Authors: Philip Brunner and Kylie Wilmot
On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3)  FCA 366 ("On Call") dealt with whether or not On Call's interpreters should be considered as employees or independent contractors at common law.
The Federal Court also considered whether, if those workers were treated as independent contractors for the purposes of common law, they would fall within the extended definition of 'employee' under section 12(3) of the Superannuation Guarantee (Administration) Act.
On Call treated most of its workers as independent contractors as they mostly worked for other agencies, were able to decline work offered by On Call and supplied some of their own tools. On Call had previously sought a ruling from the ATO on the point and been advised that the relationship appeared not to be one of 'employment'.
The new test
Bromberg J restated common law the multi-factorial approach taken in Holls v Vabu Pty Ltd (2001) 207 CLR 21 to determine whether a person was an employee or independent contractor by asking:
- is the person performing the work of an entrepreneur who owns and operates a business; and
- in performing the work, is that person working in and for that person's business as a representative of that business and not of the business receiving the work?
If so, the person is likely to be an independent contractor. If not, they are likely to be an employee.
The first question is whether the person has a 'business'. Bromberg J referred to the desire to make a profit, whether they entered into transactions on a continuous and repetitive basis, whether there was any value in goodwill or saleable assets, whether they advertised such a business in a business-like manner and whether they took risks in the pursuit of profit.
Whilst the interpreters had ABN numbers, they did not negotiate their own rates, were not involved in risk-taking and, other than two particular interpreters, did not own and operate a business.
As far as the second question was concerned, the court looked at the degree of control exercised by On Call, whose business the interpreter was representing. It held that as it required certain standards of performance which were set out in a Code of Ethics, it was essentially controlling the relationship. It was also found that it was On Call's business alone that the interpreter was representing.
There were some problems with the evidence given by On Call. During the relevant period it had approximately 2,500 people working for it and it was therefore impossible for it to call all those involved as witnesses. It therefore called seven witnesses, all interpreters, as a representative sample of workers. Bromberg J concluded that only very experienced, well qualified and long-standing interpreters had been called which was not a representative sample.
Furthermore, only two of the seven witnesses operated their own businesses and could properly be considered independent contractors and it would be impossible to extrapolate this and somehow apply it to the remaining 2,500 interpreters. A finding that all interpreters owned and operated their own businesses could only have been made if all of the sample interpreters could be classified as such.
Extension of definition of employee for superannuation purposes
On the basis that the interpreters were independent contractors, On Call had not made occupational superannuation contributions on behalf of its interpreters.
Section 12(3) of the Superannuation Guarantee (Administration) Act 1992 provides that "if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract": section 12(3) of the Act.
Section 12(3) is an extension of the common law definition of 'employee' and where independent contractors do not have the right to delegate work and where more than half of the value of the contract is for labour those persons will be considered employees for the purposes of section 12(3) of the Act.
Whilst previous decisions have concluded that a contract for a particular result would fall outside the scope of section 12(3), Bromberg J disagreed and concluded that Parliament intended all employment-like relationships to be covered by 12(3).
Although it was decided that the interpreters fell within the common law definition of employees, Bromberg J stated that he "would nevertheless have been satisfied that they are workers personally performing work in an employment-like setting" and therefore would have fallen within the meaning of section 12(3) of the Act.
Practical effects of the decision
The decision highlights the fact that incorrectly classifying employees may have significant financial implications, including liability to pay superannuation.
Bromberg J also pointed out that it was incorrect to use indicators which have been used in the past to determine whether a person is an employee or an independent contract where the answer to the question is based upon an incorrect labeling of the relationship. Such factors would include whether annual, long service or sick leave was paid and whether income tax had been withheld.
Employers must therefore ensure that when determining whether an employment relationship exists, a holistic approach is taken.
For more information about this legal update or any other workplace risk matters please contact Philip Brunner or Kylie Wilmot on (08) 9321 3755.
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.