Marshall Q&A – Topic 7: Who is an ‘Employee’?

Question: How do I know which workers are ‘employees’? What is the cost of getting it wrong?

Short Answer: Employees generally have more ‘permanent’ arrangements than other workers. Mischaracterisation can result in substantial backpay liabilities.

Key Takeaways

  • There are many categorisations of ‘workers’
  • Different types of workers get different benefits (pay rates, leave entitlements, etc)
  • Mischaracterisation leaves employers on the hook for unpaid benefits

The courts are regularly updating and clarifying the way that workers are characterised and how entitlements are calculated.  We are often asked by clients to help describe employment relationships and provide advice regarding worker entitlements.  In a constantly shifting legal landscape, getting the right advice is essential to achieving a desirable outcome.

Who is an Employee?

Workers come in many forms.  Casual and permanent employees, contractors and subcontractors, labour hire, and volunteers are just a few.  Each category provides labour but is subject to different rules and entitlements.  For example, casual employees attract extra pay in lieu of the leave entitlements afforded to permanent employees.

The difficulty arises when contracts describe the worker as belonging to a particular category, but the conduct of the parties suggests otherwise.  A recent decision (Jamsek v ZG Operations) has determined that two truck drivers, who worked for a company as contractors over an extended period, were actually permanent employees.  In making this determination, the court considered (among other things):

  • the long uninterrupted period of service;
  • the day-to-day control by the Company; and
  • the absence of the workers’ ability to generate goodwill for their own business.

Despite the workers being explicitly defined as ‘contractors’, the court held that they were entitled to the benefits of permanent employment.  The Company owed them compensation for benefits which had accrued over more than 30 years.

In the end, it does not matter how the parties describe the relationship.  If the traits of a permanent employee can be established, then courts will enforce minimum standards.  The more ‘permanent’ a worker’s arrangement is (length of service, regularity of work, expectations, and certainty, etc.), the more likely that they are an ‘employee’.

And if I get it wrong?

Another recent case (Workpac v Rossato) considered the extent employers are liable for benefits a worker misses out on due to their mischaracterisation.  The case concerned a ‘casual’ employee, who had been earning an extra 25% loading in lieu of leave entitlements and was subsequently determined to be a permanent employee.

The court held that permanent employees are entitled to their benefits as a right, and so compensation for these missed benefits was not able to be set off by the higher wages they earned as a casual employee.  Ultimately, this left the employer on the hook for not only the higher wage already paid to the worker, but also for the benefits they would have received as a permanent employee.

So how do I avoid mistakes?

Courts consistently confirm that employment relationships are characterised by how they function in practice, not by how they are described on paper.  This makes them very easy to mischaracterise and doing so can mean an expensive ‘double-dipping’ payout for the employer.  To avoid making a costly error, it is essential that employers understand the dynamics of the working relationship and implement safeguards to protect their interests.  There will not always be an obvious answer, so seeking expert advice can provide an extra layer of protection.