Home How We Help Be a better employer Managing people Independent contractor or employee? FWC rules

Managing people

Independent contractor or employee? FWC rules

Do you know for sure which of your workers are employees and which are independent contractors? Read about how one employer’s mistake played out.

18 Apr 2024

Gaby Grammeno

Contributor

A woman took up employment in February 2023 with a Queensland company providing home care packages, nursing, personal care and other services. Her role was to provide home care services to various clients. Generally, elderly people needing some form of domestic assistance.

The company required her to get an Australian Business Number and sign documents entitled ‘Contracted Service Provider Agreement’ and ‘Contractor Work Opportunity’. The latter document stated, among other things, ‘As an independent Contractor you are able to choose who you contract to, and you are free to take on other roles according to your needs’. The documentation also stated that the worker would be responsible for her own work injury, professional indemnity and public risk insurance.

By October 2023, however, the worker had become concerned about her working arrangements and contacted the Fair Work Ombudsman (FWO) about those concerns. She also raised the issues with a director of the company and told her she’d been in touch with the FWO. The director then sent her an email terminating her contract, citing ‘irreconcilable differences’.

The worker applied to the Fair Work Commission alleging she’d been unfairly dismissed, in contravention of the general protections of the Fair Work Act 2009.

The employer objected to the application, maintaining that the worker was not an employee but an independent contractor. Therefore, she could not have been ‘dismissed’ as defined in the Act.

In the Commission

For the Commission to be able to deal with a dispute arising from an unfair dismissal application, it must first determine that the Applicant was an employee, not a contractor, within the meaning of the Act.

Under the Act, a person cannot be ‘dismissed’ unless there is a relationship of employer and employee. It follows that an unfair dismissal application cannot proceed if the employer can satisfy the Commission that the Applicant was actually an independent contractor.

To support its contention that the worker was a contractor, the company relied on the requirement for the worker to have her own ABN and the documents she signed, among other things. Her contractor status was made clear to her at the interview, the director said and had been acknowledged by the worker in an email she’d sent, in which she referred to herself as a contractor.

The worker’s evidence was that, in practice, she had no real say in the manner in which the work was undertaken. The director and another manager told her what to do and she was allocated shifts in advance, though the allocated shifts could change at any time up until the morning of the allocated shifts. She said she was required to give two weeks’ notice of any change in her availability and that this made it very difficult to change her availability.

She submitted that the company had misrepresented the true nature of the relationship as being one of principal and independent contractor when it was, in truth, an employment relationship. She said she was not free to seek or attract new business or alternative or additional work in her own right, the company prescribed the standards she had to meet, and she was at all material times a participant in the typical employer/employee relationship. She said she had not understood the nature of the ‘sham arrangement’ she’d been entered into.

Deputy President Thomas Roberts said the characterisation of the relationship between worker and employer often hinges on two considerations. The first is the extent to which the employer has the right to control how, where and when the worker performs the work, and the second is the extent to which the worker can be seen to work in his or her own business. Both involve questions of degree.

While some of the terms of the contractual arrangement, in this case, were consistent with the notion that the worker was a contractor – including the requirement for the worker to have her own ABN, be responsible for her own tax and superannuation payments, and maintain various insurances – these can be taken into account but are not conclusive, the DP said.

Having considered the various rights and obligations created by the contractual arrangements, Deputy President Roberts formed the view that the relationship between the worker and company, in this case, was one of employee and employer. The worker did not operate an independent business on her own account but was integrated into the company’s business in the way an employee would be. The company reserved for itself the right to determine the services the worker would provide to the company’s clients and how they would be provided.

The employer’s objection was therefore dismissed, and the matter will be relisted for conference on a date to be determined.

What it means for employers

To be clear on who is a contractor and who is an employee, it’s necessary to consider all the rights and obligations created by the contractual arrangements. Labelling a worker as an independent contractor in relevant documents is not enough to mean the worker is not an employee for the purposes of the Fair Work Act.