Question:
Assignment Question
Lou, the owner of a tea wholesaling company, decided about a year ago that product quality of some imported sources was too variable. To improve consistency of the product Lou decided he would employ someone to test samples of imported product and grade them. His retired Uncle Jim came to mind. He was a food scientist and using his skills would also assist him by keeping him busy.
Lou approached Jim with an agreement titled Contract for Services, devised by the company’s lawyer. It involved Jim agreeing not to be an employee and to have his own incorporated consulting business. The agreement included a clause suggesting he was not permitted to delegate any of his responsibilities at the tea company to another unless he got Lou’s approval. The agreement also stated he would be paid a set fee for each day he came to the warehouse and worked and a monthly pay date. Although not mentioned in the agreement, Jim was to pay his own taxes and make his own superannuation contributions. He was supplied with a warehouse uniform and all the equipment he required to perform his scientific analysis.
Jim worked from 9am to 5pm Monday to Friday for eight months without a day off and then suffered a serious heart attack. His daily routine at work had involved him checking in with Lou for instructions on the day’s work, Lou’s oversight of his progress during the day and an assignment of administrative support to support him at particular times. Toward the end of the financial year Jim was asked to supervise a couple of juniors in stocktaking processes, for about four weeks, but he had otherwise stuck to his scientific analysis.
One of the policies Lou added to the Employee Handbook last year was an anti-bullying policy. The policy required a particular procedure to be followed if bullying was detected by any member of staff, and indicated management would treat the behaviour, if confirmed on investigation, as serious misconduct and it was likely to result in disciplinary procedures being taken. The policy was not included in staff contracts but they were all alerted to it on commencement of their engagement. Jim had reported the two juniors he had supervised as bullies just before his heart attack. He made a written complaint stating their language was repeatedly demeaning to him and their regular slapping of him on the back was so aggressive it upset him to the point he was ready to resign. Lou was aware of his issues with the young workers and wonders what he is required to do now that Jim is convalescing and may not return to work.
Advise Lou whether
Issue
The case presented deals with the employment contracts. The issues in the case are the validity and the recognition of the contract for services between the employer Lou and the independent contractor Jim. There are three relevant issues in the given case. Firstly, whether the employment contract between Lou and Jim is evidently a contract for services or that Jim is an employee in accordance to the common law. The second issue is that whether Lou is bound under the Employee Handbook provisions with regard to the complaints on bullying and thirdly whether Lou breached the duty to care for Jim under the common law.
Employment contracts can be of two types. They are either contract for services and contract of services. An employee is one who works for another person in return of wages. This is contract of services. When the contract is one where the person has an independent arrangement for the contract and he performs his duty independently. This is ‘contract for services’.
Since independent contractors have a separate contract with the employer they are not covered under the minimum standards or the workplace agreements such as the Fair Work Act 2009 (Cth) or the Workplace Relations Act 1996 (Comlaw.gov.au, n.d.).
The relationship between employers and independent contractors is dependent on a number of things. First, the relationship centers around one particular work. Second, the hirer has the duty to care as a result of the liability arising and finally the hirer would not have vicarious liability for any act which is done by the independent contractor.
In Australia, the Independent Contractors Act 2006 rules the laws relating to independent contractors. This act is based on the rules of common law (Blanpain, Nakakubo & Araki, 2010). The common law sets out a number of principles based on the decisions of the court in order to determine whether the contract is for services or of services. Under the common law there also exists a multiple factor test according to which the court decides whether a worker is an employee or an independent contractor.
The work of an independent contractor is usually based on the achievement of the required results and maintenance of high discretion and performance in work. However, in contract for services generally the rules and regulations which is required is specified and also the procedure that is to be followed (Blanpain, Nakakubo & Araki, 2010). Some of the elements that differentiates between contract of services and contract for services are that the even though both relations are mutual contract for services is exclusive as they have different rights and obligations for tortuous and fiduciary liabilities. Further in contract of services the employees have more rights than independent contractors (Gollan, 2004).
Under the common law, the multiple factor tests are primarily the decisions of the courts which are determined based on a number of factors. These factors include the risks and liabilities, the expenses in business, the site of work, various employment obligations and entitlements, the express label given to relationship and the mode of remuneration (Le Global, 2014).
In the given case, the term used for the contract between the parties is contract for services. However, there are a number of factors that is required to be considered. For determining whether a particular worker can be considered as an employee or an independent worker usually the Australian justice system focuses more on the relationship and substance and less on the label that has been given to the relationship (Jinman & Beevers, 2013). Therefore, under such circumstances where it has been mentioned that the worker has been considered as a independent contractor even then the court after applying the multiple factor test consider it to be an employee – employer relation. Under this instance, the case of Stevens v Brodribb Sawmilling Company Pty Ltd (1986) (Stevens v Brodribb Sawmilling Company Pty Ltd, 1986) may be mentioned where the Australian High Court had stated that while determining whether or not any particular worker is an independent contractor or an employee the factors such as the mode of remuneration received or the deduction in the income tax rates or the delegation powers of the contractor or the provisions of maintenance of equipments. Again in the case of Air Express Pty Ltd v Langford [2005] (Australian Air Express Pty Ltd v Langford, 2005), the focus of the court was on the power of delegation. In this case the Court of Appeal had held that when a case is being determined on the bases of contract for services or contract of services, the entire relationship needs to be considered which depends on the number of things along with the right to delegate or substitute. This right of delegation is essential but cannot singularly decide on the relationship between the parties.
