Directors may be personally liable for a Company's failure to pay an Independent Contractor Superannuation
The Federal Court of Australia recently held in the case of Moffet v Dental Corporation Pty Ltd  FCA 344 that Dental Corporation was liable to pay superannuation contributions on behalf of a dentist, engaged in the capacity as an independent contractor, in order to avoid a liability to pay a superannuation guarantee charge in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth), (the Superannuation Guarantee Act).
The Court focussed upon whether Dr Moffet, a dentist, was engaged by Dental Corporation as an employee or as an independent contractor.
Dr Moffet argued that if he is found to be an employee, that Dental Corporation:
- misrepresented to him that the contract pursuant to which he performed work was a contract for services rather than a contract of employment (this may be a contravention of section 357 of the Fair Work Act 2009), (FWA));
- was liable to make payments with respect to accrued but untaken annual leave (this may be a contravention of section 357 of the FWA);
- was liable to make payments with respect to long service leave (this may be a contravention of section 4(2) of the Long Service Leave Act 1955 (NSW), (LSLA); and
- failed to make superannuation contributions and is liable to pay a superannuation guarantee charge (this charge arises under the Superannuation Guarantee (Administration) Act 1992(Cth),)(Superannuation Guarantee Act)).
The Federal Court ruled that Dr Moffet had been engaged as an independent contractor and not as an employee or worker as defined in the FWA and the LSLA, respectively.
However, despite this, with regard to the claim for superannuation, the Federal Court concluded that the Services Agreement entered into between Dental Corporation and Dr Moffet was a contract that was wholly or principally for the labour of Dr Moffet within the meaning of the Superannuation Guarantee Act. For the purposes of this Act Dr Moffet was effectively considered to be an employee and Dental Corporation had thus breached its obligations in not paying Dr Moffet's superannuation entitlements.
The Superannuation Guarantee Act extends the application of the Act beyond a relationship that would be recognised by the Common Law as an employment relationship with the effect to extend the reach of the Superannuation Guarantee Act to "employment-like relationships", such as that arising from the contract entered into between Dental Corporation and Dr Moffet.
Key points for noting
It is important to note that this case dealt with a Services Agreement/ Independent Contractor Agreement pursuant to which Dr Moffet, in the capacity as a dentist, was engaged to provide services to the patients of Dental Corporation. That arrangement differs from those under a genuine Services and Facilities Agreement (SFA) where the dental practice is engaged to provide services to the practitioner in exchange for a fee.
This case highlights certain adverse consequences for dental practices that can be triggered by the use of independent contractor agreements or services arrangements - in this case a breach of the Superannuation Guarantee Act.
It is important for dental practices to ensure that:
- if it intends to put in place a SFA that:
- the document is appropriately drafted and sufficiently comprehensive having regard to the numerous factors to be considered in determining whether an employment relationship exists; and
- the contractual relationship and relevant documentation is appropriately structured to achieve the parties commercial objectives and that the parties seek advice on whether the practice is required to pay the dentist, even if the dentist is conducting the services as an independent, the requisite superannuation entitlements.
- existing independent contractor and other services arrangements are carefully reviewed in this context, having regard to the Federal Court decision in the Moffet v Dental Corporation case.
If a dental practice does not pay the minimum amount of the Super Guarantee (SG) for its employees into the correct fund by the due date, it may have to pay a penalty being a Super Guarantee Charge (SGC).
A SGC is calculated as:
- the SG shortfall amounts (including any choice liability calculated on the employee's salary or wages);
- interest on those amounts (currently 10%) and
- an administration fee of $20 per employee, per quarter.
It should also be noted that a director of a dental practice and or company that fails to meet a SGC liability in full by the due date, automatically becomes personally liable for a penalty equal to the unpaid amount.
This decision is an important reminder that every aspect of the relationship between the parties will need to be examined and closely considered. It also highlights the ongoing potential for adverse consequences that may arise from the use of independent contractor agreements entered into by parties without specific and or tailored legal advice.
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.