas of many contracts where it’s easy to slip up in this way. Alison says one such potential minefield regards the level of control that the contract stipulates over the worker.
“One of the most significant issues in determining whether it’s an independent contractor or an employee comes down to the level of control. There’s more risk in circumstances where the contracting person needs to exercise more control – because of insurance, or work health and safety reasons for example.”
In the wake of the High Court decisions, Alison recommends businesses have their independent contractor agreements reviewed to ensure they’re fit for purpose.
“It is also important the parties in the contract act consistently with the arrangements they intend to create – that they don’t blur the lines. Because this is what leads to disputes about the true nature of the relationship.”