In this issue
The Federal Court decided that a husband and wife who worked from home and sometimes outsourced their work were employees instead of independent contractors, making the employer guilty of sham contracting, underpayments and other breaches. Associate Tegan Ayling reports.
How does it affect you?
- Employers should carefully consider whether to engage workers as independent contractors or employees.
- Workers can be employees even if some characteristics of the relationship would indicate they are genuine independent contractors.
- Incorrectly engaging an employee as an independent contractor may lead to multiple contraventions of legislation and the imposition of penalties.
Background
Royans Wagga Pty Ltd (Royans) is a truck repair business that also operates an accident reporting service as a way to reach more customers. Mr and Ms Putland each performed work similar to a call centre role in the accident reporting service. At various times during their engagements, Mr and Ms Putland worked from home and sometimes operated the service 24/7.
Royans always treated the Putlands as independent contractors, as did its Managing Director, Mr Andrews. However, after the accident reporting service was outsourced in May 2015, the Putlands claimed that they had been employees of Royans since September 2012. If the Putlands were right, they had been underpaid and not given payslips or notice of termination.
Decision
The court decided that the Putlands were employees of Royans. Although they had ABNs, issued tax invoices, worked from home often, did not wear uniforms and had on limited occasions paid others to do the work, these factors reflected the subjective intention of Royans to treat them as independent contractors and not the true nature of the relationship. In the court's opinion, most aspects of the arrangement pointed to the Putlands being employees.
The court considered the whole of the relationship between Royans and the Putlands, including the following factors in favour of an employment relationship:
- the Putlands only performed work for Royans and had no true autonomy;
- Royans paid for or supplied their equipment;
- the Putlands did not advertise their own business;
- goodwill from the work performed by the Putlands accrued to Royans; and
- to the world at large, the accident reporting service was being provided by Royans.
However, the most important factor indicating an employment relationship was the authority to control that Royans had over the Putlands and their work. For example, after the Putlands had worked from home for a period of time, Mr Andrews told them they had to start working from the Royans office on weekdays. When Mr Putland did this, there was no significant difference between him and other workers who were being treated by Royans as employees. Even when the Putlands worked from home and had more flexibility, Royans still had the authority to control them in their work. The whole nature of the relationship demonstrated that the Putlands were not running their own business.
Royans had misrepresented that the Putlands were independent contractors, had underpaid them and had failed to provide them with payslips. Royans had also failed to give effective notice of termination to the Putlands, so they were entitled to a payment in lieu of notice.