Employee/independent contractor distinction

Work relationships in Australia take a variety of different forms. The most common is the employment relationship, under which an employer engages an employee to perform paid work. A contractor relationship arises when a principal contractor engages an independent contractor to carry out paid work.

The distinction between employment and contracting is significant because only employees have certain rights (and some obligations) under most employment and workplace relations legislation. For example, minimum employment standards, award/agreement coverage and unfair dismissal protection. However, some laws, such as anti-discrimination and occupational health and safety statutes, apply to both employees and independent contractors.

The common law “multi-factor” test is applied by courts and tribunals to determine whether a worker is an employee or an independent contractor for purposes of the applicable legislation (ie to decide whether a worker is eligible to bring an unfair dismissal claim).

The development of the gig economy has created ongoing litigation in the courts to establish whether gig worker relationships are employment or contracting in nature. The difficulty arises because gig workers provide services through digital platforms and this does not fit comfortably with the traditional analysis of characterising a relationship through the common law “multi-factor” test. It is likely that government will need to legislate to address this difficulty and to set down minimum work standards for the gig workforce.

See Employee/independent contractor distinction.

Independent contractors

Contracting relationships may be subject to the operation of the Independent Contractors Act 2006 (Cth) (IC Act).

This legislation applies to specified forms of “services contracts” and certain state or territory legislation does not apply to the parties to such a contract. Part 3 of the IC Act establishes a process for the review of harsh or unfair contracts, on application to a competent court by a party to a services contract covered by the legislation.

See Independent contractors.

What are the general protections against sham contracting?

A ”sham contract" arises when an employment relationship (contract of service) is misrepresented as an independent contracting arrangement (contract for services).

Workers who are common law employees are protected against various forms of “sham contracting” by the provisions in Pt 3-1, Div 6 of the Fair Work Act 2009 (Cth) (FW Act).

These prohibit employers misrepresenting an employment relationship as a contracting relationship or dismissing an employee to re-engage the employee as an independent contractor. Civil remedies, including penalties, may be imposed upon an employer in respect of breaches of these provisions. It can also be a source of underpayment claims and several class actions have been commenced on this basis.

See What are the general protections against sham contracting?.

Labour hire arrangements

Historically, employment on an ongoing full-time or part-time basis has been the norm in the Australian workforce. However, other types of employment have become increasingly common, including casual work and labour hire arrangements.

A labour hire arrangement arises when a labour hire company provides workers to a “host business” which is a customer of the labour hire company. The worker may an employee of the labour hire company or be engaged through a contracting arrangement. This creates a tri-partite relationship under which the host business is able to avoid the rights and obligations it would otherwise owe the worker if they were engaged directly as an employee and reduces the risk that a contracting arrangement may give rise to a court determining that there is a common law employment relationship. A labour hire arrangement has several advantages for a company including, reducing overall administration and labour costs and increasing work-force flexibility to fluctuations in demand for labour.

See Labour hire arrangements.

Casual employment

Casual employees have no guaranteed hours of work each week, they can be terminated with minimal notice and they are excluded from many entitlements afforded to permanent employees. As compensation for the unpredictably of their work and lack of entitlements, casuals are paid a special loading on top of their ordinary rate.

There is no definition of a “casual employee” in the Fair Work Act 2009 (Cth) (FW Act) and the term takes its ordinary common law meaning: WorkPac Pty Ltd v Skene [2018] FCAFC 131.

Whether an employee is a casual employee will depend upon the substance of the engagement, rather than its form or appearance. This requires an objective assessment of the nature of the employment as a matter of fact and law having regard to the circumstances.

If a ”casual" employee is paid a casual loading but it later determined by a court to be an ongoing employee at common law, it is currently unclear whether that loading can offset unpaid employee entitlements which have not been accrued or paid. This issue is being agitated in Workpac v Rossato [2018] FCA 2100. Regulation 2.03A of the Fair Work Regulations 2009 (Cth) will operate to prevent this “double dipping” if the requirements of that regulation have been met.

See Casual employment.

Traineeships/apprenticeships

Traineeships and apprenticeships are arrangements that allow for practical work experience alongside occupational training. Upon the completion of a training program, a trainee or apprentice gains a formal qualification. Specific legal rules also apply to workers engaged as trainees and apprentices, including the provisions of training under applicable state or territory legislation.

See Traineeships/apprenticeships.

Public sector employment

Employment in the public sector at federal, state and territory levels is regulated by both the applicable workplace relations legislation (ie FW Act, Industrial Relations Act 1996 (NSW)) and applicable federal, state or territory legislation dealing with public sector management (ie Public Service Act 1999 (Cth), Public Sector Employment and Management Act 2002 (NSW)).

See Public sector employment.