Non-employees such as Independent Contractor

An independent contract is one whom contracts their labour to a business and would typically use their own equipment for a specified purpose, but they remain separate to the principal and are not strictly part of the business. This type of contract is a not a contract for service but a contract for the provision of a service.

As an independent contractor the individual has no recourse to legal remedies surrounding termination of employment. They do have some rights to ‘general protections” provisions in the FW Act.

It is critical therefore that the lines between an employee and a contractor are very distinct. It is generally given that the relationship between a contractor and a principal is intended to come to an end at the completion of a task. The contract would not have any provisions for annual leave, personal leave or compassionate leave or other statutory entitlements that an employer/employee relationship would include.

Considerations of whether the contractor is in fact an employee or not would include:
  • Whether the principal has the right to exercise or control the manner in which the work is performed, place of work or hours of work
  • Whether the worker performs work for others, or has a genuine and practical entitlement to do so
  • Whether the worker has a separate place of work &/or advertises their services to the world at large
  • Whether the worker provides and maintains their own tools and equipment
  • Whether the work can be delegated or subcontracted
  • Whether the principal has the right to dismiss or suspend the person engaged
  • Whether the principal presents the worker to the world at large as an employee of the business
  • Whether income tax is deducted from the remuneration paid to the worker
  • Whether the worker is remunerated by periodic wage or salary or by reference to the completion of tasks
  • Whether the worker was paid for personal leave or annual leave
  • Whether the work involves a profession, trade or distinct calling on the part of the person engaged
  • Whether the worker creates goodwill or saleable assets in the course of their work
  • Whether the worker spends a significant portion of his remuneration on business expenses

Contact us for Independent Contractor Agreements

Tips for managing Independent Contractors
  • Set up a written contract that clearly states that the worker is engaged as an independent contractor
  • It is preferable that the relationship is between the principal and a separate company rather than with the contractor directly. If you set it up this way you should state that the company should supply the services of that particular worker
  • Ensure that the contractor provides their own tools and equipment
  • Allow the contractor to subcontract and set their own hours
  • Wherever possible pay by result rather than by an hourly rate or salary
  • Pay contractors only on receipt of invoice and never withhold PAYG taxation from a contractor’s pay
  • Never provide any form of paid leave
  • Do not ask the worker to wear a company uniform
A contract with an Independent Contractor can end in a number of ways:
  • because each party has fulfilled the obligations as per the contract
  • by agreement of both parties
  • by the operation of certain laws
  • by breach of the contract by one party, which then alters the other party’s obligations as per the contract
  • by “frustration” of the contract due to unforeseen circumstances. This occurs when through no fault of either party the contract becomes incapable of being performed satisfactorily

If there is a breach of contract, the affected party can choose either to treat the contract as still existing and hold the other party to their commitments as per the contract or treat the contract as being terminated. The affected party can then seek the following remedies from a court.

  1. Damages – this is likely to be the expected losses that the affected party would incur. The party affected must seek to minimise these costs by finding an alternative contractor or the contractor trying to secure another contract as quickly as possible
  2. Injunction – stops a party from committing an act or carrying out a particular course of conduct
  3. Specific performance – obtaining an order requiring a contractual party to perform its obligations as per the contract
  4. Declaration – is a proclamation from a court for the purposes of resolving a conflict. This option is discretionary

Contact us for Independent Contractor Agreements

Workplace Rights Protections for Independent Contractors

These provisions as determined under FW Act prohibit a principal from taking ‘adverse action’ against an independent contractor on the basis of such rights.  In addition the principal must not take adverse action:

  • because the contractor has a workplace right
  • because the contractor has or has not exercised a workplace right
  • because the contractor has or has not proposed to exercise a workplace right
  • to stop the contractor from exercising a workplace right

A ‘workplace right’ is defined in S 342 as:

  • having an entitlement, role or responsibility under a workplace law, a workplace instrument or an order made by an industrial body
  • being able to initiate or participate in a process or proceedings under a workplace law or instrument, or
  • being able to make a complaint or inquiry to a person/body with capacity to seek compliance with a workplace law or instrument

With regards to ‘adverse action’ and the action taken by a principal against an independent contractor:

  • terminating the contract
  • injuring the independent contractor in relation to the contract’s terms and conditions
  • altering the contractor’s position to his or her prejudice
  • refusing to make use of the contractor’s services, or
  • refusing to supply good or services to the contractor, and

With regard to ‘adverse action’ and the action taken by a principal against a prospective independent contractor:

  • refusing to engage the prospective contractor
  • discriminating against the prospective contractor
  • refusing to make use of the prospective contractor’s services, or
  • refusing to supply good or services to the prospective contractor

‘Adverse action’ also includes threatening to take any of the above actions or organising such an action.

Labour Hire Workers

This category of workers covers those that are supplied through a labour hire agency to work for a client company, generally for short periods of time. The labour hire company may hire these workers either as casuals or as independent contractors operating under a contract. The benefit for a business in this situation is that they are not the employer of the work and therefore are not obligated for the usual range of employee benefits.

When terminating a labour hire worker it is important to understand the legal relationship, for if the worker is hired as an independent contractor, the contract can be terminated either at the fixed term date or at the completion of the project or task. If the worker is a casual who works for the labour hire firm they are the party to terminate the arrangement or dismiss the labour hire employee.

Volunteers

Typically volunteers are not employees.  The reason for this is that in order for there to be an employer / employee relationship some form of ‘consideration’ is required such as wages or a salary before an employment contract will be taken to have been formed.

As volunteers are not deemed to be employees they do not have the usual statutory rights that employees being terminated do, however, they do have a the right to a safe place of work as H&S legislation covers all people in the workplace and this includes volunteers. 

Each employment relationship carries different obligations and different rights for the employee. It is critical that you know and understand these differences and hire the correct type of worker for your needs.

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