In the realm of employment law, particularly in Australia, distinguishing between an employee and an independent contractor is a critical issue.
This distinction is especially relevant in the context of sham contracting, a deceptive practice where employees are incorrectly classified as independent contractors.
Sham contracting undermines employee rights and benefits and is explicitly prohibited under Australian law, notably in the Fair Work Act 2009 (Cth).
The Fair Work Ombudsman's Benchbook provides a comprehensive comparison of key characteristics to differentiate between an employee and an independent contractor. This comparison is crucial in identifying and preventing sham contracting.
1. Control Over Work:
- Employee: The employer wields significant control over the manner in which work is performed, including the location and hours of work. This aspect is a traditional hallmark of an employment relationship. In cases such as Hollis v Vabu Pty Ltd  HCA 44, the High Court of Australia emphasised the importance of control in distinguishing between an employee and a contractor.
- Independent Contractor: Here, the worker has autonomy over how the work is performed, signifying a contractor relationship. The case of On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3)  FCA 366 highlighted the significance of this autonomy.
2. Exclusivity of Work:
- Employee: Generally engaged exclusively by one employer. This exclusivity is often indicative of an employment relationship.
- Independent Contractor: Typically free to offer services to multiple clients, reflecting the nature of a genuine independent contracting arrangement.
3. Advertising of Services:
- Employee: The employer advertises the goods or services, and the employee is a representative of the employer's business.
- Independent Contractor: Independently advertises their services, often maintaining a separate business identity. This factor was underscored in the case of ABN Amro Bank NV v Bathurst Regional Council  FCAFC 65.
4. Provision of Tools or Equipment:
- Employee: The employer usually provides significant tools or equipment necessary for the job.
- Independent Contractor: The contractor is typically responsible for supplying and maintaining their tools or equipment, a key factor in Royal Botanic Gardens and Domain Trust v South Sydney City Council  NSWCA 5.
These factors, as outlined in the Benchbook, are not applied in isolation but are considered collectively to ascertain the nature of the working relationship. It is essential to note that this guidance stems from legal precedent and serves as a guideline rather than a strict rule, acknowledging that each employment situation may present unique circumstances.
Sham contracting remains a critical concern in Australian employment law. The Fair Work Act 2009 offers protections against such practices, specifically under sections like 357, which prohibits misrepresenting employment relationships as independent contracting.
Cases like Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd  FCAFC 37 and Fair Work Ombudsman v AJR Nominees Pty Ltd  FCCA 2147 serve as stark reminders of the legal implications of sham contracting.
In conclusion, understanding the distinction between an employee and an independent contractor is vital in combating sham contracting.