The test for determining whether a worker is a contractor or an employee continues to trouble Australian businesses, according to Michelle Isaac, Special Counsel at Australian law firm Norton Rose Fulbright.

This is because there is no single factor which is determinative. It is necessary to weigh all the relevant factors and consider the totality of the relationship between the parties.

However, in considering the various factors, a number of recent cases have focussed attention on whether the person is working in the business of another (an employee), or conducting his or her own business in the pursuit of profit as an entrepreneur (an independent contractor).

A decision by the Full Federal Court (also known as the Court of Appeal of the Supreme Court) last month, Tattsbet Limited v Morrow, suggests that this approach deflects attention from the central question. In the leading judgment, Justice Jessup said that the central question is not whether the person is an entrepreneur: it is whether he or she is an employee.

In this case, Ms Morrow operated a shopfront betting agency for Tattsbet, under four consecutive agreements from 2005 to 2011. Tattsbet summarily terminated the agreement in November 2011.  Ms Morrow challenged the termination, alleging that she was an employee.

The factors which suggested Ms Morrow was an employee included:

• She was working in Tattsbet’s business.  She operated their specialised premises, and used their equipment, methods, and systems.
• She had little scope to vary the way she worked, and there was little to distinguish her work from employed managers.
• She did not have the capacity to build up any goodwill in the betting agency she operated for Tattsbet.

However the Full Federal Court held that there were a number of compelling features which, in combination, meant Ms Morrow was not an employee:

• The agency agreement between Ms Morrow and Tattsbet provided she was an independent contractor.  Ms Morrow structured her own arrangements in conformance with that of a business operator.
• Although her work was similar to that carried on by Tattsbet employees, she was not engaged or paid for her work alone. She was engaged to operate the agency and was paid based on the value of business transacted there.
• Ms Morrow was able to, and did, employ others to assist her or, on occasions, to work in place of her.  In engaging the staff, she was not an agent for Tattsbet, or a conduit for transmission of benefits and obligations from Tattsbet to the staff.  She was an active member of the relevant employer’s association, and had executed an enterprise agreement with the relevant trade union covering her employees.
• Her net personal income was only about a third of the gross remuneration she received for operating the agency. The Court noted that the greater the difference between the overall remuneration of the person and his or her personal net income from the arrangement, the harder it will be to conclude that the remuneration is for the work and skill of that person (which is an indicia of an employment relationship).
• Ms Morrow collected and forwarded goods and services tax (GST) to the Australian Taxation Office, and spent considerable time and resources in complying with the GST requirements.  Justice Jessup noted that in the past, deduction of income tax instalments had been treated as an indicator of an employment relationship.  He felt that in contemporary times, there were legislative markers on both sides.  In this case, the collection of GST by Ms Morrow, and her compliance with those regulatory requirements, pointed strongly against characterising the relationship as one of employment.

Chief Justice Allsop agreed with Justice Jessup’s reasons but made some separate comments. He considered that the factors outlined in Justice Jessup’s reasons lead to the conclusion that Ms Morrow was undertaking her own enterprise.  He added the qualification that although the employment of staff was of great significance in this case, this should not be taken for all purposes to be a necessarily determining factor against the conclusion that the person is an employee. Justice White agreed with both Justice Jessup and the additional reasons provided by the Chief Justice.

This case may appear to give business operators a little more comfort when engaging independent contractors, particularly where it may be difficult to show that the worker is building up goodwill in their own business. 

However there is still considerable uncertainty about this issue, with different Full Courts approaching the question in different ways.

Businesses should continue to ensure that independent contractors are engaged under a carefully worded independent contracting agreement, and act consistently with the terms of that agreement.