Employee or Independent Contractor?

Employee or Independent Contractor?

In the recent decision in Elazac Pty Ltd v Shirreff [2011] the Victorian Supreme Court of Appeal has sought to further clarify the relevant factors to be examined in determining whether an injured person is to be considered an employee, and therefore a 'worker' for the purposes of the Accident Compensation Act 1985 ('the Act'). The Court noted that the relationship between the party that engaged a person to perform work ('the principal') and the person engaged should be looked at in its totality, with a substance-over-form approach. The question as to whether the person engaged is to be considered an employee is a matter of vital importance, as only employees are entitled the various benefits under Victoria's no-fault workers' compensation system. Injured people who are not employees for the purposes of the Act must rely on the fault-based common law to obtain compensation for their injury, which is generally a slower and more complex process for obtaining compensation compared with a no-fault system. In Elazac, the Court of Appeal set out several relevant factors in the determination of whether a person engaged is an employee for the purposes of the Act:

  • The degree of control which the principal can exercise over the person engaged;

Traditionally, the extent to which the activity of the person engaged was 'controlled' by the principal was considered the most significant, and often determinative, factor. While it is still considered important, it is now considered only one factor amongst several. Issues as to whether the principal did or had the ability to control what work the person engaged did, when it was done, and importantly how it was done (i.e. the mechanics of the performance) will be relevant. The more independence that person engaged had from the principal, the more likely that they will be considered an independent contractor rather than an employee. In Elazac, the Court of Appeal noted that while the principal did exert a high degree of control with respect to when a task was to be performed, the principal did not, nor could they, exercise control over how the task was to be performed.

  • Whether what is being supplied is the work and skill of a person (contract of service) or the supply of equipment or its performance (contract for services);

A person employed under a contract of service is more likely to be considered an employee.

  • Whether or not the person engaged can set their own hours of work;

Similarly to the control factor, the ability of a person engaged to set their own hours would suggest that they are more likely an independent contractor

  • The method of payment (and in particular, whether payment is determined by hours of service or output or production);
  • Whether or not income tax is deducted and holiday pay or long service leave or superannuation paid;

The above two factors suggest that the closer the terms of a particular relationship are to a 'normal' employer/employee relationship (where a person is paid by hours of service and there are employment benefits payable) the more likely that the person engaged will be considered an employee

  • Whether or not the person engaged employs employees and/or conducts his business in partnership;
  • Whether or not there is a power to delegate (send someone else to perform the work); and

In relation to the above two factors, the Court in Elazac noted that it would be 'unusual' for a person who employed their own employees to perform work for the principal to nonetheless be found to be an employee of the principal Whether or not the person engaged considered the relationship as one of independent contractor. While all of the above factors relate to an objective assessment of the relationship, the subjective perception of the person engaged is also to be taken into account. The difficulty with the fact in this case and many other cases is that the 'relevant factors' point in different directions - with some factors suggestive of an employer/employee relationship while others suggest that the person engaged is an independent contractor. In Elazac, the Court found that Mr Shirreff was not an employee. This overturned the finding of the trial judge. The Court acknowledged that the trail judge had undertaken a 'careful analysis' of the totality of the relationship between Elazac Pty Ltd and Mr Shirreff, yet considered that he had come to the wrong conclusion in finding that Mr Shirreff was an employee, and therefore a 'worker' for the purposes of the Act. That careful analysis of relevant factors can nonetheless lead to incorrect legal findings underscores the fact that this issue remains something of a grey area. If you have been injured while being engaged by a principal, you should contact Redlich's Work Injury Lawyers on (03) 9321 9988.

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