Further in another case of Swire Cold Storage Pty Limited v Pahi & Anor [2010] (Swire Cold Storage Pty Limited v Pahi & Anor, 2010), the decision of the Court of Appeal was that it is true that the hirer or the employer has the duty to care for the independent contractor as has been given under the common law. However, this duty of the employer is not co-extensive and dissimilar to that of the duty to care for the employees. Nevertheless, it must be noted that the employer does have certain obligation to care for the independent contractor.
In the given case, when the common laws on employment contracts are applied, what needs to be recognized first is the contract between employer Lou and independent contractor Jim. By the application of the common law test firstly it can be stated that the label given here in the case is contract for services. Second, since Jim had his own business on consultancy it can be said that the contract is with the company. Third, the permission to delegate the powers of Jim to another person was not given to him. In this regard, the case of Australian Air Express Pty Ltd v Langford (Australian Air Express Pty Ltd v Langford, 2005) may be mentioned, that this criteria is essential but it is not sufficient to prove the relationship.
Moreover, it needs to be considered that Jim was a skilled person and thus this nature of the work implies that he is an independent contractor under the agreement. Also in accordance to the employment contributions and entitlements, it is the employees who have tax deductions, superannuation contributions and the independent contractor does not avail these facilities (Moran & Sparkes, 1994). The nest important factor is the supply of the essential provisions. In the given scenario, Jim was provided with the ware house uniform and all other necessary requirements for carrying out his scientific examinations by the employer. According to the common law test, under most of the circumstances the independent contractor is required to the adequate investments with regard to the assets and tools and the equipments that is required for his work. In contrast, the employees are usually provided the tools and equipments from the employers.
The case of Marco Investments Pty Ltd v Amor [2004] (Marco Investments Pty Ltd v Amor, 2004) at [130]-[139] may be mentioned here where it was held by the court that when the person maintains his own equipments it generally signifies that the worker is an independent contractor. All the factors together decide whether the relationship is of employee or that of an independent contractor. Therefore after the examination on this relationship based on the common law test of multiple factors it can be stated that even though all the factors for employee relationship is not satisfied this relation is based on the employee – employer relationship.
The second issue in the case was regarding the procedure followed under the Employee Handbook and whether it was obligatory for Lou to consider Jim under the procedure for bullying complaints as given under the Employment Handbook. Here it is necessary to note that the contractual agreement between Jim and Lou was that of a contract for services. The Employee Handbook was based on the rules and regulations to be followed with regard to the employees in the organization. Therefore, since Jim was considered as an independent contractor under the contract agreement, he cannot be considered as an employee in accordance to the Employment Handbook. Hence considering the complaint on bullying, according to the contract Lou will not be bound to follow the Employment Handbook.
The final issue in the question was relating to the duty to care under employment contracts. The case of Swire Cold Storage Pty Limited v Pahi & Anor, may be mentioned. The case stated that the employers have a duty to care even if he is an independent contractor though such a duty may not be co-extensive. Further after conducting the multiple factor test it is proved that Jim was an employee and hence the duty to care increases for the employer. Lou has therefore breached his duty to care.
Conclusion
As concluding remarks it can be stated that in the given case Jim is an employee and not an independent contractor and Lou was not contractually bound to care for Jim. Nevertheless, he does owe a duty to care under the common law.
References
Australian Air Express Pty Ltd v Langford, NSWCA 96 (2005).
Blanpain, R., Nakakubo, H., & Araki, T. (2010). Regulation of fixed-term employment contracts. Alphen aan den Rijn: Kluwer Law International.
Comlaw.gov.au,. Independent Contractors Act 2006. Retrieved 18 February 2015, from https://www.comlaw.gov.au/Details/C2014C00218
Gollan, P. (2004). Australian Workplace Agreements: An Employer Response. Journal Of Industrial Relations, 46(1), 116-124. doi:10.1111/j.0022-1856.2004.00130
Jinman, P., & Beevers, P. (2013). Contracts of employment. Veterinary Record, 173(19), ii-ii. doi:10.1136/vr.f6897
Le Global,. (2014). Employees v Independent Contractors. Retrieved 18 February 2015, from https://knowledge.leglobal.org/wp-content/uploads/LE-Global-Annual-Publication-2014.pdf
Marco Investments Pty Ltd v Amor, SAIRComm 9 (2004).
Moran, K., & Sparkes, E. (1994). Contracts of Employment. Physiotherapy, 80(9), 629-631. doi:10.1016/s0031-9406(10)60893-0
Stevens v Brodribb Sawmilling Company Pty Ltd, 160 CLR 16 (1986).
Swire Cold Storage Pty Limited v Pahi & Anor, NSWCA 149 (2010).
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