In a recent decision, the Federal Circuit Court of Australia (FCCA) found that a number of actors were engaged by a production company as independent contractors, not employees.
This decision highlights the various complexities in determining whether an individual is legally classed as an employee or an independent contractor.
The actors were engaged as part of a theatre and educational show funded by the Victorian Government for the commemoration of the ANZAC Centenary.
During a 12-month period, the actors performed at a number of shows. They would typically be given 4 weeks’ notice of the performance schedule. The actors also collaborated during rehearsals and made variations to the performance script.
Other relevant factors included that the actors:
- were responsible for their own public liability and WorkCover insurance;
- had their own ABN and invoiced the production company on a monthly basis; and
- were engaged in other work during the period they provided services for the production company.
The FCCA had to take a ‘multifactorial’ approach by evaluating the actors’ total system of work and work practices to determine if they were engaged as employees.
This involved establishing:
- if the individuals could be said to be operating their own business;
- the amount of control the ‘principal company’ had over the individuals; and
- whether the individuals could delegate the services.
The multifactorial principle required the Court to weigh up the various known facts, with no single factor being treated as determinative.
One factor that may have weighed in favour of the actors being employees was that it was unclear if the actors were running businesses on their own accounts.
A person operating their own business will benefit from its goodwill, whereas an employee will not.
However, the Court also noted that while some of the goodwill was attached to the production company, the actors’ performances gave them an opportunity to grow their own reputation (in which it could be said they were deriving some goodwill).
The fact that the actors didn’t have an express authority to delegate services also supported that they may be employees.
A contract requiring the individual to provide services personally is usually a feature of an employment relationship, although the Court did observe there was no express prohibition on delegation and the actors were able to propose understudies for the role.
Considerations that weighed against the actors being employees included the terms of the contract, which the Court said was geared towards the amount of work the Government required of the production company. Nevertheless, this did not prohibit the actors from engaging in other work during the period of the contract.
The contract also stated the intent of the parties, which was to enter into a relationship of principal and contractor, and that the fees would be invoiced monthly without being subject to PAYG. This also supported the finding of a principal/contractor relationship.
An important principle the Court stated was that all of the factors did not form a checklist, but were considered individually, as the weight of each factor may vary from case to case.
After the Court weighed these relevant factors, they determined that the parties’ relationship was that of independent contractors and principal.
Lessons for employers
The principles regarding whether an individual is engaged as an employee or a contractor are complex. There is no single test or principle that will definitively answer the question as to the relationship between the parties.
However, getting it wrong carries substantial risks for a business.
Claims by individuals may result in back-pay of underpayments, annual leave entitlements superannuation and other entitlements afforded to employees under the Fair Work Act.
Furthermore, a business may also liable for penalties, including for sham contracting (a misrepresentation to an employee that they perform work as an independent contractor).
If you have any questions in relation to the above, please do not hesitate to contact our accountants and lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.