Employee or Contractor? It’s The Legal Contract That Matters - Jaide Law

Employee or Contractor? It's The Contract That Matters

The Risks of Using a Template Legal Document

In this post-Covid society and with the prevalence of working from home, its no wonder than many businesses have fallen foul of correctly classifying their staff as employees or contractors.

It’s an important question to get right for business owners. Misclassifying an employee as a contractor is not only in breach of the law, but it could be costly too, as it exposes a business to risk of a fine of up to $82,000 and an order to back pay the worker their entitlements, such as superannuation (ouch!)

Determining the correct answer has never been a straightforward task for business owners. However, now, in two separate rulings, the High Court has set a new, simplified, approach to answer the question.

The Previous Approach: Review the Relationship in its Entirety

Legal Contract Between Employee and Contractor

Historically, the courts would review any existing legal contract and the behaviour of the parties to determine the total nature of the relationship (i.e. if it looks like a duck and quacks like a duck, it must be a duck).

This approach meant the court would consider the day-to-day reality of the parties, which, as you can imagine, was a complicated endeavour (especially when a contractor had been working for a business over a number of years or had a changing role).

New Approach: Read the Legal Contract

Now, where there is a written agreement in place which sets out the rights and obligations of the parties, the court will mostly restrict themselves to determining the nature of the relationship based on what is stated in the contract.

In a practical sense, as it is likely the contract will be drafted on behalf of the business, this puts the power of defining the relationship in the hands of the business.

However, don’t be tricked into thinking that this means you can simply label a worker a contractor in their agreement and that will suffice. The contract must still reflect reality; if it is found to be a sham contract, or the terms are not wholly in writing, the court may still examine the conduct of the parties to determine the relationship.

What Should Businesses Do?

This change means it’s time for businesses to review the arrangements they have in place with their contractors. If you don’t have a contract in place, it’s more important than ever you get one properly drafted which accurately reflects the nature of the relationship you have in place with your staff (not only to avoid the penalties, but to ensure that everyone is on the same page regarding the role and its requirements!)

If you’d like to chat further about this, feel free to email us (or take a look around the website, to find out more about the firm). We can review your current contracts or draft new contracts for your business, in light of these developments.

*Disclaimer – We know most of you would realise this, but we wanted to reiterate that the above information is general in nature and does not take into account your personal circumstances. Information may also become out of date due to changes in legislaiton and due to the evolution of case law. Legal, and other, information should not be relied upon in lieu of seeking appropriate professional advice, which we encourage you to do.