Independent Contractor or Sham Contracting? – Crawford de Carne
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Independent Contractor or Sham Contracting?

Independent Contractor or Sham Contracting?

There are only two categories of relationships at law between a worker and the person who receives the services of a worker, which are: an employer/employee; and, independent contractor/principal. The characterisation of a worker at law as an employee or independent contractor is relevant for tax, superannuation, workers compensation, employee entitlements and other rights, obligations and potential claims under the Fair Work Act 2009 (Cth) (FW Act).

Law

There is not one simple test that is used to establish whether the working relationship is one of employer and employee or of principal and contractor. The court will look at the objective character of the relationship in the circumstances, having regard to the totality of the relationship. Practically, this involves the measuring and assessment of indicia. The courts have developed a non-exhaustive list of indicia that may be considered.

Independent Contractor or Employee Case

On 21 April 2020, the Full Bench of the Fair Work Commission rejected an appeal by Ms Gupta, who claimed that she had been unfairly dismissed, pursuant to the FW Act in the case Amita Gupta v Portier Pacific Pty Ltd; Uber Australia Pty Ltd t/a Uber Eats [2020] FWCFB 1698.

The appeal was against a decision of Commissioner Hampton in Amita Gupta v Portier Pacific Pty Ltd; Uber Australia Pty Ltd [2019] FWC 5008. The case involved an unfair dismissal application by an Uber Eats driver. Commissioner Hampton found that the Applicant was engaged as an independent contractor.

On appeal, the claim was unsuccessful as the Full Bench upheld the Commission’s initial determination that Ms Gupta was not an employee. The Full Bench’s decision is authority that delivery drivers connected with Uber Eats are not protected from unfair dismissal.

Interestingly, President Ross and VP Hatcher made a finding in their joint decision that while Ms Gupta was not an employee, she was also not conducting a business in her own right.

Sham Contracting

There are consequences for a business wrongly characterising employees as independent contractors. Section 357 of the FW Act provides the following:

“(1) A person (the employer) that employs, or proposes to employ, an individual must not represent to the individual that the contract of employment under which the individual is, or would be, employed by the employer is a contract for services under which the individual performs, or would perform, work as an independent contractor.”

The case of Fair Work Ombudsman v Ava Travel Pty Ltd & Ors [2018] FCCA 3627, involved a tourist bus coach business that serviced two companies, and three coach drivers. The coach drivers were employees of the First Respondent until the First Respondent sent the following:

dear all, please apply ABN and give to accounting before the end of this month, AVA driver wages starting next month will be the way to go ABN recorded, super still will have until the end of the month but in the next month, replaced by ABN way no longer provides.”

The text intended to convert the employees to independent contractors. The work of the employees did not change, and the only difference was that the employees submitted invoices that they were paid for instead of timesheets or job records. The Respondents admitted contravention of the sham contracting provisions of the FW Act.

Conclusion

For both businesses and workers the importance of correctly determining whether the working relationship is one of employer/employee or of principal/contractor cannot be understated. A business should be cautious and ensure they are correctly engaging a worker before providing to the worker that they are an independent contractor. On the other hand, a worker should scrutinise the relationship where they are simply told they are an independent contractor.

 


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The article, the content and references made are intended to keep an audience updated with information. It is not intended that the article or part of it should be relied upon as advice. Information provided may not apply to in all circumstances or in particular situations. If you do want particular advice or you have any questions, we welcome you to contact us on (02) 9004 7404 or at general@cdclaw.com.au