Australia: Annual Wage Review, Worker's Compensation and Independent Contractors: Workplace Relations Update
Gadens Lawyers News - July 2011

Contents

• Up it goes... Fair Work Australia's annual wage review and the high income threshold
• Workers' compensation for a private party at work!
• The importance of HR understanding independent contracting
• Employee or independent contractor?

Up it goes... Fair Work Australia's annual wage review and the high income threshold

Under the Fair Work Act 2009 (Cth) (FW Act), Fair Work Australia is required to conduct a wage review each year with any increases as a result of the review to take effect from July.  At the same time that the new rates of pay determined by Fair Work Australia come into effect, the high income threshold under the FW Act is also indexed.

The annual wage review

From the first full pay period to commence on or after 1 July 2011, the increases to the rates of pay set by modern awards and the national minimum wage in Fair Work Australia's 2011 annual wage review took effect.

As a result of Fair Work Australia's wage review:

• the rates of pay in modern awards have been increased by 3.4%, rounded to the nearest 10 cents
• the casual loading for award/agreement free employees has increased to 22%
• the national minimum wage has been increased to $589.30 per week, or $15.51 per hour.

The high income threshold

The high income threshold under the FW Act is subject to indexation from 1 July each year.  Fair Work Australia has recently confirmed that the high income threshold has been increased from $113,800 to $118,100 with effect from 1 July 2011.

The high income threshold under the FW Act is principally relevant to:

• the ability of an award/agreement free employee to apply for an unfair dismissal remedy
• an employer providing an employee with a guarantee of annual earnings so that a modern award has no application to the employee.

Implications for employers

Employers should carefully review the rates of pay and conditions they are affording employees to ensure they are meeting their minimum award obligations following the annual wage review. 

Employers should also review the level of remuneration being provided to more highly paid employees to firstly ascertain whether the employees should be provided with a guarantee of annual earnings, and secondly to ensure that if employees are in receipt of a guarantee of annual earnings, that the guarantee is still valid. 

With the increase to the high income threshold, employers should also review the level of remuneration being provided to employees prior to proceeding with the dismissal of any employee to determine whether the employee will have access to Fair Work Australia to seek an unfair dismissal remedy.

By Michael Cooper of Gadens Lawyers, Sydney

Workers' compensation for a private party at work!

In an important decision on employer liability in cases involving social functions, the New South Wales Workers Compensation Commission (Commission) has recently found an employer responsible for an employee's injury which was sustained at a private social function held on work premises. 

What happened?

An employee whose employment was ending wanted to hold a combined farewell and birthday party with his two flatmates on company premises.  The employee was given permission to do so by a company director on the condition that the employee arranged security for the event.  The employee and his flatmates then issued invitations, organised the event and supplied a security guard.

Approximately 70 to 100 people attended the party, including the company director who was an invited guest.  In the early hours of the morning, an employee who was at the party fell down two flights of stairs after drinking 'a fair amount of alcohol', sustaining a serious head and brain injury for which the employee subsequently claimed workers' compensation benefits. 

The company's insurer disputed liability for the employee's claim on the basis that the injury did not arise out of or in the course of the employee's employment as the injury occurred at a private party not under the control or authority of the company.  The insurer also claimed that the employee's injury involved misconduct on the part of the employee.

What did the Commission decide?

At first instance, the Commission held that the employee did not sustain an injury within the meaning of the Workers Compensation Act 1987 (NSW) (Act).  The Senior Arbitrator found that the party had a mixed purpose however, it was not possible to state that the 'farewell' aspect of the party could be regarded as the relevant purpose of the event such that the employee's attendance could have arisen out of or in the course of her employment.  Further, the Senior Arbitrator was not persuaded that the employee was encouraged or induced to attend the function, and found instead that a suggestion was made to enjoy a fun night out. 

