Identifying an Employee or an Independent Contractor

Have you ever looked at a work arrangement, and thought, is this person an employee or an independent contractor? Sometimes, it can be difficult to determine. Even the Courts, at times, have troubles drawing the distinction between the two.

However, whether you are engaging an employee or an independent contractor, this distinction is particularly important when considering the obligations and liabilities imposed on you as a business owner.

For example, if a person you are engaging is later discovered to be an employee, this may cause significant financial disruption to your business including:

  • legal liability;
  • taxation; [1]
  • superannuation; [2]
  • fair work obligations; [3]
  • modern awards;[4] and
  • national employment standards.[5]

In the context of Australian Employment Law, we explore two High Court decisions in the area of employee or an independent contractor relationship.

Our article first explores the High Court decision on 2001, Hollis v Vabu Pty Ltd (2001) 181 ALR 263 (‘Hollis v Vabu’) concerning a bicycle courier injuring a pedestrian.

We then discuss a later High Court case decided on 2006, Sweeney v Boylan Nominees Pty Ltd Trading as Quirks Refrigeration (2006) 226 CLR 161 (‘Sweeney v Boylan’) concerning a customer being injured by a refrigerator door.

Both cases, though with different sets of facts, draw on the same issues to whether the bicycle courier or the mechanic, was an employee or an independent contractor, of the person who engaged them.

Interestingly, as we explore these decisions, you will notice that the High Court came to vastly different conclusions in the cases explored.

We now explore the cases below.

What happened in Hollis v Vabu?

Vabu Pty Ltd (‘Vabu’), a company, ran a bicycle courier business known as ‘Crisis Couriers.’ [6] A bicycle courier of Vabu, wearing a green jacket with the words, ‘Crisis Couriers’, struck a pedestrian, Mr Hollis, as he was leaving the building. He subsequently knocked to the ground. Being struck, Mr Hollis suffered personal injuries that required surgery with a 25 per cent permanent deficit to his knee. [7]

But all you have said is just personal injury, how is this even relevant?

Despite personal injury, the legal issues explored is particularly important because:

  • if the bicycle courier was an employee, then Vabu could be vicariously liable; and
  • if the bicycle courier was an independent contractor, then Vabu could not be vicariously liable.

Ultimately, even though Mr Hollis suffered significant personal injuries, the central concern was whether bicycle couriers of Vabu were considered employees or independent contractors of Vabu.

So, what did the High Court decide?

Bicycle couriers were employees of Vabu. In arriving to this decision, the Court considered:

  • work practices;[8]
  • the nature of engagement;[9] and
  • the documents[10]

between the bicycle couriers and Vabu. [11] 

What other things were mentioned in the decision?

The High Court examined several considerations in drawing the distinction between employee and independent contractor. They include:

  1. Skilled Labor

In engaging bicycle couriers, the couriers were not providing skilled labor or labor that required special qualifications.[12] As a result, the couriers could not make an independent career as a freelancer or generate any goodwill as a bicycle courier. [13] This pointed towards an employment relationship.

Notably, this is to be distinguished from labor that does have special qualifications or skilled labour such as:

  • electricians; [14]
  • hospital doctors; [15] or
  • mechanics [16]
  1. Control

The couriers had little control of how the work was performed. Couriers were required to be at work by 9.00am, were assigned work, and could not delegate their work to others. [17]

However, if a person engaged has a high level of control of the work performed, including the power to delegate, this generally points towards an independent contractor relationship. For example, an IT consultant. Generally, they have autonomy over the work conducted, and may engage their staff to assist them.

  1. Emanations

Couriers were presented to the public as ‘emanations of Vabu’.[18] As part of this, couriers were required to wear uniforms that bore Vabu’s logo. The High Court commented that:

“…. the effect of Vabu’s system of business was to encourage pedestrians to identify the couriers ‘as a part of [Vabu’s] own working staff’”.[19]

  1. Deterrence

Moreover, as a matter of policy, the High Court considered employers, rather than, employees, are better placed to reduce accidents and intentional wrongs by efficient organisation and supervision. [20]

The High Court also drew particular attention to the fact that:

‘Vabu knew that a significant number of its couriers rode in a dangerous manner but had failed to compel its couriers to adopt an effective means of personal identification.’[21]

By having employers, such as Vabu, vicariously liable for the acts of their employees, it seems to suggest the High Court was shifting the burden onto employers to take steps to reduce the risk of future harm by employees.

  1. Finance

The payments and finance of the couriers were supervised by Vabu. Payment summaries were provided by Vabu, and couriers did not have scope to negotiate concerning their rate of remuneration.

  1. Leave

Vabu’s company policy stated that:

‘[n]o annual leave will be considered for the period November to Christmas Even, nor for the week prior to Easter. Leave requests will be considered in accordance with other applications and should be submitted to the manager in writing at least 14 days prior.’[22]

There was little opportunity for the bicycle couriers to engage in any other business enterprise other than for Vabu, suggesting an employment relationship prevailed rather than an independent contractor.

  1. Equipment

The use of tools and equipment also pointed that the bicycle couriers were employees. Bicycle couriers were required to bear the cost of replacing or equipment of Vabu that was lost or damaged, including radios and uniform.

Despite the bicycle couriers supplying their own bicycles, the High Court considered that the ‘capital outlay was relatively small.’ [23] However, this consideration should be distinguished in cases such as Sweeney v Boylan (2006) 226 CLR 161 and Steven v Brodribb Sawmilling Co Pty Ltd (1986) 63 ALR 513, where the capital outlay was significant more than in Hollis v Vabu. [24]

If Hollis v Vabu was a decision concerning employment relationship? Is there other decisions that show an independent contractor relationship?

