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Contractor or Employee? - The Hidden Dangers

Contractors

Contractor or Employee? - The Hidden Dangers.

 

The outcomes from a recent case involving Uber drivers in the UK not only highlights the complicated ‘contractor versus employees’ debate, but may also have significant implications for employees if this decision were to be replicated in Australia.

Whilst one may think that a model where people pay money to be taken from A to B is a transport business, Uber states their business is a technology business. They argued that their drivers are self-employed independent contractors, and that the technology (the Uber platform) provides leads to the drivers. It is the drivers who then, in effect, contract directly with their passengers to provide the service.

The UK Tribunal was asked to consider whether drivers were ‘workers’ for the purposes of the UK’s Employment Rights Act, National Minimum Wage Act, and Working Time Regulation. The company denied that the drivers were employees – and the tribunal disagreed.

 

UK Tribunal Findings:

·         There were contradictions between evidence given by Uber’s regional general manager and evidence of what actually happened in practice.

·         The General Manager statements in the proceedings did not fit with submissions she had made to a regulatory body, which described Uber drivers as being commission-based and thus making them employees. However, when before the Tribunal, the general manager sought to explain away the regulatory submission as a ‘typographical error’.

·         Uber’s argument that it helps drivers grow their own businesses was not supported by facts, such as rules that drivers could not solicit the custom of particular passengers, or could not contract on any terms or conditions other than those set by Uber.

·         Unless it successfully overturns the decision, Uber in the UK will now be facing claims for underpayment of hourly rates and overtime, and the failure to provide paid leave.

Australian employment law have been faced with similar work arrangements where what is documented bears little relationship to the reality of the work performed. In Australia, it is always important to bear in mind the memorable expression of Fair Work Commission Deputy President Gostencnik that:

 

“That which has webbed feet, waddles and quacks is likely to be a duck. Putting a saddle on it and calling it Phar Lap will not change that fact.”

 

The lesson for those who engage contractors in Australia – whether by the use of internet platforms or through more traditional means – is that it is important to focus on the reality of how the work is being performed, and not to assume that cleverly drafted contractual provisions will carry the day.

 

Key Points for Employers:

·         When engaging individuals on a contractor basis, you will need to ensure their engagement is a one of a genuine contractor relationship and not that of an employment relationship (including a fixed term employee). 

·         A person cannot be engaged as a contractor when the relationship is genuinely that of employer/employee for the purposes of avoiding paying entitlements such as super, leave and workers compensation as this would be deemed to be sham contracting and be a breach of the Fair Work Act 2009 with serious penalties for contraventions.  Under the Sham Contracting provisions of the Fair Work Act 2009, an employer cannot;

o   misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement;

o   dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor;

o   make a knowingly false statement to persuade or influence an employee to become an independent contractor.

·         There are a number of factors which may contribute to determining the difference between an employee and an independent contractor, however you will need to consider the nature of the working arrangement as a whole. 

·         It is important to note that no single indicator can determine if a person is a contractor or an employee. Each determination is based on the individual merits of the work arrangement in place. Courts always look at the totality of the relationship between the parties when determining the status of a person's employment.

·         The below table can be used to assist with determining the nature of the arrangement.

Indicator

Employee

Independent Contractor

Degree of control over how work is performed

Performs work, under the direction and control of their employer, on an ongoing basis.

Has a high level of control in how the work is done.

Hours of work

Generally, works standard or set hours (note: a casual employee's hours may vary from week to week).

Under agreement, decides what hours to work to complete the specific task.

Expectation of work

Usually has an ongoing expectation of work (note: some employees may be engaged for a specific task or specific period).

Usually engaged for a specific task.

Risk

Bears no financial risk (this is the responsibility of their employer).

Bears the risk for making a profit or loss on each task. Usually bears responsibility and liability for poor work or injury sustained while performing the task. As such, contractors generally have their own insurance policy.

Superannuation

Entitled to have superannuation contributions paid into a nominated superannuation fund by their employer.

Pays their own superannuation (note: in some circumstances independent contractors may be entitled to be paid superannuation contributions).

Tools and equipment

Tools and equipment are generally provided by the employer, or a tool allowance is provided.

Uses their own tools and equipment (note: alternative arrangements may be made within a contract for services).

Tax

Has income tax deducted by their employer.

Pays their own tax and GST to the Australian Taxation Office.

Method of payment

Paid regularly (for example, weekly/fortnightly/monthly).

Has obtained an ABN and submits an invoice for work completed or is paid at the end of the contract or project.

Leave

Entitled to receive paid leave (for example, annual leave, personal/carers' leave, long service leave) or receive a loading in lieu of leave entitlements in the case of casual employees.

Does not receive paid

 

 Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors such as government legislation changes, may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such.

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