Edited version of private advice

Authorisation Number: 1052111810272

Date of advice: 22 May 2023

Ruling

Subject: Status of worker

Question

Are the contractor guides engaged by the entity employees within the ordinary or common law meaning for the purposes of subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No.

This advice applies for the following period:

Year ending 30 June 20XX

The arrangement commences on:

1 July 20XX

Relevant facts and circumstances

Guides who have regular work are engaged as employees. However, on occasion the entity needs specialty or additional guides and the entity has been engaging these contractor guides as contractors. They all have their own ABN and insurance, have the ability to accept or refuse a one to 14 day job with the entity, and can replace themselves with another guide who has equal or higher qualifications than themselves. The contractor guides do guiding work for the entity 1-3 days a month on average.

The contract guides:

•         Will keep their First Aid, CPR, Blue Card and insurance current

•         Follow the itinerary as scheduled (with some flexibility as described in daily schedule)

•         Find a replacement guide to do your work if you commit to a trip with us and then cancel.

•         Send the entity an invoice for services at the end of each trip

•         Be responsible for your own taxes at year's end

•         You have provided an example of a guide who was unable to perform her trip and she replaced herself with another qualified guide for part of the trip.

Relevant legislative provisions

Superannuation Guarantee (Administrative) Act 1992 section 12

Reasons for Decision

Question

Are the contractor guides engaged by the entity employees within the ordinary or common law meaning for the purposes of subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Summary

The contractor guides are independent contractors as per the totality of the relationship created by the contract with the enitiy. The contract indicates that while the entity has certain control over when to perform a task the contractor guides have an unfettered right of delegation.

Detailed reasoning

The relationship between an employer and employee is a contractual one. When a business engages a worker, generally it will either be a relationship of employment, often referred to as a contract of service, or a principal/independent contractor relationship that is referred to as a contract for services.

The leading case outlining the principles governing the ordinary meaning of 'employee' is Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contacting Pty Ltd[1] (Personnel Contracting). The majority of the High Court in Personnel Contracting confirmed that whether a worker is an employee of a putative employer is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations with constitute that relationship.[2]

As such, the totality of the relationship is derived from the rights and obligations created by the contract[3] between the parties, construed at the time they entered into it.[4] Where the parties have comprehensively committed the terms of their relationship to a written contract, and the contract has not been varied, challenged as a sham or subject to legal or equitable relief, then it is the legal rights and obligations in that contract alone that are relevant in this analysis.[5]

Evidence of subsequent conduct and work practices can only be considered in some instances, such as establishing the existence of a contract, identifying the contractual terms agreed to where the contract is wholly or partially oral, demonstrating that the contract has been varied or is a sham, and establishing evidence of other legal or equitable entitlements.[6]

Where a contract is oral, evidence of the way the parties conducted themselves may be considered but only for the purposes of inferring what terms and conditions were verbally agreed to or necessarily implied into the contract. The relationship cannot be characterised based on the 'reality' of what took place over the duration of the performance of work.[7]

The examination of the totality of the relationship must be considered through the focussing question of whether the worker is working in the business of the putative employer, having regard to the various employment indicia from case law.[8] In Marshall v Whittaker's Building Supply Co,[9] Windeyer J said that the distinction between an employee and an independent contractor is:

"rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own."

The common law indicia include the level of control exerted by the putative employer, the extent of integration of the worker into the business, whether the worker is able to delegate, whether the remuneration is for a specified result, whether the worker uses their own tools and equipment, whether either party generates goodwill and the level of risk borne by each party. Importantly though, the indicia are not to be applied as if they are a mechanical checklist.[10]

Whether worker is serving in your business

An employee serves in the business of an employer, performing their work as a representative of that business. In contrast, an independent contractor provides services to a principal's business, but the contractor does so in furthering their own business enterprise and representing their own business.

A person is not excluded from being an employee just because they also conduct their own business.[11] A person may realistically have more than one job and may both conduct their own business and be employed in someone else's business.

As such, it is helpful to focus attention upon the aspects of the contractual relationship which bear more directly upon whether the worker's work was so subordinate to the employer's business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise.[12]

Characterising a putative employer's business

The correct characterisation of the business being carried on by the putative employer is an essential part of determining whether the worker is working in the business of the putative employer.[13]

In Personnel Contracting, the majority considered that the core of Construct's business was their promise to supply compliance labour to their customer, Hanssen. Construct's right to control the provision of Mr McCourt's labour was an essential asset of their business, which they deployed in order to fulfil contractual obligations with Hanssen.[14]

Presenting as an emanation of the business

Whether a worker is represented to the public as an emanation of the putative employer's business is a key consideration in determining whose business they are serving in.

However, it is important to distinguish between a worker being contractually obliged to present as an emanation of the putative employer's business (such as in Hollis v Vabu Pty Ltd (Hollis)[15]), and them merely choosing to do so to abide by a business' expectations (such as in ZG Operations Australia Pty Ltd & Anor v Martin Jamsek & Ors (ZG Operations)[16]).