On appeal however, Deputy President Roche found the employee's understanding was that she was attending a farewell function for a colleague and was unaware that the party was also a birthday celebration.  Despite the party having a dual purpose, the employment purpose motivated the employee to attend.  The employee was new to the company and, following encouragement from her managers, felt that it was necessary to attend the party to make a good impression, join in with the team and meet clients.  The Deputy President found the employee's assertion, that she would not have attended the party and spent her Saturday night with people she did not know unless she considered the party to be a work function, to be logical and plausible. 

The Commission held on appeal that there was a direct and unbroken connection between the employee's employment and her injury such that her injury arose out of it.  The company was ordered to pay the employee's reasonably necessary hospital and medical expenses under the Act.

Implications for employers

This case sends an important message to employers regarding their liability in cases involving social functions.  Employers should exercise caution when extending social invitations to workers and should consider their legal obligations to employees at these types of events.

By Meryl Remedios of Gadens Lawyers, Sydney

The importance of HR understanding independent contracting

Following a prosecution instituted by the Fair Work Ombudsman, the Federal Magistrates Court of Australia has recently imposed a penalty on a human resources manager for a breach of the sham contracting provisions similar to those in the Fair Work Act 2009 (Cth) (FW Act), despite the fact that the human resources manager claimed he was only following the instructions of the business owner.

The facts of the case are set out in our previous update http://www.gadens.com.au/Publications-View.aspx?documentid=1746here, however in general terms, the court found that the human resources manager had contravened the sham contracting provisions of the Workplace Relations Act 1996 (Cth) as he had facilitated an employer terminating the employment of a number of employees only to reengage them as independent contractors to perform the same work. 

Since our last article, the court had the opportunity to consider what penalty to impose on the human resources manager and the director of the company.  The court determined that a penalty of:

• $3,750 should be imposed on the human resources manager
• $13,200 should be imposed on the sole company director.

Following the decision being handed down, the Fair Work Ombudsman has stated:

Implications for employers

As we had previously noted, although these offences were prosecuted under former legislation, there are equivalent offences under the FW Act, with penalties of up to $33,000 for a corporation, or of up to $6,600 for an individual, remaining available.  Despite this, under the FW Act, there is now scope for orders for damages to be paid by an individual, such as a human resources manager, in addition to the penalties.  Accordingly, the personal exposure for an individual is now much greater. 

This decision is a timely reminder for human resource managers, and other business managers, to review their independent contractor arrangements to ensure that they are complying with their legal obligations.

By Michael Cooper of Gadens Lawyers, Sydney

Employee or independent contractor?

A recent decision in the Federal Magistrates Court of Australia has reinforced the parties' right to choose the basis of an engagement however this suggestion must be treated with caution.

The decision

A worker had been engaged to work for a large corporate entity for in excess of 37 years.  The worker asserted that he was an employee of the company, whilst the company asserted that the worker was an independent contractor.

The court considered a number of factors in relation to the relationship between the worker and the company, including that the worker was paid through invoices and used and serviced his own equipment.  Although there were various other aspects of the relationship pointing to an employment relationship, these aspects were considered superficial.

This generally accepted test to ascertain whether a worker is an independent contractor or an employee is a multi-indicia test.  This test takes into account not only the name given to the relationship by the worker and the company, but concentrates largely on the substance of the relationship including whether the worker:

• supplied their own equipment
• was entitled to leave
• could choose their own hours and the method of doing the job
• could delegate the performance of the work
• was permitted to work for others
• had an obligation to accept further work.

In this case however, the court stated that an employment relationship could not be classified by:

As such, the court placed a greater emphasis on the parties being able to determine the nature of their working relationship.  In other words, given the worker and the company were trying to establish a relationship of principal and independent contractor, weight should be given to that fact.

Implications for employers

Although this decision suggests that greater weight is likely to be placed on the intention of the parties in terms of how they set up their relationship, it should be relied on with caution.  Courts will still examine the substance of any relationship carefully.  In light of a vigilant Fair Work Ombudsman currently targeting and prosecuting sham contracts across Australia, employers must engage workers carefully having regard to the substance of the relationship in question.

By Zev Costi and Nicholas Linke of Gadens Lawyers, Adelaide

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.