With the AFL Finals fast approaching, the office tips are bound to get a little heated! However, you may want to think twice before taking too big a punt on whether a worker in Australia is an employee or an independent contractor.
In the recent appeal case of Tattsbet Limited v Morrow, the Full Court of the Federal Court of Australia overturned the Federal Circuit Court’s (FCC) decision, concluding that a woman operating a betting agency in Queensland was in fact an independent contractor despite a number of indicators suggesting that the relationship was that of employer and employee.
From 2004, Ms Morrow operated a shopfront betting agency for Tattsbet Limited under four consecutive “Agency Agreements”. When Tattsbet terminated the last agreement Ms Morrow commenced a claim in the FCC alleging that she had been an employee of Tattsbet.
The FCC identified several factors pointing to Ms Morrow being an independent contractor, especially Ms Morrow’s accounting to the tax authorities, her remuneration by way of invoices, her Australian Business Number, her freedom to employ others, her negotiation of an enterprise agreement with her employees and her payment of GST tax on supplies provided to Tattsbet.
Despite these factors, the FCC found that Ms Morrow was an employee. It was influenced by factors such as the tight control which Tattsbet exercised over the operation of the agency, the provision of plant and equipment by it, the prohibition on Ms Morrow providing services to similar businesses and her contractual inability to make autonomous decisions about the conduct of the agency generally.
Ultimately, however, the FCC’s decision was based on an “entrepreneur test”, the central question being whether the person performs the work of an entrepreneur (i.e. do they own and operate a business?), rather than applying the traditional “multi-factorial” test embraced by the High Court in earlier decisions.
The Full Court bucks the trend
Tattsbet subsequently spun the wheel again and appealed the FCC’s decision to the Full Court. It successfully obtained an “independent contractor” finding – a welcome outcome after waiting 20 months for the Court’s findings! The Full Court has still remitted Ms Morrows’ adverse action claim back to the Federal Circuit Court to reconsider on that basis.
In its decision, the Full Court held that the question is not whether the person is an entrepreneur but whether the person is an employee. This involves assessing the totality of the relationship between the parties. The Full Court thought that the relationship between Ms Morrow and Tattsbet involved a number of features that, in combination, compelled the conclusion that Ms Morrow was not an employee. These included:
- that the last agency agreement was the fourth in a line of similarly-worded agreements each of which clearly stated that Ms Morrow was an independent contractor. Although this was not determinative, it was significant to the extent that it reflected what the parties understood (or at least wanted) the relationship to be;
- that Ms Morrow was not engaged or paid for her work alone. Rather, she was engaged to operate the agency and was paid by reference to the value of the business transacted there;
- that Ms Morrow was able to employ others and had reached an enterprise agreement with her employees’ trade union;
- that her net income was only a third of the gross remuneration she received from operating the agency; and
- that not only did Ms Morrow collect and forward GST tax to the Australian Tax Office but she also spent significant time and resources meeting GST regulatory requirements.
The lessons learned
Although the Full Court’s decision may provide some comfort to businesses engaging genuine independent contractors, caution should still be exercised. This is because the distinction between an employee and independent contractor is not always clear and will always depend on the specific circumstances. Businesses which engage independent contractors should ensure that agreements are carefully drafted and accurately reflect the actual relationship between the parties on the ground, and not just the label the parties wish to use to describe that relationship.