Once a contractor, always a contractor?

By Scott McKenzie (Director), Robert Wilson (Associate), Velocity Legal 

Snapshot summary – Changing relationships

The development of the gig economy and the increasing variety of worker relationships has undoubtedly changed the traditional working relationship. Consequently, the traditional ‘employee’ and ‘independent contractor’ dichotomy may not be adequately comprehended or easily accommodated in the current business environment. There can be severe legal consequences for getting these things wrong, so all business owners should avoid burying their head in the sand.

Employment status

A typical relationship that is routinely found in the fitness industry is where personal trainer (PT) is:

1. conducting their own business on the gym’s premises;
2. using the gym’s equipment and resources;
3. acting as an advertisement for the gym more widely; and
4. available to perform duties associated with the administration, running and/or management of the gym at the owner’s discretion.’

A recent decision of Christopher Bond v Doxi Pty Ltd t/a Jetts Wannero [2020] FWC 2538 (Doxi) before the Fair Work Commission considered this commonly occurring business relationship.

Independent Contractor v Employee

Before we unpack that case, the distinction between contractors and employees is important because they each have different rights and obligations under legislation and at common law.

In determining whether someone is an independent contractor or an employee, each case turns on its own particular facts. Therefore, it is not possible to identify a definitive list of factors, nor the weight to be given to each factor. However, as a form of guidance, the Fair Work Ombudsman has provided the following table of some common indicators of the employment relationship:

Item Independent Contractor Employee
Degree of control over how work is performed Has a high level of control in how the work is done. Performs work, under the direction and control of their employer, on an ongoing basis.
Hours of work Under agreement, decides what hours to work to complete the specific task. Generally works standard or set hours (note: a casual employee’s hours may vary from week to week).
Expectation of work Usually engaged for a specific task. Usually has an ongoing expectation of work (note: some employees may be engaged for a specific task or specific period).
Risk Bears the risk for making a profit or loss on each task. Usually bears responsibility and liability for poor work or injury sustained while performing the task. As such, contractors generally have their own insurance policy. Bears no financial risk (this is the responsibility of their employer).
Superannuation Pays their own superannuation (note: in some circumstances independent contractors may be entitled to be paid superannuation contributions). Entitled to have superannuation contributions paid into a nominated superannuation fund by their employer.
Tools and equipment Uses their own tools and equipment (note: alternative arrangements may be made within a contract for services). Tools and equipment are generally provided by the employer, or a tool allowance is provided.
Tax Pays their own tax and GST to the Australian Taxation Office. Has income tax deducted by their employer.
Method of payment Has obtained an ABN and submits an invoice for work completed or is paid at the end of the contract or project. Paid regularly (for example, weekly/fortnightly/monthly).
Leave Does not receive paid leave. Entitled to receive paid leave (for example, annual leave, personal/carers’ leave, long service leave) or receive a loading in lieu of leave entitlements in the case of casual employees.

Doxi

In Doxi, the case involved a PT that worked at a gym and made an application for unfair dismissal. The objection to this claim was that the PT was not an employee and he conducted his own personal training business on the gym’s premises according to a personal training agreement which expressly states that he was a contractor and not an employee.

Facts

The PT has worked at the gym initially as just a PT but then moved on to more administrative jobs, similar to that of a manager. The PT’s agreement with the gym required him to pay ‘rent’ to the gym but this could be offset by the administrative jobs such as office duties, reception work, calling members, hiring new personal trainers and other matters.

Considerations

In considering whether the PT was an independent contractor or an employee the Fair Work Commissioner (FWC) looked at the totality of the relationship and not the terms of the agreement. The FWC applied the common law multi-factorial test to this situation, summarised below.

Test Application
Does the employer exercises control over the manner in which work is performed, place or work, hours of work? Given the terms in the PT agreement that dictated additional administrative duties and the PT being required to work shifts and perform work separate to the PT business, the FWC concluded that control was exercised over the PT.
Does the worker perform work for others? No – he only worked at the one gym.
Does the worker have a separate place of work? No – the worker did not have a separate place of work.
Does the worker provide their own equipment? No – the worker used the gym’s equipment.
Can the work be delegated? The additional duties performed were required to be performed by the PT and could not be delegated.
Can the employer suspend or dismiss the person? The PT agreement expressly stated the grounds of termination for PT. These terms were consistent with that of an employment contract.
Does the employer present the worker as a worker of the business? The PT wore a gym branded t-shirt and required clients to be members of the gym before they could be trained.
Is the worker remunerated by a wage or salary? The PT was paid a wage for his rostered shifts and the additional duties.
Did the work involve a professional trade? The additional duties were general and administrative in nature.

Dual relationship

In coming to a decision, the FWC said that the relationship between the parties was neither unusual nor unique. It is a relationship routinely found in the fitness industry. This relationship is dual faceted with the PT working as a contractor and also working in an ordinary employment relationship. This does not mean that one relationship exists to the exclusion of the other.

Practical Guidance

If you have any questions in regards to the employment status of your staff, please contact us.  Our team is here to help you navigate this rapidly evolving area of law.

This article is the opinion of the author and in no way constitutes legal advice.

Insight Authors…

SCOTT MCKENZIE

Director

Scott has been recognised as a leading commercial lawyer in Australia. He is held in high regard for his strategic mindset and is renowned for being technically sharp. Scott’s practice covers all aspects of commercial law, with a strong emphasis on complex transactions and business co-ownership matters. Scott is focused on leading by example. He provides precise advice and tenaciously protects his clients.

Accredited Specialist in Commercial Law.

0432 920 510  •  VIEW DETAILED PROFILE   •  READ ALL OF SCOTTS ARTICLES

ROBERT WILSON

Associate

Robert has a breadth of knowledge that is rarely seen in law firms. He is a practising lawyer, a qualified CPA and is currently completing an MBA. This intellectual platform allows Robert to solve complex business issues that other lawyers often do not even see. Outside of the office, you are likely to find Robert working on the family farm. As a commercial lawyer who understands the financial and practical realities of business on a deeper level, Robert truly is a needle in a haystack.

0498 020 626 •  READ ALL OF ROBERTS ARTICLES

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