A statutory definition of employee will be included in the FW Act which will assist in determining whether someone is an employee or contractor. The definition refers to an examination of the ‘real substance, practical reality and true nature of the working relationship’. This will overrule the decisions of the High Court in the Personnel Contracting and Jamsek cases (see our previous article here) where the High Court emphasised the importance of contractual terms when characterising workplace relationships.
Under the new definition, both the terms of the contract, and conduct (irrespective of the contractual terms) will be relevant in determining whether a person is a contractor or employee.
This provision creates a legislated ‘multi-factorial’ test previously used prior to the High Court decisions to determine if there was an employer and employee relationship, which includes looking at how the contract is performed between the parties, rather than the terms of the contract.
The re-introduction of the multifactorial test will likely act as further a disincentive for organisations to engage independent contractors, which will likely have ramifications for the Australian economy and individuals who prefer to work for themselves.
The Bill also provides independent contractors the right to apply to the FWC to resolve disputes regarding unfair contract terms, where the contractor earns below a specified contractor high income threshold (to be set by the Fair Work Regulations) and the dispute is regarding a term in the agreement that relates to a ‘workplace relations’ matter. The FWC must consider a number of factors when determining whether a contract term is unfair, such as the bargaining power and any significant imbalance between the parties to the contract and whether the term imposes any condition that is ‘harsh, unjust or unreasonable’ on either party, as well as any other matters the FWC considers relevant. If the FWC finds that a contract term is unfair it can order that the term be changed or set aside all or part of the contract.
While independent contractors can already access the general protections jurisdiction within FWC, this marks a significant change to the avenues an independent contractor can pursue should they believe a contractual term was unfair, whereas previously such a matter would have been dealt with as a contractual dispute in a relevant court.
Finally, sham contracting defences will be tightened to remove the ability for employers to rely on the fact they did not know the individual should have been an or did not act recklessly. The relevant test will now be one of ‘reasonableness’ which will be determined objectively. That is, the employer must prove that they reasonably believed that the contract was a contract for services (and there was no employment relationship) to have a defence against a sham contracting claim.