For both business owners and workers alike, there is often a conundrum as to whether a worker is an employee or an independent contractor. RMB Lawyers Partner CHRIS SHEPPARD explains that it is an important distinction.
The lines between employees and independent contractors often become blurred, with financial consequences for individuals and businesses.
Most importantly, employees are entitled to paid leave, long service and superannuation.
In March 2019, the Federal Court of Australia heard the case of Moffet v Dental Corporation Pty Ltd.
In 2007 Dr Moffet sold his dental practice to Dental Corporation and was then engaged by it to provide dental services under a service agreement. After their written agreement ended in 2012 Dr Moffet provided further services for about two years. He then resigned and claimed that he had been bullied by key staff that had impacted on his mental health.
Dr Moffet brought a case alleging that during the period he provided services to Dental Corporation, he was in fact an employee, not a contractor. He sought the back payment of annual leave, long service leave and superannuation.
Ultimately, the Court found that he was a contractor, not an employee and was not entitled to annual leave or long service leave.
However, Dr Moffet’s claim for superannuation was successful. The Court found that the agreement between Dental Corporation and Dr Moffet was a contract that was wholly or principally for the labour of Dr Moffet within the meaning of the Superannuation Guarantee Act. For the purposes of this Act ,Dr Moffet was effectively considered to be an employee and Dental Corporation had breached its obligations in not paying Dr Moffet's superannuation entitlements.
The Superannuation Guarantee Act extends the application of the Act to "employment-like relationships", such as that entered into between Dental Corporation and Dr Moffet.
The case is important for businesses and workers to consider. If a business does not pay the minimum amount of the Super Guarantee for its employees into the correct fund by the due date, it may have to pay a penalty.
Further, a director of a company that fails to meet a Super Guarantee liability in full by the due date, automatically becomes personally liable for a penalty equal to the unpaid amount.
This decision highlights the ongoing potential for adverse consequences that may arise from the use of independent contractor agreements entered into by parties without specific and or tailored legal advice.
If you are a business owner or contractor in a similar position and have a question, please contact us. We'll be able to help you via a quick phone call, or ask us a question via email.