A recent Federal Court decision provides a strong warning to employers to ensure they do not incorrectly treat employees as independent contractors.
In the case of On call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No.3) [2011] FCA 366 (the Case), On Call sought to challenge an assessment made by the Commissioner of Taxation that it was liable to pay five years of superannuation contributions for its 2,500 employees which had been treated as independent contractors.
The facts of the case were that On Call regularly engaged people to perform interpreting and translating services on a somewhat casual basis. Many of the interpreters worked from home and had the ability to pick and choose assignments.
The main issue to be determined in the Case was whether the interpreters were employees for the purposes of s.12 of the Superannuation Guarantee (Administration Act) 1992 (the Act).
However, because s.12 of the Act specifies that “employee” and ”employer” are to be given their ordinary meaning, Justice Bromberg considered that it was necessary to consider the common law definitions of “employer” and “employee”.
Justice Bromberg explores the common law position in some detail in person is an employee?
Justice Bromberg highlighted the need to look beyond the mere contractual description to the real substance of the relationship. He laid out a two-limbed test:
1. is the person performing work as an entrepreneur who owns and operates a business; and
– is there evidence of repetitive business activities;
– is there risk taking involved in the pursuit of profits;
– is there goodwill being created in the business;
2. in performing the work, is that person working in and for that person’s business as a representative of that business?
– does the person have capacity and control of the direction of the business;
– does the person control and direct the business according to their own standards and practices;
– does the person represent and portray the activities of their business.
If the answer to the above questions is no, then the person is likely to be an employee rather than an independent contractor.
In this Case the interpreters were found not to be operating a business. Even though they had ABN’s they usually did not have a business name, they did not advertise their business, they had no goodwill in their business and they were found to not be representing themselves when they undertook the work.
It was also held that even though the interpreters had the ability to pick and choose assignments and work for other rival companies and On Call had no ability to discipline or sanction the interpreters other than not giving them further work, Justice Bromberg highlighted that these are also features of a casual employment relationship.
What are the implications of getting it wrong?
Superannuation As was the case for On Call, if an employer incorrectly treats an employee as an independent contractor, they may be liable to backpay any unpaid superannuation, plus interest on the unpaid superannuation (the current interest rate for January to March 2012 being 11.62%).
Sham Arrangements
There are penalties imposed by the Fair Work Act 2009 (FW Act) in relation to what are termed Sham Arrangements.
The provisions prohibit:
1. an employer misrepresenting to an individual that they are in independent contractor if they are in fact an employee;
2. an employer from dismissing an employee and re-engaging them as an independent contractor;
3. an employer making a false statement in order to persuade or influence a current or former employee to enter into a
contract to perform services as an independent contractor.
The penalties which are imposed for breaches of these provides are up to $6,000.00 for individuals or up to $30,000.00 for companies.
Backpay in entitlements
An employee who has been wrongly treated as an independent contractor may be able to claim for unpaid entitlements granted by the National Employment Standards and Awards, such as backpay for annual leave, personal/carers leave, etc. On top of this, there are also penalties imposed by the FW Act for breaches of the National Employment Standards which are up to $6,000.00 for individuals or
up to $30,000.00 for companies.
