Employee or Independent Contractor: Why it Matters

This year, two important court cases on workplace contracts have finally been settled in February. If they slipped by you, you’re not alone – but as a business owner, these were full of “don’t miss out” information.

Whether you regularly employ contractors or are just starting to consider this as a strategy to boost your business productivity, the nuances of whether a contractor can be regarded as an employee have significant legal ramifications for your company. Let’s take a brief look at the two cases and subsequent outcomes.

Case One

Two truck drivers spent the years between 1977 to 2017 working for a company named ZG Lighting at the time of the court case. Although the men began their time at the company as employees, they became contractors in 1980. Notably, they signed an agreement explicitly stating they were not company employees. Despite this, they were required to purchase their trucks from ZG Lighting, display company logos, and were issued uniforms (though not explicitly directed to wear them). During this time, they had agreements in place to deliver goods for the company and had no other customers. They were not banned from taking on other customers. When their contracts were terminated in 2017, both men entered into legal proceedings seeking entitlements due to employees.

The High Court’s decision?
Both men were engaged as contractors. Despite a regular work schedule and ongoing relationship, their contractor’s agreements were clear. The written terms of the agreement were for a contractor, and the High Court ruled in favour of ZG Lighting.

Case Two

In our second case, a young backpacker in Australia on a working holiday visa began working for a labour-hire company (Construct). On hiring, he advised the company he owned his own essential safety gear for on-site work. Construct offered him a role, and he signed paperwork that included an Administrative Services Agreement that outlined he was a self-employed contractor. Construct assigned him to the job site owned by Hanssen, a construction company. While working on the job site, he performed basic labouring work and was required to follow all instructions from his supervisor.

When Construct ended his work with Hanssen, they failed to provide him with additional work. The High Court ruled that because Construct had control over the individual’s job and that once assigned to a job, he was further required to take direction from the client, he was not a fully independent contractor. The critical question in this ruling was “right of control,” and despite written agreements, this took precedent in defining his employment relationship.

So, what’s the point? This marks a shift. Previously, courts have looked closely at both the contracts and the circumstances surrounding the employment in question. However, now, the actual validity of the contract wording is being emphasised. This means that hiring a contractor now comes with lower employment law risk – but that your contracts still need to be watertight.

A clearly written contract is crucial when hiring an independent contractor. Poorly worded, unclear contracts combined with questionable working practices are an obvious risk factor for future legal issues to arise with your business. Any independent contractor agreements should come with a well-defined set of terms. If you have taken the appropriate steps to set up your contractor agreements correctly, this will be key to protecting your business.

How can Halkin Business Partners help?

Our Human Resource, Taxation and Accounting consultants can assist you in understanding the mechanics of dealing with independent contractors and ensure your contracts, agreements, and other employment documentation is in good shape. Reach out to discuss with our experts.