The principal has a business. The contractor has a different business. The principal requests and pays for services. The person providing the services is the contractor.
The contractor is ‘independent’. The contractor is not an employee.
Employees have rights. An employer provides annual leave, sick leave, long service leave and superannuation. An employer tells the employee when and where to go to work. The employer provides control and direction.
In contrast, Australian independent contractors operate their own business. Contractors set their own fees and working conditions.
However, the difference between an employee and a contractor can blur.
The Independent Contractor Agreement you are building helps prove that the contractor is a contractor and not an employee. But an Independent Contractors Agreement is not conclusive. Just because you say a person is a contractor that may not be enough.
|Common for Employee||Common for Contractor|
|Directed and supervised||In control and may delegate work to another person|
|Works 9-5||Works to complete the task|
|May work for you for many years||Performs the contract or a specific task eg. deliver 30,000 widgets|
|Employment Contract||Independent Contractor Agreement or Service Trust Agreement|
|No risk of capital or financial risk||Makes a profit out of dealing with the principal, won’t get paid if Contractor fails to perform|
The Principal requests and pays for the services. The person providing the services is the Contractor.
A contract for services is not an employment relationship. The Contractor is ‘independent’ as the contractor is not an employee of the Principal.
Employees have guaranteed employment rights. These include paid annual leave, sick leave, long service leave and superannuation contributions.
An employer has more control over an employee. An employer directs when the employee comes to work and the location of the work. There is a great deal of control and direction by an employer.
In contrast, Independent Contractors operate their own business. Contractors set their own fees and working conditions. Contractors may take work from other clients.
However, the difference between an employee and a contractor can blur.
The Independent Contractor Agreement that you are building helps prove that the Contractor is a contractor and not an employee.
But an Independent Contractor Agreement, in itself, is not conclusive. Just because you say a person is a Contractor that may not be enough.
The Australian courts state that even a clear and unambiguous Contractors Agreement is not determinative of the relationship. Rather, the courts look at the totality of the relationship between the parties when determining the substance and the reality of the relationship.
See, for example, Jamsek v ZG Operations Australia Pty Ltd (2020). The Federal Court of Australia found that two truck drivers working nearly 40 years as independent contractors for the same business were employees. This is when the totality of their relationship with the business was examined.
Many different things decide whether you are dealing with someone as a contractor or as an employee:
1. An employee is directed and supervised. A contractor is in control and may delegate work to another person.
2. An employee works, say ‘9 to 5’. A contractor works to complete the agreed task.
3. An employee may work for you for many years. A contractor performs the contract or a specific task. For example:
4. The employee has no risk of capital or financial risk. The contractor makes a profit out of dealing with the principal. The contractor may not get paid if the contractor fails to perform. E.g. the contractor spends two weeks making 30,000 nuts and bolts, if they are faulty the contractor does not get paid.
Factors that suggest a Contractor (rather than an Employee) include:
These requirements do not in themselves make an Independent Contractor an Employee. You may have these entitlements but it does not make the genuine Independent Contractors relationship one of Employment.
The Principal pays the Contractor in one of three ways:
If you select ‘as agreed by the parties from time to time’, then you agree to the payment from time to time. This is via an exchange of emails. This is particularly common for service trusts.
The Principal agrees to pay the Contractor a one-time fee. This is for the work the Contractor performs. Also called a ‘lump sum’ payment or ‘by the job’.
Here the Principal pays for the work done or by the job.
The Principal agrees to pay the Principal a pre-determined amount. For example, $145 per hour. This is for each hour the Contractor performs work for the principal. For example:
If the Contractor is registered for GST, then the hourly rate includes GST.
The UK Supreme Court upheld that two Uber drivers are employees of Uber. This is rather than self-employed independent contractors. The ruling gives the ’employees’ additional statutory entitlements. These include, in the UK, the minimum national wage, annual leave, other benefits and protections.
In 2016, the UK Employment Tribunal found that two Uber drivers are employees. They are part of Uber’s business. They are not self-employed independent contractors. Uber lost each appeal in the UK’s lower courts.
Sadly, in 2021 the UK Supreme Court upheld the Tribunal’s decision. The drivers are employees.
The above provided an employment relationship.
The UK Supreme Court looked at the legal relationship between the drivers and Uber.
We have different laws in Australia. And our Courts are not so left-wing and controlled by Unions. Still, we have distilled the case to 5 reasons that the Uber contractors are now employees:
The UK Court is clearly wrong. Consider that the drivers:
They show limited control over the Uber drivers. There is no employment relationship. The UK drivers are genuine contractors.
Thankfully in 2017 (Kaseris v Rasier Pacific) 2019 (Gupta v Uber Australia Pty Ltd t/a Uber Eats) the Fair Work Commission held that Uber drivers were contractors. This was for some cheeky Uber drivers trying to argue an unfair dismissal.
However, if Australia was to go down the UK approach then many powerful groups like Woolworth, Coles and the big mining companies would end up being deemed to be employing many of its contractors. As such organisation have such an unfair bargaining position when they deal with their contractors and farming groups.
There are extensive confidential clauses in the Independent Contractor Agreement. This protects the principal. See the Sample.
The general obligations to be confidential, loyal and act in the principal’s best interest is in the Independent Contractor Agreement.
The ICA allows you to refer to other documents. This is by an exchange of emails. The other documents could include the scope of work, plans, diagrams and specifications.
Amend the Independent Contractor Agreement by an exchange of emails at any time.
All service trusts are a type of Independent Contractors Agreement. But not all ICAs are services trusts.
A doctor, accountant, lawyer, engineer and other professional partnerships often use a ‘service trust’. These are usually a Unit Trust, company or Family Trust. You need an Independent Contractor Agreement (Service Trust Agreement) to make this work.
Telephone us for legal advice on building your document.
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
National: 1800 141 612
Mobile: 0477 796 959
Email: [email protected]