Posted on July 26, 2024
Melissa Mazzeo
New Definition of ‘Employee’
The Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024 (‘Amended Act’) has recently changed the categorisation of workers in Australia. Specifically, whether a contractor may be deemed to be an employee.[1]
In the absence of a single definition of ‘employee’ or ‘contractor’, the amendments require workers to look at the totality of the relationship with their employer.
A multi-factorial analysis will be used in order to consider ‘the real substance, practical reality and true nature of the relationship between the individual and the person’.
The Amended Act shifts the definition to the practical reality of the relationship between the worker and employer, rather than a document based approach as was the previous position. This section in the Amended Act was enacted in response to the decisions in CFMMEU v Personnel Contracting Pty Ltd [2022] and ZG Operations Australia Pty Ltd v Jamsek [2022], where the High Court upheld that workers’ rights and obligations arise out of written terms of the relationship with their employer.[2]
To avoid inconsistency, the Amended Act reiterates that a multi-factorial approach must be taken when categorising a worker. Under this approach, a written contract is only one factor out of many which determines whether a worker is an employee or contractor. Other factors include the exercise of control and discretion over the worker and whether the worker generates their own goodwill as part of their own business.
Employee or Contractor, why does it matter?
The distinction between a worker’s categorisation is particularly important when determining employee entitlements. Unlike employees, a contractor is not entitled to leave nor protected under the National Employment Standards. However, contractors may exercise greater control over their own work and are generally remunerated on completion of a specific task. If an individual wishes to be catergorised purely on their contract terms in absence of the term’s practicality, they may choose to ‘opt out’ by written notice.[3]
Employers must be aware of their obligations and ensure they are not sham contracting. These amendments make it more difficult for employers to misrepresent an employment relationship in order to avoid the protections guaranteed to employees. Employers must show they reasonably believed a worker was engaged as a contractor at the time of representation. [4]
Implications
If you intend to work or hire someone as an independent contractor, you must ensure that contractor agreements are drafted to reflect a genuine contractor relationship and continue performing these terms in practice.
Companies must be mindful that simply labelling workers as contractors whilst requiring workers to undertake employee tasks may amount to greater penalties.
If you are unsure about your own or your workers’ entitlements, it is always important to seek legal advice. At Scanlan Carroll, we take the time to understand these concerns and provide tailored employment advice targeted to protecting your best interests. Please contact our friendly team if you have concerns about whether you are following your obligations as an employer or if you are seeking clarification as an employee.
[1] Fairwork Legislation Amendment (Closing Loopholes No.2) Act 2024 (Cth) s 15AA.
[2] CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1; ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.
[3] Fairwork Legislation Amendment (Closing Loopholes No.2) Act 2024 (Cth) s 15AB.
[4] Fairwork Legislation Amendment (Closing Loopholes No.2) Act 2024 (Cth) s 103.
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