Developments in the Law regarding Independent Contractors and Labour Hire

In light of recent AIRC and FWA decisions, all businesses that have a high reliance on independent contractors or labour-hire agencies should closely assess their models to ensure that they are not inadvertently entering into employment relationships with their workers. Classifying workers incorrectly can have a potentially devastating impact, opening the employer up to claims for entitlements and superannuation, unfair dismissal claims, penalties from the Workplace Ombudsman, and vicarious liability claims (to name just a few).

Independent Contractors

Independent contracting is an extremely popular phenomenon amongst businesses in the highly regulated Australian labour market. It provides a level of flexibility that an employment relationship never can, and often results in significant financial savings for businesses. However Australian courts and tribunals have long been ready to find that workers classified as 'independent contractors' are in actual fact employees, and when this occurs the consequence for a business can be disastrous.

Many businesses are surprised to learn that the label given to a worker has little bearing on whether the court will consider the worker a contractor or an employee. The court will also pay little regard to clauses to the effect that... "nothing in this agreement is intended to establish a relationship of employment..." Rather, the court will look at the following non-exhaustive indicia set out in the Full Bench AIRC decision Abdalla v Viewdaze Pty Ltd t/a Malta Travel 504:

• Does the alleged employer control the manner in which work is performed?'
• Does the worker have a genuine and practical entitlement to work for others?
• Does the worker have a separate place of work?
• Does the worker provide and maintain significant tools or equipment?
• Can the work can be delegated or subcontracted?
• Can the worker be suspended or dismissed?
• Is the worker presented to the world as an emanation of the business?
• Is income tax is deducted from remuneration paid to the worker?
• Does the worker invoice, or is he/she paid a salary?
• Is the worker provided with paid holidays or sick leave?

The case of Damevski v Giudice [2003] FCAFC 252 is an instructive example. In the decision the Full Court of the Federal Court of Australia found that the applicant was an employee, irrespective of the fact that he operated his own registered business and had agreed to be engaged as a contractor through a third party. Marshall J stated the following at paragraph 58:

• "Mr Damevski was not carrying on a business of his own. In truth, the relationship between Endoxos and Mr Damevski was one of mutual dependence and involved no one else, other than MLC in a confined capacity which related entirely to the manner of effecting Mr Damevski's remuneration. Mr Damevski had no right to delegate his shifts to other persons. He worked solely for Endoxos. He was provided with equipment by Endoxos to perform work."

The Damevski case emphasises how courts will see through an artifice constructed to evade legal obligations to employees.

Labour-hire arrangements

For a number of years labour-hire firms have provided a means of engaging labour without entering into an employment relationship. This was permitted to occur even where all the other indicia pointed to an employment relationship, on the basis that as there was no contract between the principal business and the worker, no employment arrangement could arise (Fox v Kangan-Batman TAFE [Print S0253]).

However the current state of the law regarding labour hire is in a state of flux following the decision of SDP Lacy in the matter of Jamie Orlikowski v IPA Personnel Pty Ltd [2009] AIRC 565. The decision concerned an application by Mr Orlikowski to join the Australian Quarantine and Inspection Service (AQIS) as a second respondent to his unfair dismissal application against labour-hire agency IPA Personnel Pty Ltd (IPA).

Mr Orlikowski was engaged by AQIS through Workplace International Pty Ltd in August 2004, and remained with the company until his termination in January 2009. In August 2008 IPA successfully tendered for the provision of labour-hire services to AQIS, from which point on the Applicant was engaged through IPA. Throughout the 4½ year period, AQIS exercised significant control over the activities of the Applicant, although he was paid through Workplace until August 2008 and subsequently through IPA.

His Honour accepted the Applicant's submissions, finding at paragraph 42 that:

• "The facts in this case suggest the arrangement between IPA and AQIS may have been one of "payrolling"."

His Honour further admitted the possibility of a 'joint-employment' arrangement, which may be determined by examining "the control one employer exercises, or potentially exercises, over the labour relations policy of another." His Honour went on to deliver some unfavourable remarks about the potential labour-hire arrangements have to undermine protections for workers.

If the decision in Orlikowski and the remarks about the labour hire arrangements are an indication of where the law is heading, host employers using labour-hire companies can expect a barrage of claims.

Conclusion

Practitioners in the Workplace Relations field are experiencing a marked increase in all sorts of cases involving independent contractors and labour hire. All businesses utilising these arrangements should ensure that labels placed on workers comply with the law.

If you have any questions about employment law or workplace issues please contact Richard Thompson or Josh Strong of Wisewould Mahony Lawyers. There is no charge for an initial discussion about any employment matter.