Employment Law - Contractor or Employee
March 2016
Summary
For many years businesses and individuals have experienced difficulty (particularly in the context of taxation and superannuation compliance requirements) in structuring contractual arrangements without risking them being later found to be employment arrangements with consequent additional taxation considerations.
The difficulty in structuring contractual arrangements has once again been highlighted in the recent Full Court of the Federal Circuit Court (FCFCC) decision of Tattsbet Limited v Morrow [2015] FCAFC 62 (11 May 2015) (Tattsbet Case), in which the Court has provided guidance by clarifying what test is to be applied and what questions are to be asked in properly structuring and identifying particular arrangements. The Court based its decision in this case to the effect that the particular arrangement was of the nature of an independent contractor performing work for the principal) on the following factors which existed.
Facts
In Tattsbet Case, the Court considered whether an agency contractor, Sharyn Morrow, was an employee or an independent contractor of Tattsbet Limited. Morrow operated a shopfront betting agency at Logan Central for Tattsbet from which she was summarily dismissed from by Tattsbet.
In the first instance, in the Lower Court, Morrow alleged that she had been an employee of Tattsbet and that the termination of the agency agreement was unlawful. Morrow’s claim in this respect was upheld and she was found to be an employee and not an independent contractor as contended by Tattsbet.
The Lower Court came to its finding primarily on the basis of whether Morrow was an “entrepreneur” by asking the “real question” of “whose business was [Morrow] operating?”. The primary Judge identified a number of “strong indicators pointing towards an employee-employer relationship”, which included the tight control Tattsbet exercised over Morrow in the conduct of the agency by dictating the location sites of the agencies; the final veto that Tattsbet had over the employees that Morrow was able to employ; and the payment of commissions to Morrow which was found to be a mere sharing of the profits of the agency.
Tattsbet appealed to the Full Federal Court solely on the ground that the primary Judge was in error in finding that Morrow was an employee and not an independent contractor.
The Full Court found the primary Judge’s entrepreneurial test problematic and clarified that the central question that needs to be focused on is whether the person concerned is an employee or not, not whether the person is an entrepreneur.
The Full Court agreed with the primary Judge that there was little to distinguish Morrow’s position from that of an employee in respect to her actual work, however the Court upheld the appeal noting that there were a number of features that in combination compelled the conclusion that Morrow was an independent contractor.
These features included:
This decision of the Full Court reiterates the “fine-balance” between employee and independent contractor and confirms that the test to be applied is an assessment of the totality of the relationship after considering a multi-factorial test.
By asking the question of whether the person is an employee or an independent contractor, and not on whether they are an entrepreneur, it appears that the intention of employers and employees or independent contractors (as the case may be) if properly structured and recorded should now withstand judicial scrutiny. Employers must continue to remember that this one fact alone will not result in a favourable outcome, as the test to be applied still involves the assessment of the totality of the relationship. Our firm is able to assist with appropriate advice and drafting of agreements of this nature.
For many years businesses and individuals have experienced difficulty (particularly in the context of taxation and superannuation compliance requirements) in structuring contractual arrangements without risking them being later found to be employment arrangements with consequent additional taxation considerations.
The difficulty in structuring contractual arrangements has once again been highlighted in the recent Full Court of the Federal Circuit Court (FCFCC) decision of Tattsbet Limited v Morrow [2015] FCAFC 62 (11 May 2015) (Tattsbet Case), in which the Court has provided guidance by clarifying what test is to be applied and what questions are to be asked in properly structuring and identifying particular arrangements. The Court based its decision in this case to the effect that the particular arrangement was of the nature of an independent contractor performing work for the principal) on the following factors which existed.
- The relevant agreement states that the contractor was, in fact an “independent contractor”.
- The agreement was the fourth such agreement entered into by the parties over a period, all of which had similar wording.
- The contractor was paid by reference to “success” (effectively commission).
- The contractor was a member of an employers association and had entered into an enterprise agreement with her employees.
- The contractor paid workers compensation insurance for her employees.
- Reimbursement of payroll tax by the principal was only as a result of the relevant state government administration requirements, and
- The contractor was registered for GST.
Facts
In Tattsbet Case, the Court considered whether an agency contractor, Sharyn Morrow, was an employee or an independent contractor of Tattsbet Limited. Morrow operated a shopfront betting agency at Logan Central for Tattsbet from which she was summarily dismissed from by Tattsbet.
In the first instance, in the Lower Court, Morrow alleged that she had been an employee of Tattsbet and that the termination of the agency agreement was unlawful. Morrow’s claim in this respect was upheld and she was found to be an employee and not an independent contractor as contended by Tattsbet.
The Lower Court came to its finding primarily on the basis of whether Morrow was an “entrepreneur” by asking the “real question” of “whose business was [Morrow] operating?”. The primary Judge identified a number of “strong indicators pointing towards an employee-employer relationship”, which included the tight control Tattsbet exercised over Morrow in the conduct of the agency by dictating the location sites of the agencies; the final veto that Tattsbet had over the employees that Morrow was able to employ; and the payment of commissions to Morrow which was found to be a mere sharing of the profits of the agency.
Tattsbet appealed to the Full Federal Court solely on the ground that the primary Judge was in error in finding that Morrow was an employee and not an independent contractor.
The Full Court found the primary Judge’s entrepreneurial test problematic and clarified that the central question that needs to be focused on is whether the person concerned is an employee or not, not whether the person is an entrepreneur.
The Full Court agreed with the primary Judge that there was little to distinguish Morrow’s position from that of an employee in respect to her actual work, however the Court upheld the appeal noting that there were a number of features that in combination compelled the conclusion that Morrow was an independent contractor.
These features included:
- The agency agreement which provided that Morrow was an independent contractor;
- The fact that the agency agreement in question was the fourth agency agreement that was entered into, all of which had similar wording;
- Morrow was not paid for her work and effort, rather she was paid by reference to the success of the business she operated, that is, the agency;
- Morrow was a member of an employers association and entered into an enterprise agreement with her employees;
- Morrow paid for her employees worker’s compensation insurance and the only reason why Tattsbet reimbursed Morrow for the payment of her employees payroll tax was because it was an administration requirement of the OSR which led to this arrangement; and
- Morrow was registered for GST which was a reflection of her own intention to be an independent contractor.
This decision of the Full Court reiterates the “fine-balance” between employee and independent contractor and confirms that the test to be applied is an assessment of the totality of the relationship after considering a multi-factorial test.
By asking the question of whether the person is an employee or an independent contractor, and not on whether they are an entrepreneur, it appears that the intention of employers and employees or independent contractors (as the case may be) if properly structured and recorded should now withstand judicial scrutiny. Employers must continue to remember that this one fact alone will not result in a favourable outcome, as the test to be applied still involves the assessment of the totality of the relationship. Our firm is able to assist with appropriate advice and drafting of agreements of this nature.