Control

An employer is usually able to control how, where and/or when its employee performs their work. The importance of control in this context lies not in its actual exercise, but rather in the contractual right of the employer to exercise such control.[17]

Where the main operating activity of the business is the supply of labour or a service of some kind, often a critical element of the business is the need to retain control over that labour or the workers providing the service. This was emphasised by Kiefel, Keane and Edelman JJ in Personnel Contracting:

"... the existence of a right of control by the putative employer over the activities of the putative employee serves to sensitise one to the subservient and dependent nature of the work of the employee, so as to assist in an assessment of whether a relationship is properly to be regarded as a contract of service rather than a contract for services."[18]

A term in a contract that purports to confer a right to control must be interpreted in the context of the broader contract and the services being provided. A contract may afford an employer a different kind of control, such as control over how long a casual worker can work, or the clause may allow 'reasonable direction' as distinguished from a true right to control a worker.[19]

Delegation

An unlimited, unfettered power to delegate or subcontract to others to perform the work is usually an indication that the worker is not an employee.[20] That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise. In contrast, where a person is contractually required to personally perform the work, this points to the person being an employee. Personal service is generally seen as a critical feature of an employment relationship, whereas a contractor having the ability to utilise their own workforce is consistent with carrying out their own business.

True delegation is differentiated from situations where the worker has delegated tasks in a supervisory capacity or has asked another colleague to take an additional shift or responsibility where the worker is unable to work.[21] In these arrangements, the worker has merely organised a substitution or shared the workload. It is not the same as the freedom of an individual to subcontract or employ others to perform the work in their own business. A subcontractor is generally paid by the worker, reflecting that they work for the worker, whereas a substitute is usually paid directly by the putative employer, without the involvement of the worker.

Some contracts may provide a "limited or occasional" power of delegation where the scope and operation of the power is so narrow that the worker cannot exercise it unilaterally, for example where the putative employer needs to provide consent before a subcontractor is engaged. This factor is not inconsistent with an employment relationship[22], as the putative employer effectively has full control over who provides the services.

The case in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (On Call) entailed both of these circumstances. A purported power to delegate was found to be not any more than job swapping that can occur amongst casual employees, given the requirement that any replacement interpreter had be on the register and approved by On Call.[23]

'Results' contracts

Where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is one for services. [24]

The meaning of the phrase 'producing a result' means the performance of a service by the worker for the putative employer where the worker is free to employ their own means (that is, third party labour, plant and equipment) to achieve the contractually specified outcome. The essence of the contract has to be to achieve a result and not to provide the worker's labour.

Under a results-based contract, payment is often made for a negotiated fixed price on completion of the job, as opposed to an hourly rate.[25] The total fee may reflect an estimated completion time.

However, a piece rate or output-based remuneration can still be consistent with an employment relationship if they are a natural means to remunerate the particular kind of task the worker is performing.[26] For example, in Commissioner of State Taxation v Roy Morgan Research Centre Pty Ltd (Roy Morgan), the Court found that although interviewers were only paid on the completion of each assignment, their pay was calculated by reference to their time spent, not for producing a result.[27] In Hollis, it was considered that payment to the bicycle couriers per delivery was a natural means to remunerate employees whose sole purpose is to perform deliveries, for ease of calculation and to provide an incentive to more efficiently to make deliveries.[28]

Tools and equipment

A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for their work and be reimbursed for business expenses by the employer. This includes being given a reimbursement or allowance for the use of the worker's own assets such as a car.

In comparison, independent contractors carrying on their own business often provide and pay for their own assets, tools, equipment, maintenance costs and other expenses.[29] Usually, they will have factored these costs in their overall fee or will seek separate payment for such expenses from the principal.

The question of scale with respect to the cost of tools and equipment is important. Where a worker uses a substantial item or piece of equipment for which they are wholly responsible to conduct their work, the mechanical aspect of the contract outweighs the personal.[30]

Equipment that is not specialised or used only for completing the contracted services, such as a mobile phone, are less likely to be considered significant.[31]

Goodwill and Intellectual Property

If an independent contractor performs services in the course of their own business, it would be common for the contractor to be able to generate goodwill for that business.

Where a contract between a worker and putative employer prevents any goodwill from accruing for a worker's possible business, this may indicate that the worker is instead serving in the putative employer's business.

Risk

Generally, employers are vicariously liable for negligence and injury caused by their employees. In contrast, a principal will not be liable for negligence or injury caused by an independent contractor.

Where a contract requires a worker to obtain their own insurance or indemnify the putative employer against loss arising from harm or injury caused by the worker, it may be seen as a consequence of a subjective characterisation that the contract is one for service, and as such must be considered in light of the entire contract.

In On Call, although interpreters were contractually required to indemnify On Call against loss, Bromberg J found that On Call bore the ultimate financial risk for a failure by an interpreter to perform the work, having taken out its own insurance policy against claims made by clients and not financially penalising interpreters for unsatisfactory work.[32]

In Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd[33], the Full Federal Court concluded although these workers were required to acquire their own public liability insurance, this one factor alone was insufficient to support a conclusion that the workers were not employees.

