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Employment law: employee v independent contractor.

There are many ways that a person can be employed. Two of the major ones are as an Employee and as an Independent Contractor. This distinction is important because each has different obligations under the law. It is a purely legal distinction.

An employee has a Contract of Service. The employee works exclusively in the business of the employer, under their direction and control. An Independent Contractor has a Contract for Service. They sell a service and so they can sell this to a number of employers. They have more flexibility and discretion as to how they carry out their work.

Let's imagine a Massage Therapy clinic where Mary and Helen are both employed as massage therapists. Mary works there full time and her boss directs how she does her work. Her boss has asked her to update the filing and check all the patient cards when there aren't any massages booked in. Mary gets paid a wage at the end of each week regardless of how many massages she has done. Mary doesn't need to bring her massage table or any towels and oils as they are all provided for her.

Helen works there too, but she only works Mondays and Wednesdays and on the other days she runs her own business. She has more discretion as to how she does her job. If she doesn't have any massages booked she can relax if she wishes. At the end of the week she submits her invoice to the boss and gets paid for each massage. She and the boss have an understanding about using the tables, towels and oils. Rather than Helen's bringing her own, the boss will charge her an amount for usage. This comes out of her pay.

Clients book in at reception to see either Mary or Helen and once their massage is over they pay the receptionist. As far as they can see Mary and Helen are no different. Legally they are very different. Mary is deemed to be an employee and Helen is deemed to be an independent contractor.

So what criteria do you use to work out which category a person falls into?

Control:: how much flexibility and discretion does the employee have in doing their job? Independent contractors have much more flexibility.

Intention of the parties: what did the parties intend the relationship to be?

Basis of payment: how is the person paid? Do they need to quote an ABN on their invoice ? Are they paid per task? If the answer is yes, it is likely that they are an independent contractor.

Ability to work for others: employees work exclusively for one employer and cannot work for others. Independent contractors can work for a number of employers. If the person is an independent contractor then they cannot work only for that one employer, The Australian Taxation Office will often view a person who works for one employer more than 80% of the time, as being an employee regardless of what they call themselves.

Provision of tools of trade: the employee will have all tools of trade provided for them but an independent contractor will need to provide their own or pay for them.

Commercial risks: an employee bears no legal risk in respect of work done while an independent contractor bears all the risk.

These points are guidelines only and each case must be reviewed independently. Regardless of what an employer has labelled you a court will always look at the facts to decide whether you are an employee or an independent contractor.

On 1 March 2007, the Independent Contractors Act 2006 (Commonwealth) came into force setting out rules covering independent contractors. If you'd like to read the Act and what it contains go to www.comlaw.gov.au.

One of the main reasons it is important to categorise a worker as either an employee or an independent contractor is the doctrine of Vicarious Liability. This is a common law doctrine and cannot be overridden by any employment contract.

The doctrine of Vicarious Liability states that an employer is vicariously liable for the torts of an employee even if they have no personal blame. An employer will never be vicariously liable for the torts of an independent contractor. Vicarious liability doesn't absolve the employee from legal responsibility; it merely shifts the burden of paying damages to the employer.

So how does this work in practice ? Let's go back to our example.

Mary was categorised as an employee and Helen as an independent contractor. They are both working in the clinic. Mary performs a massage without screening her client and ends up hurting him. Helen does screen her client but decides to perform a contraindicated sequence and ends up hurting her client as well. Both these clients can sue for negligence, and if they win they will be paid compensation.

Because Mary is an employee, her boss is vicariously liable for her. Mary is found guilty but her boss will have to pay for the compensation to the client. Usually bosses are insured for this. Helen however, is not so lucky. As she is an independent contractor, her boss isn't vicariously liable for her, so she'll have to pay for the compensation herself. Independent contractors need to have their own insurance.

Vicarious liability is one of the major benefits of being an employee. Your boss cannot then sue you to recover that money either. That is part of their responsibility to you.

Another important reason for the distinction is the possibility of the therapist's getting hurt at work. If the person is an employee they are entitled to workers' compensation, which pays benefits until the employee can return to work. This is compulsory for all employees. However, an independent contractor is not covered by workers' compensation, and if they get hurt at work they will need to have their own insurance to cover this.

Many massage and other complementary therapists are employed as independent contractors rather than employees. Look at how you are employed, as there are many implications for you. If you are unsure check with your employer.

Ingrid Pagura

BA, LLB

Ingrid is a part time teacher in the Massage Therapy department at Meadowbank College of TAFE and a trained lawyer She also works for a legal publishing company.
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Title Annotation:LAW REPORT
Author:Pagura, Ingrid
Publication:Journal of the Australian Traditional-Medicine Society
Date:Jun 1, 2011
Words:1048
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