Hollis v Vabu was later distinguished in the more recent case of Sweeney v Boylan Nominees (2006) 226 CLR 161 where the mechanic was considered an independent contractor by the High Court. Notably, some of the factors considered in Hollis v Vabu was also considered in Sweeney v Boylan.

What were the facts?

Here, Mr Cominos, a mechanic, operated a company named ‘Cool Runnings Refrigeration and Air Conditioning Pty Ltd.’[25] The mechanic was also the director of that company. The mechanic was contracted by Boylan for the servicing of a refrigerator. A refrigerator door collapsed and struck Ms Sweeney causing her to have persona; injuries to her head, neck and hand. [26]

Were the legal issues same as in Hollis v Vabu?

Thankfully, the legal issues that arose was similar to Hollis v Vabu. It concerned whether the mechanic engaged was an employee or an independent contractor of Boylan. Again, the same legal issues arose:

  • if the mechanic was an employee of Boylan Nominees Pty Ltd (‘Boylan’), then Boylan could be vicariously liable for the injury caused to Ms Sweeney; and
  • if the mechanic was not an employee of Boylan, then Boylan could not be vicariously liable for the injury caused to Ms Sweeney.

The High Court’s Decision

In contrast to Hollis v Vabu, the mechanic was held to be an independent contractor, and not an employee of Boylan.

Why did the High Court come to this decision?

The court examined several considerations. These included:

  1. Business

The mechanic conducted his own business. This was demonstrated by the mechanic having his own company, invoicing Boylan for each job and the mechanic displaying his company’s name on his vehicle. [27]

  1. Insurance

Boylan verified to whether the mechanic had proper workers’ compensation and public liability insurance. This suggests that when a person engaged supplies their own insurance, this leans towards an independent contractor relationship.

  1. Control

The mechanic was engaged from time to time to conduct maintenance work for Boylan. The court differentiated this situation from Hollis v Vabu by highlighting Boylan did not control the manner of work performed by the mechanic, whereas in Hollis v Vabu¸ Vabu ‘exercised significantly greater control over the couriers than was provided in the case of Boylan.’  [28]

  1. Equipment

The mechanic supplied his own tools and equipment, including his own van. In contrast with Hollis v Vabu, Vabu superintended the courier’s finances, tools and equipment. It also suggests that while in Hollis v Vabu, the Court did not draw significant attention to the equipment of the couriers in the form of a bicycle, a van, as an equipment appears sufficient to be considered a notable consideration towards the employee or an independent contractor relationship.

  1. Skill

The mechanic also provided skilled labour. This was differentiated from Hollis v Vabu which the Court considered the bicycle couriers was the kind of ‘work which required only limited skills’. [29]

  1. Emanation

The mechanic was not presented to the public as an emanation of Boylan. This is distinguished from Hollis v Vabu as the mechanic did not bear the logo of Boylan. The acts of the mechanic demonstrated they were not an employee of Boylan, but as a principal pursuing their own business. For example, the company’s name was advertised on the mechanic’s vehicle. [30]

Our Thoughts

The two cases discussed show the difficulty in determining whether a person is an employee or an independent contractor. It is advisable to always consider the relationship that you have between your business, and your staff. While an agreement may be drawn to state ‘independent contractor’ agreement, the Court may still interpret the relationship as one of employment.

If you have any concerns or queries concerning about employee or an independent contractor, then AMK Law may be able to help in your matter. 

Important disclaimer: The material contained in this publication is of a general nature only and it is not, nor is intended to be, legal advice. This publication is based on the law as it was prior to the date of your reading of it. If you wish to take any action based on the content of this publication, we recommend that you seek professional legal advice.

Footnotes

[1] See generally Income Tax Assessment Act 1997 (Cth).

[2] See generally Superannuation Guarantee (Administration) Act 1992 (Cth); also see Income Tax Assessment Act 1997 (Cth) ch 3 pt 3 div 290.

[3] See generally Fair Work Act 2009 (Cth)

[4] See Fair Work Act 2009 (Cth) ss 45, 57, 134(1); also see, Fair Work Commission, List of awards, Australian Government <https://www.fairwork.gov.au/awards-and-agreements/awards/list-of-awards>

[5] Fair Work Act 2009 (Cth) ch 2, pt 2-2.

[6] Hollis v Vabu Pty Ltd [2001] HCA 44 (9 August 2001) [2].

[7] Ibid.

[8] Ibid [47].

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Ibid [48].

[13] Ibid.

[14] See generally Elazac Pty Ltd v Shirreff [2011] VSCA 405.

[15] See generally ACT Visiting Medical Officer Association v AIRC (2006) 232 ALR 69.

[16] See Sweeney v Boylan Nominees (2006) HCA 19.

[17] Hollis v Habu Pty Ltd [2001] HCA 44 (9 August 2001) [66].

[18] Ibid [50].

[19] Ibid [52].

[20] Ibid [53].

[21] Ibid [52].

[22] Ibid [55].

[23] Ibid [56].

[24] Sweeney v Boylan Nominees Pty Ltd [2006] HCA 19 [1].

[25] Ibid [50].

[26] Ibid [1].

[27] Ibid [54].

[28] Ibid [73].

[29] Ibid [30].

[30] Ibid [31].

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