31/05/2011

It is not easy to always determine if a person who provides services to a business is an employee or an independent contractor.

In a recent decision in the Federal Magistrates Court, it was held that a person who had provided services to a company for 37 years failed to establish that he was an employee and therefore he was considered to be an independent contractor.

In the case of Vella v Integral Energy [2011] FMCA 6, the Court had to consider whether Mr Vella was prima facie an employee or an independent contractor for Integral Energy following the termination of the relationship.

Mr Vella had provided essentially the same services to Integral (and its predecessors) for about 37 years.  The essential facts were:

1. the services were provided through a partnership of Mr Vella and his wife for a period of 37 years;
2. the partnership provided its own machinery and paid the costs of running the machinery;
3. Mr Vella was prohibited from working for other businesses;
4. the services were provided at the direction of Integral on a regular basis;
5. the partnership would provide tax invoices for hours worked and was paid accordingly; and
6. Mr Vella was not paid the usual employee entitlements.

The Court stated that while the formal contractual arrangement was in the form of an independent contractor relationship some of the indicia of the arrangements might hypothetically support the relationship being one of employment.

In this case the Court held that Mr Vella was not an employee and that the issue should not be viewed as a "mathematical assessment of the various indicia" of the facts but

"the correct approach is to look at the form and substance of the relationship between the parties and the general weight of evidence….. I take into account that working arrangements have been significantly liberalised in recent years and, in the more flexible working environment that now exists, it ought to be open to the parties to determine whether the relationship is one of employment or independent contract."

The Court however strenuously stated that it is subject to qualifications including:

1. the parties cannot turn an employment relationship into an independent contractor relationship which is a sham; or
2. the employer should not be permitted to deprive a vulnerable employee of his/her entitlements by dictating an independent contractor relationship.

Given the potential employment issues and the tax implications, care should be taken to determine whether the relationship is to be employment or contractor at the outset to limit issues arising at the termination of the relationship.

If you have any questions in regard to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.