[21.1.1] What is the difference between a contract for service and an employment contract?

The law of contracts is discussed in chapter 5. Employment law is primarily based on contract law, but it has been substantially affected by common law and legislative changes. One of the key issues in employment law is whether a person is an independent contractor or an employee.

A contract for service is a contract where one party agrees to provide a service to another, usually for a fee. Contracts for service are normally for a specific and defined task. When the task is completed and paid for, the contractual relationship comes to a close. The providers in such contracts for service are referred to as independent contractors.

In the healthcare context, professionals are often contracted by institutions to provide services, such as visiting medical officers and nurse practitioners to hospitals and nursing homes. These contractors are responsible for their own equipment, entitlements and insurance. Doctors employed by their own companies (usually set up for superannuation purposes) who provide sessional or locum services for other doctors contract their services, even though the relationship can have all the appearances of the traditional employer–employee type: see [21.1.2].

An employment contract is a special kind of contract for service (sometimes referred to as a contract ‘of service’, rather than ‘for service’) for which the law implies a number of additional terms and conditions. Employment contracts create an ongoing relationship, rather than an agreement for a specific task. The agreement gives the employer the right to determine what work is to be done and to control the employee’s responsibilities. Greater rights are given to the employee to expect certain conditions of employment, such as types of leave, the deduction of tax from wages, and payment of workers’ compensation insurance. When an employment contract is created a number of extra rights and duties are created by both the common law and in legislation. Employment contracts are often coupled with a number of equitable duties which go beyond the express terms of the relationship, such as duties of good faith and duties to keep confidential information.

[21.1.2] Is there a test to determine whether a person is an independent contractor or an employee?

It is important to work out whether a person is an independent contractor or an employee, because the legal ramifications of each type of contract are quite different. It is not always easy to tell the difference, as there is no one test or indicia that can be used in all situations. The common law requires the contract to be examined holistically so that all the factors are considered. The primary issue of concern is how much power one contracting party has to control the other’s behaviour (the control test). Nielsen (2006) summarised the common law approach as follows:

Because the common law test is not easily applied across the board, fear is sometimes expressed that some people might be forced into being independent contractors rather than treated as employees, where they would have greater common law and legislative protections. Some states responded to these fears by creating ‘deeming laws’ that gave the government or industrial relations committees the power to deem certain workers employees, even when their contracts classed them as independent contractors.

The federal government has now overturned these laws in the Independent Contractors Act 2006 and the Workplace Relations Legislation Amendment (Independent Contractors) Act 2006. The states can no longer deem contractors to be employees. The effect of these federal statutes has been to return to the common law test of whether a person is an independent contractor or an employee. To counter criticisms that this may have a deleterious effect on some employees who might be coerced into becoming independent contractors, the federal government has created a number of new offences against ‘sham contracting provisions’. Penalties apply to employers who knowingly seek to disguise employment relationships as independent contracting arrangements, or who mislead and deceive employees into becoming independent contractors. It is also an offence to sack or threaten to sack a person in order to coerce them into becoming an independent contractor when performing substantially the same work.

[21.2.1] What terms are implied into employment contracts by the common law?

The common law implies a number of duties for employees, including:

The common law implies duties on the part of employers, including:

[21.3.1] What laws govern industrial and workplace relations in Australia?

Since Federation, jurisdiction concerning workplace relations have been shared between the state and federal governments. The federal government’s laws were primarily based on its constitutional power of conciliation and arbitration. The main federal law is the Workplace Relations Act 1996. This Act allows for the creation of federal awards, enterprise bargaining agreements and Australian workplace agreements (AWAs).

An award is an instrument that legally sets the minimum terms and conditions of employment in an area. It was ordinarily created through a process of collective bargaining where a log of claims was brought by a union and rejected by an employer, which then led to an arbitration and conciliation process before an arbitration body, such as the federal Australian Industrial Relations Commission or the New South Wales Industrial Relations Commission. The decision (the award) then set the terms and conditions for employment in that entire industry.

Enterprise bargaining is smaller in scale and applies to agreements made directly between the employer and the employees regarding the terms and conditions of employment. Agreements can be made with a majority of employees. In most states, and previously in the federal law, conditions under enterprise bargaining could not disadvantage the employees involved. However, as discussed below, under the new federal laws this has now been changed.

Australian workplace agreements are one-on-one contracts between an employer and an employee. Unions cannot be a party to the agreement. They exist to the exclusion of awards and state enterprise bargaining agreements and (in most cases) federal enterprise bargaining agreements.

Each state has its own system for the setting of pay and conditions, either through awards or through enterprise bargaining agreements (apart from Victoria which referred its power to regulate labour to the federal government in 1996, reserving the power to control the employment of Victorian public servants). Queensland also recognises AWAs (referred to as Queensland workplace agreements).

Table 21.3.1 summarises the basic principles under the state systems (barring Victoria). Each jurisdiction has it own awards and enterprise bargaining systems.

TABLE 21.3.1 State systems of industrial and workplace relations

In 2005 the federal government brought in a number of sweeping changes to workplace relations regulation and began to base its control over workplace relations on its power to regulate corporations. The High Court upheld the constitutionality of this use of power: New South Wales v Commonwealth of Australia [2006] HCA 52. As such the federal government now regulates employment in all trading corporations, financial corporations and foreign corporations. It also controls employment regulation in the ACT, the Northern Territory and Victoria.

Employees who are not covered by the new federal system are those outside the ACT, the Northern Territory and Victoria and those whose employment situation involves unincorporated employers, such as sole traders, partnerships and state government departments. State health departments and area health services do not come under the new federal system. Private hospitals, hospices and nursing homes are regulated by the new system (assuming that they are incorporated).

There are also a number of excluded matters for which the federal government does not wish to regulate. They include some types of discrimination, workers compensation, occupational health and safety, long service leave, child labour and jury service. These laws remain regulated by the states.