Australia: Differentiating between employees and independent contractors

Workplace Directions
Last Updated: 3 April 2011
Article by Seyi Onitiri

Vella v Integral Energy [2011] FMCA 6

The Federal Magistrates Court of Australia has found that a man who worked for an electricity company, and its predecessor organisations, for over 37 years was an independent contractor and not an employee.


The judgment concerned an interlocutory application in proceedings brought under the Fair Work Act 2009 (Cth) and the Independent Contractors Act 2005 (Cth). The proceedings followed the applicant having been advised in March 2010, following a tender process, that his services would no longer be required. The main proceedings were brought on alternative bases that the applicant was either an employee or an independent contractor. During the course of those proceedings it was decided that the issue would be determined as a preliminary point, on an interlocutory basis, with the question being whether the applicant had a prima facie (Latin phrase meaning at first sight, or on the face of it) case that he was an employee, as opposed to an independent contractor.

The applicant's submissions

The applicant submitted that the critical issue in determining whether a worker was an employee or an independent contractor was that of control, and that to characterise the nature and extent of the control exerted over a worker the court should look to the factors discussed in Abdalla v Viewdaze Pty Limited (2003), those being:

  • The control over the way in which work is performed, the place of work and the hours of work
  • Whether the worker performs work for others, or has a genuine opportunity to do so
  • Whether the worker has a separate place of work and / or advertises their services
  • Whether the worker provides and maintains significant tools or equipment
  • Whether the work can be delegated or subcontracted
  • Whether the employer has the right to suspend or dismiss the person engaged
  • Whether income tax is deducted from remuneration paid to the worker
  • Whether the worker is paid by periodic wage or salary or by reference to completion of tasks
  • Whether the worker is provided with paid holidays or sick leave
  • Whether the work involves a profession, trade or distinct calling
  • Whether the worker creates goodwill or saleable assets in the course of his or her work
  • Whether the worker spends a significant portion of his remuneration on business expenses.

The applicant acknowledged that determining the nature of a worker's employment was not a mathematical process, nor could it be done by simply running through a checklist and tallying up the results. Instead, as held in Hall (Inspector of Taxes) v Lorimer (1992) 'the object of the exercise is to paint a picture from the accumulation of detail'. Taking this idea further, the applicant submitted that all of the factors for consideration could essentially be broken down into three broad categories. The first category is concerned with the issue of control, the second with the worker's integration into the business and the third with the way in which the parties themselves view the nature of their relationship.

The applicant went on to submit that, having regard to the factors outlined above, the court could be satisfied that the applicant had a prima facie case that he was an employee, and in doing so pointed to the following facts:

  • The applicant's work was controlled on a daily basis by the respondent's leading hand and foreman
  • The applicant never delegated work and said that he was prohibited from working for others
  • The applicant had worked for the respondent and its predecessors for over 37 years, working closely with other employees, the same hours as they did and at the same workplace. He also received internal training provided by the respondent
  • The applicant provided and maintained his own tools and equipment, although it was noted that these were only used for a relatively small proportion of the day
  • The applicant did not receive paid holidays, sick leave, annual leave, superannuation, public holiday pay, long service leave or any other allowances, nor was he taxed as an employee, although he did receive overtime
  • The applicant accepted that he was paid by reference to an invoice, but submitted that notwithstanding this he was paid according to time worked rather than tasks performed.

The respondent's submissions

The respondent submitted that the issue of control, whilst relevant, was not determinative, and suggested that in any event:

'control is about the reality of the situation – who is responsible for the provision and maintenance of tools and equipment; how payment is made; how that plant and equipment is operated and whether the contractor can provide labour other than his own.'

The respondent's submissions concerning the available facts were in fact to a large extent consistent with those put forward by the applicant. However, the respondent placed greater significance on the applicant's taxation and partnership arrangements, the not insignificant outlay he had made on his own tools and equipment, as well as what it said was the clear intention of the parties to be bound by a contractual arrangement for the provision of service, as opposed to a contractual arrangement of service.

The respondent also touched briefly on the standard of proof to be met by the applicant and submitted that:

'A prima facie case exists where there is sufficient evidence to support the legal claim. Accordingly, the question for the court is whether there is sufficient material on which draw the relevant inferences which, if translated into findings of fact, would establish that the applicant was, at all relevant times, an employee...

It is not an exercise which is satisfied by the presentation of merely a scintilla of evidence construed in a favourable way'.

The decision

Ultimately the Court found that, despite the applicant having worked for the respondent for over 37 years under the daily control of the respondent, during which time he had undoubtedly became an integral part of the businesses daily routines and systems, he remained an independent contractor. The position of the Court, and approach adopted in coming to its decision, is captured in the following passage:

'The assessment of whether the applicant has a prima facie case of an employment relationship is not, in my view, to be answered by a mathematical assessment of the various indicia, or a laborious weighing of the detail of the available evidence. Rather, the correct approach is to look at the form and substance of the relationship between the parties and the general weight of the available evidence. In addition to the factors referred to by the parties in their submissions, 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. That must be subject to several qualifications. The first is that the parties cannot turn an employment relationship into an independent contracting relationship which is a sham, for example, for the purposes of defrauding the revenue.

Secondly, an employer should not be permitted to deprive a vulnerable employee of employment entitlements by attempting to dictate an arrangement of independent contract.'

In closing, the Court noted that it made no findings as to whether the arrangements between the applicant and respondent were fair, as this was an issue best determined at a final hearing.

The decision

The Court's decision serves as a timely reminder that, when determining whether a worker is an employee or an independent contractor, one must not look at questions of control, integration, or even the intention of the parties, in isolation. The question is not a mathematical one, nor one answered by running through a checklist of relevant considerations. Instead, it one best answered, as suggested by the court suggested in Lorimer, by viewing matters from a distance and by making an informed, considered and qualitative decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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