Determining whether a worker is an employee or independent contractor is highly factually dependent and requires the consideration of many factors.
The meaning of ‘common law employee’ has evolved over the years through a number of case decisions. Determining whether a worker is an employee or independent contractor is highly factually dependent and requires the consideration of many factors.
In On Call Interpreters and Translators Agency Pty Ltd v FCT [2011] FCA 366 (‘On Call’s case’), Bromberg J held that, when determining whether a person is an employee or an independent
contractor, it is necessary to make an objective assessment of the nature of the relationship the worker has with the entity that takes the benefit of the person's work (i.e., the ‘payer’). In that sense, the real substance of the relationship in question needs to be considered, taking into account not only the contractual terms agreed to, but also the system operated under and the work practices which establish the “totality of the relationship”. Refer also to Hollis v Vabu [2001] HCA 44 (‘Hollis’ case’).
In recent times, the Courts have followed the practical approach expressed by Bromberg J in On Call’s case. Under this approach, the issue of whether a person is an independent contractor can be determined by asking and answering the following questions:
(a) Is the person performing the work an entrepreneur who owns and operates a business?
(b) In performing the work, is that person working in and for (and as a representative of) their own business and not for the business receiving the work?
If both of these questions can be answered “Yes”, the Courts will generally consider the worker to be an independent contractor. If not, the worker is likely to be an employee.
In On Call’s case, Bromberg J identified a number of factors that indicate whether or not a business actually exists, including the following:
- Do the economic activities of the purported business involve the taking of risk in the pursuit of profits?
- Does the purported business engage in a repetitive and continuous manner with purchasers of its services?
- Does the purported business employ or engage persons other than the owner/operator to carry out its economic activities?
- Is goodwill (name, brand and reputation) being created by the economic activities of the purported business?
- Is the purported business promoted as a business to the public through advertising or other promotional means?
- Does the purported business have tangible assets such as buildings and equipment which are utilised to support its economic activities?
- Does the purported business have the basic transactional systems (e.g., invoicing systems, payment and debt collection systems and budgeting or forecasting systems) that are common to a business of that kind?
- Do the services provided by the purported business involve the provision of labour of sufficient skill to be suggestive of the pursuance of a profession or trade through a business?
- Are the regulatory requirements of a business (including business name registration, taxation, GST and ABN registration and compliance) being met by the purported business?