In Fair Work Ombudsman v Ecosway Pty Ltd [2016] FCA 296, White J held that the store operator of two outlets of a health food and personal care chain was not an employee for the purposes of the Fair Work Act (2009). In so doing, White J provided some useful commentary on the way in which employers should go about determining whether their workers are employees or independent contractors.

The multi-factorial test

When courts are asked to determine whether a person is an employee or a contractor, they apply a ‘multi-factorial’ test. They look at the totality of the relationship between the worker and the employer by taking into account a number of ‘indicia’, or indicators, which are generally present in employment relationships and contracting relationships.

White J suggested that the following indicia were relevant to the application of the multi-factorial test:

  • Whether tax is deducted from the payment made by the employer to the worker.
  • Whether the worker is allowed to sub-contract the performance of his or her duties.
  • Whether the worker wears a uniform.
  • Whether tools are supplied by the employer to the worker.
  • Whether the worker is allowed to take leave.
  • The extent to which the worker is legally or actually controlled by the employer. Control could be manifest through close supervision or a requirement to comply with detailed workplace policies.
  • Whether wages are paid to the worker or instead whether commission is paid to the worker.
  • Whether the worker ‘represents’ the employer.
  • Whether the goodwill in the business is possessed by the employer or the worker.
  • Whether the worker conducts a ‘business-like’ operation, in the sense that he or she issues invoices and has in place his or her own systems, policies and manuals.
  • What ‘label’ the parties put on the relationship.
  • Whether the worker primarily contributes labour to the employer’s business, or whether the worker also contributes capital.
  • Whether the worker bears the risk associated with loss or damage to the stock or business.

How should employers apply the multi-factorial test?

The list of factors relevant to the application of the mutli-factorial test should not be treated as a checklist. The fact that some factors are either present or absent will not necessarily be conclusive.

Rather, as White J explains, employers need to ‘stand back’ and ‘examine the overall nature’ of the relationship between the employer and the worker. Employers should use the list of indicia as guidelines to help them paint that ‘overall’ picture of the relationship.

What else can employers take from the case?

Cases such as Fair Work Ombudsman v Ecosway are complex. When the facts are unclear it can be difficult to prove that a worker is an independent contractor . All employers should think carefully about when they wish to use independent contractors to carry out work on their behalf, and when they wish to engage employees. Having a clear plan which differentiates between the use of contractors and the use of employees is a good way to avoid any subsequent confusion.

Louise O'Connor

Louise O'Connor

T: +61 2 9331 0266

Louise is a solicitor at JFMLAW with a practice that focuses on employment and corporate law. She has particular experience in assisting not for profit employers and employees to deal with difficult human resources issues.

Louise regularly conducts matters for employers and employees in the Fair Work Commission and the Federal Circuit Court, and provides advice to employers relating to workplace investigations and complaints to statutory authorities.
Louise O'Connor

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