{"id":7219,"date":"2023-03-31T08:46:20","date_gmt":"2023-03-30T21:46:20","guid":{"rendered":"https:\/\/www.coulterlegal.com.au\/?p=7219"},"modified":"2024-04-16T08:55:24","modified_gmt":"2024-04-15T22:55:24","slug":"employee-or-independent-contractor","status":"publish","type":"post","link":"https:\/\/www.coulterlegal.com.au\/employee-or-independent-contractor\/","title":{"rendered":"Employee or Independent Contractor? The importance of proper characterisation in the context of Franchising"},"content":{"rendered":"

The characterisation of workers as either employees or independent contractors has persisted as a difficult and contentious exercise for Australian Courts. Particular attention has been paid to the method adopted by the Court, which historically involved a complex assessment of the \u2018totality of the relationship\u2019 between the employer and worker by reference to numerous factors.<\/p>\n

Accurately determining whether a worker is an employee or independent contractor is particularly important for businesses, as the characterisation can substantially affect the entitlements that are owed by the employer\/principal. By extension, a failure to correctly characterise a worker as an employee may subject the employer\/principal to liability for underpayments of workers.<\/p>\n

However, it\u2019s not just the entity that directly employs the worker that should be mindful of this, as recent legal action has indicated an intention of the Fair Work Ombudsman to extend liability to franchisors in certain circumstances.<\/p>\n

In the past two years, the High Court clarified its position and provided some ease of mind to business owners in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd<\/em>\u00a0[2022] HCA 1 (\u2018Personnel Contracting<\/em><\/strong>\u2019) and\u00a0ZG Operations Australia Pty Ltd v Jamsek<\/em>\u00a0[2022] HCA 2 (\u2018Jamsek<\/em><\/strong>\u2019). In the new test, rather than focusing on the nature of the relationship and the conduct of the parties, the Court now focuses upon the rights and obligations of the parties per the contract. If the terms of a valid written contract are clear and detail the relationship of the parties, the Court needs to rely on this contract when coming to a decision.<\/p>\n

This newly adopted approach was put to the test late last year in a Fair Work Commission case, Deliveroo Australia Pty Ltd v Diego Franco<\/em> [2022] FWCFB 156 (\u2018Deliveroo<\/em><\/strong>\u2019).\u00a0 In this case, the Full Bench of the FWC confirmed that when determining whether a worker is an employee or an independent contractor, the Court no longer focuses on the working arrangements in practice. But rather, a court is now \u2018confined\u2019 to a consideration of the terms in the contract between the parties.<\/p>\n

So, the Court no longer looks at the conduct of the parties?<\/strong><\/h3>\n

Whilst the cases have highlighted the importance of the contract between the parties, the Court may still be inclined to retrospectively look at the conduct of the parties in some circumstances.<\/p>\n

These include where:<\/p>\n

1. The contract is not comprehensive<\/strong><\/p>\n

If the parties have not comprehensively committed the terms of their relationship to a written contract, it may be necessary to look at the conduct of the parties to determine the true nature of the agreement.<\/p>\n

2. The contractual terms have been varied by the conduct of the parties<\/strong><\/p>\n

The conduct of the parties may be reviewed by the Court to determine whether the terms of the contract have been varied by the parties.<\/p>\n

3. The contract is a \u2018sham\u2019<\/strong><\/p>\n

The Court has emphasised that the prohibition on \u2018sham contracting\u2019 still stands strong. A \u2018sham contract\u2019 is where the parties agree on a legally binding contract, for the purposes of avoiding certain legal consequences.<\/p>\n

If the contract is established to be a \u2018sham\u2019, the Court may still nevertheless look beyond the contract and review of the entire history of the parties\u2019 dealings for the purposes of defining the relationship between the employer\/principal and the worker.<\/p>\n

What does the Court look at now? <\/strong><\/h3>\n

The Court has highlighted that the contract is \u2018king\u2019, and the Court will generally focus squarely on the contract. It is important to note however that the various factors that indicate that the relationship is one of employment still continue to apply. Although, these factors should only be considered when looking at the rights and duties of the worker and the employer\/principal under the contract.<\/p>\n

Specifically, the Court will look at whether the contract includes the following:<\/p>\n