Employee or Independent Contractor? Whose Business Are You Working In – Yours or Theirs?
These questions continue to be issues for many businesses and this case provides a working example of a relationship that is found to be a contracting one, not that of employer/employee.
The case of Tattsbet Limited v Morrow, recently handed down by the Full Bench of the Federal Court of Australia, provides further guidance about the Court’s approach when it is required to define a contract for the provision of personal services as being either an employer/employee relationship or an independent contractor.
Ms Sharyn Morrow operated a shopfront betting agency for Tattsbet Limited (“Tattsbet”) in Brisbane. In November 2011, Tattsbet summarily terminated Ms Morrow’s Tattsbet agency agreement. Subsequently, Ms Morrow brought actions against Tattsbet that claimed, amongst other things, that she was an employee (rather than an independent contractor).
Ms Morrow sought to be classified as an employee in order to aid the success of other claims that she had brought forward, including that she was entitled to receive superannuation guarantee contributions from Tattsbet and that she had been unlawfully terminated by Tattsbet pursuant to the Fair Work Act 2009 (Cth).
The Full Bench of the Federal Court of Australia heard this matter on appeal from the Federal Circuit Court. Ultimately, the Full Bench of the Federal Court of Australia overturned the judgement of the Federal Circuit Court and declared Ms Morrow to be an independent contractor.
Employee or Independent Contractor
The Court cited the leading authorities in this area of law being; Stevens v Brodribb Sawmilling Co Pty Ltd (1985) 160 CLR 16; Hollis v Vabu (2001) 207 CLR 21; and ACE Insurance Ltd v Trifunovski (2013) 209 FCR 146. The Court summarised these authorities as:
- The characterisation of the relationship by the parties carries some weight, however it is not determinative of proper characterisation of the relationship;
- Not one single factor is determinative to conclude the nature of the relationship. In this instance some factors will carry more weight than others; and
- The test is multi-factorial. All of the factors need to be considered, weighted and then the totality of the relationship can be identified.
In this case, Ms Morrow and Tattsbet formally characterised their relationship as that of an independent contractor, pursuant to an executed agency agreement. The Court stated that the question then became ‘whose business was Morrow operating?’
The Court concluded that Ms Morrow was an independent contractor, based on the following four factors:
- Exertion of personal services – Ms Morrow was not engaged nor paid for her work alone. Instead she was paid in the form of commissions that were calculated by reference to the value of the business that the Tattsbet agency transacted. Ms Morrow was free to engage others and did not have to perform the work herself.
- Employment of staff – Ms Morrow employed her own staff and undertook the ordinary conventions of an employer. These included: deducting PAYG tax, paying for a workers compensation policy and hiring and firing staff.
- Business Income v Personal Income – Ms Morrow’s net personal income was only (approximately) one third of the gross remuneration she received from Tattsbet. Ms Morrow used the remainder of the remuneration to pay for the employment costs of her staff and business consumables.
The Court referred to the essence of an employment relationship, being the work and skill of the person concerned. The Court stated that ‘the greater the divergence between the overall remuneration of the person and his or her personal net income from the arrangement, the harder it will usually be to conclude that the essence of what was being paid for was the work and skill of that person’. The Court noted that the divergence of Ms Morrow’s remuneration was a ‘striking feature’ of this case.
- Taxation System Obligations – The Court stated that the absence of PAYG deductions (made by Tattsbet from Ms Morrow’s remuneration) combined with the presence of GST collections (by Ms Morrow), as well as Ms Morrow’s compliance with regulatory taxation requirements ‘point quite strongly against’ an employee relationship. The Court indicated that such compliance reflected Ms Morrow’s ‘own conscious, well-informed, intentions’. Further, evidence from BAS returns showed that Ms Morrow invested 90 hours over the year preparing BAS returns. The Court summarised that this reflected that Ms Morrow’s participation in the GST system was not “tokenistic” and it would be difficult to argue that such participation was due to ‘her own mistaken characteristic of her relationship with (Tattsbet).’
The Court acknowledged the notorious difficulty in defining employee versus independent contractor relationships. The Court summarised that ‘working in the business of another is not inconsistent with working in the business of one’s own’. The Court concluded by stating that the overall ‘question is not whether the person is an entrepreneur: it is whether he or she is an employee.’
If you would like further information or advice in regard to employment law issues, or if you currently or propose to engage independent contractors, please contact Christie Howson.