Use of labels to characterise relationship

In Personnel Contracting the High Court found that the "labels" which the parties may have chosen to describe their relationship are not determinative or even likely relevant to, the characterisation of their relationship.[34] Rather the characterisation of the relationship needs to turn on the substantial rights and duties between the parties.[35]

Clauses that stem as a consequence of the parties' characterisation of their relationship will be similarly limited in their impact on the actual character, for the same reasons, for example obtaining an ABN or the provision or lack of provision of certain work entitlements.

Application

Nature of the business

The entity operates a guided tour business.

The contractor guides (the Worker) duties are providing guide services.

Whether worker is serving in your business

The Worker is providing a service as a tour guide. The Worker in this case is performing those tasks as an independent contractor providing a contract for services to the entity's business.

Characterising a putative employer's business

The entity is a tour guide service, the Workers are engaged as a tour guides. They would be engaging with the entity's business.

Presenting as an emanation of the business

The Workers present as representatives of the tour company however they are required by the contract to do so even though they are independent.

Control

The contract indicates there is freedom by the independent contractors to provide the guide service to the patrons. Guides are provided with Intellectual property to pass on to the patrons but there I no control over how this is done.

When there is less control over the worker, it indicates that there is an independent contractor relationship.

Delegation

The Worker is required to organise a replacement of equivalent or higher training should they be unable to provide the guide service on a particular day. This has in fact occurred over the period. This represents an unfettered right of delegation. This indicates that the Worker may be a contractor because of the delegation power.

When considering whether a Worker is a common law employee or a contractor, we need to look at the totality of the relationship.

Results' contracts

The Worker is paid a fee for agreed services, it is paid for a particular trip. While the amount determined is calculated from an hourly rate payment is for an invoice issued by the worker for the completed trip and therefore would be for a result.

The Workers are paid for results, the argument that the Worker is a contractor is strong.

Tools and equipment

All tools and equipment are provided by the principal and returned at the end of each trip.

Relying on the tools provided by the entity to complete tasks is an indicator that the Worker is a common law employee.

Risks

The guides are required to hold their own insurance.

This is not an indicator of an employee relationship.

Goodwill and Intellectual Property

There are terms and conditions in the contract relating to goodwill and intellectual property.

If the Worker is an independent contractor, there is likely to have terms and conditions in the contract relating to the entity's clientele.

The contract has been written to preclude independent contractors from poaching customers from the entity. This is an example of an independent contractor relationship

Conclusion

Based on the indicators discussed above, the guides are independent contractors and not eligible for Superannuation Guarantee.

[1] Personnel Contracting [2022] HCA 1.

[2] Personnel Contracting at [61] and [172-173].

[3] Personnel Contracting at [60], [124] and [173].

[4] Personnel Contracting at [174].

[5] Personnel Contracting at [43], [59] and [173]; WorkPac Pty Ltd v Rossato [2021] HCA 23 at [56-57] and [63].

[6] Personnel Contracting at [54], [59] and [177].

[7] Secretary, Attorney-General's Department v O'Dwyer [2022] FCA 1183.

[8] Personnel Contracting at [36-39], [61-62], [121], [173] and [183]. The relationship may be affected by statutory provisions and by awards made under statutes (Personnel Contracting at [41]).

[9] (1963) 109 CLR 210 at [217].

[10] Personnel Contracting at [34].

[11] Personnel Contracting at [181].

[12] Personnel Contracting at[39].

[13] Personnel Contracting at [70-71], [89] and [200].

[14] Personnel Contracting at [89].

[15] Hollis 2001 ATC 4508 at [50-52].

[16] ZG Operations at[32-33] and[52-53].

[17] Zuijs v Wirth Bros Pty Ltd [1955] HCA 73; 93 CLR 561 (Zuijs) at [571-573]; Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; 160 CLR 16 (Stevens) at [9] and [15-20], per Mason J.

[18] Personnel Contracting at[73].

[19] ZG Operations at[69] and [105].

[20] Australian Mutual Provident Society v Chaplin and Anor (1978) 18 ALR 385 at [391]. See also Neale (DFC of T) v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at[425].

[21] On Call [2011] FCA 366 at [105] and [253].

[22] Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at 515, cited with approval in On Call at [283].

[23] On Call at [253].

[24] World Book (Australia) Pty Ltd v FC of T 92 ATC 4327 at [4334].

[25] For example, in Stevens.

[26] Hollis at [54]

[27] Roy Morgan (2004) SASC 288at [42].

[28] Hollis at [4520].

[29] Stevens at [12].

[30] ZG Operations at [88].

[31] Hollis at[56].

[32] On Call at [290].

[33] [2015] FCAFC 37.

[34] Personnel Contracting at [58], [63], [127] and [184].

[35] Personnel Contracting at[66].

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