A Subtle Judicial Conversation About How to Define the Employee: Recent Cases on ‘Working in the Business of Another’

by Jill Murray

The contract of employment is the cornerstone of employment law: most of the protections devised by statute for workers are provided only to those with a contract of employment. This kind of contract is a creature of the common law, and is regarded as the binary opposite of the common law status of independent contractor. The need to distinguish between people who work under each of these forms of contract is critical in many other areas of law, including taxation and superannuation.

There is no black and white test which determines who is an employee: instead, the High Court has long supported a multifactorial examination of the whole of the relationship. One of the important factors in this examination is whether or not the worker is ‘in business on their own account’, or works in the business of another, as explained by the High Court in Hollis v Vabu [2001] HCA 44.

In recent years, a subtle judicial conversation has emerged about exactly how this element of the multifactorial definition should be construed and applied. Bromberg J, in the On Call Translators Case, argued that if the concept of ‘in business on their own account’ was an indication of the status of independent contractor, it would be a good idea to clarify and specify exactly what a business was for the purpose of determining the character of the contract at issue. To this end, Bromberg J re-formulated some of the language of the multifactorial test with a focus on the concept of entrepreneurship. He said the key questions were: was the person performing work as an entrepreneur who owns and operates a business, and, in performing the work, is the person working in and for that person’s business as a representative of that business and not of the business receiving the work. He augmented these fundamental questions with a detailed consideration of elements making up the concept of a business, including taking a risk in pursuit of profits, engagement in a ‘repetitive and continuous manner’ with purchasers of its services, the creation of good will via name, brand etc, development of tangible and intangible assets, and the use of business systems and so on.

Earlier this year, the Full Court of the Federal Court of Australia handed down its decision in Tattsbet Ltd v Morrow [2015] FCAFC 62. In that decision, an agent engaged to run a Queensland TAB was held to be an independent contractor. This decision overturned the original finding at trial that the agent was an employee of Tattsbet, despite the fact that she acknowledged her status as independent contractor and herself employed other staff who worked in the TAB. The trial judge had used Bromberg J’s On Call Translators case line of enquiry in reaching this decision.

Jessup J agreed with the appellant, Tattsbet, that the trial judge had applied the wrong test: in using Bromberg J’s formulation (broadly, whether or not the putative employee was in fact an entrepreneur), the wrong question had been asked. The legally correct question was, was the worker an employee? Jessup J argued that the focus on entrepreneurship could lead to confusion because it was possible for someone to work as an entrepreneur within the business of another.

Allsop CJ agreed with Jessup J’s conclusion that the TAB agent was not an employee, but he was less critical of the trial judge’s focus on whose business the worker was engaged in. The Chief Justice stated that there were sufficient indications of the worker’s status (especially the fact that she was an employer who set the wages and conditions of those who worked in the agency) so it was unnecessary to consider ‘whether a commercial enterprise as a going concern with employed capital and undertaking risk is being carried on…and the extent to which, as a matter of principle, an answer to such an enquiry is likely to be generally determinative.’

Allsop CJ emphasized the fact that in other circumstances, an employee may employ others without this indicating that the employee was in reality an independent contractor.

Also this year, the Full Court of the Federal Court delivered its judgement in the case Fair Work Ombudsman v Quest South Perth Holdings Ltd [2015] FCAFC 37, a matter which dealt with an attempt by the employer to ‘convert’ existing employees into independent contractors engaged through a labour hire company. North and Bromberg JJ held that this attempt failed: after their dismissal from Quest, no effective contract had been formed between the former employees and the labour hire firm. More significantly, the court found that a new contract of employment had emerged between the employees and Quest, which once again became the employer and hence responsible under employment law for the entitlements of its workers.

In their joint decision, North and Bromberg JJ applied the factors identified by Bromberg J in the On Call Translators Case to determine the status of the Quest workers. They stated that if an independent contractor is someone who operates a business, then it is necessary to look for the hallmarks of a business when determining whether or not a person is a contractor or employee. Here, the work of the housekeepers in the Quest serviced apartments demonstrated none of the true hallmarks of a business as identified.

The common law of employment has long wrestled with the concept of the employee, and Parliament in Australia has shied away from legislating a statutory definition which might resolve some of the problems. Instead, in Kirby J’s phrase, we have a borderland between the clear polar opposites of employee and independent contractor. These recent cases show that the law is still evolving, particularly in relation to the characterisation of and weight to be accorded to the nature of the business being carried on the worker.

Suggested Citation

Jill Murray, ‘A Subtle Judicial Conversation About How to Define the Employee: Recent Cases on ‘Working in the Business of Another’, Law and Justice, 11 September 2015 (La Trobe Law School Blog, http://law.blogs.latrobe.edu.au/)

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