The Case

Tattsbet Limited v Morrow (2015)

In 2004, Tattsbet engaged Ms Morrow as an independent contractor. She worked as the operator for its Moorooka agency. In December 2005, she became the operator at Tattsbet’s Logan Central agency (the Agency).

She had been engaged under consecutive independent contractor agreements, but in November 2011, these agreements were terminated.

Ms Morrow commenced proceedings in the Federal Circuit Court, alleging, among other things, that she was wrongfully engaged as a contractor in breach of section 357 of the Fair Work Act 2009 (Cth) (FW Act). That is, Ms Morrow claimed that she was an employee and that the independent contracting agreements had misrepresented her employment.

The Verdict

In the first instance, the Federal Circuit Court applied the entrepreneurial approach (i.e. it examined whether Ms Morrow was operating her own business or working for Tattsbet as an employee) and found that Ms Morrow was an employee.

However, Tattsbet appealed to the Full Federal Court, which held the arrangement had been properly characterised as an independent contracting arrangement.

The Full Court rejected the application of the entrepreneurial approach, indicating that the correct approach was the multi-factorial test, whereby it is necessary to assess the “totality of the relationship.”

The Full Court said the relevant question was not whether Ms Morrow was an entrepreneur operating her own business, but whether she was an employee. It noted that, so far as Ms Morrow’s actual work at the Agency was concerned, there was little difference between her position as a contractor and that of an employee manager.

In other words, because working in someone else’s business could look the same as working in your own business, other factors must be considered.

The Full Court held on balance that the following features meant Ms Morrow was a contractor:

1. The Agency Agreement (and the three previous and similarly worded contracts) that Ms Morrow signed expressly stated that she was an independent contractor. The Full Court said this was significant in that it clearly reflected the intentions of the parties in entering into the agreement and Ms Morrow clearly appreciated the difference between being an employee and being an independent contractor. Indeed, Ms Morrow had structured her arrangements so that they conformed to that of an independent contractor. She had done this by:

• • acting as an employer – she employed staff, paid workers’ compensation premiums, was an active member of her employer association and negotiated an enterprise agreement with her employees; and
  • engaging in the taxation system as a contractor, meeting her regulatory obligations in relation to the Goods and Services Tax (GST), submitting Business Activity Statements (BAS), remitting tax and claiming input tax credits.

2. Ms Morrow was engaged to operate the Agency and she was paid according to the value of the transacted business. Ms Morrow was not required to personally perform the work and was free to employ others in the business.

3. Ms Morrow’s net personal income was approximately one-third of the gross remuneration received from operating the Agency. The Full Court held that where there is a greater divergence between the overall remuneration to the person and their personal net income, it will be harder to conclude that the essence of what is being paid for is the work and skill of a person (which is the essence of an employment relationship).

The Lesson

The decision confirms that a multi-factorial test should be applied when determining whether a person is an employee or an independent contractor.

This means there is no single factor, such as whether a person is working as an entrepreneur in their own business or the business of someone else, that will determine whether or not the person is an employee. Rather, you must consider the relationship as a whole, including:

• whether the contractor is required to undertake the work themselves or can engage others to perform the work;
• whether there is an agreed written contract between the parties characterising the relationship; and
• how the person engages in the taxation system, e.g. do they pay workers’ compensation premiums or remit BAS?

Determining whether a person is an employee or a contractor is not a simple task. When engaging contractors, give careful consideration to ensure the relationship is properly characterised.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.