GeneralRecruitment

Employment Law: Back to Basics

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Our clients’ often come to us with questions that go to the heart of the employment relationship, and we are continually surprised that experienced business owners do not understand the basic legal principles and laws underpinning the employment relationship. We will be dedicating the next 6 issues of our client alerts to a series on the Basics of Employment Law. These alerts are designed to give our readers a basic understanding of the most important and relevant employment law principles and rules applicable to their employees, so that decisions can be made with a better understanding of the legal requirements. We will be covering the following topics:

  • Who is an employee;
  • The types of employment;
  • The employment contract;
  • The Fair Work Act 2009 (Cth) and The National Employment Standard
  • Modern Awards and Enterprise Agreements; and
  • Termination of employment.

This week’s alert will focus on the question of who is an employee?

Who is an employee?

At any one time, a business may be brimming with different types of workplace participants. Usually, a business will employ individuals to perform work, or engage contractors to undertake specific tasks or provide specialised services. There may also be volunteers, work experience students, apprentices, or visitors. While employers, as business owners, owe duties to each of these workplace participants, these individuals are characterised differently with respect to the rights and obligations they owe and enjoy.

In particular, the employment relationship is distinct in several respects, namely that employees work in someone else’s business as opposed to, contractors for example, who work in their own business and provide services to others. There has been ongoing legal discussion and judicial examination with respect to the differences between an employee and an independent contractor. Traditionally, this has required careful consideration as to a number of factors including:

  • The amount of control a principal or employer has over the worker;
  • Whether or not the worker can refuse work;
  • Whether the worker is entitled to paid leave;
  • Whether the worker holds an ABN; and
  • How integrated a worker is within the business (for example, do they wear a uniform or otherwise display the business insignia on their work).

However, recently, in  ZG Operations Australia Pty Ltd v Jamsek [2022] HCA (“Jamsek”) and Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel”), the High Court re-examined this issue and held that the determination of the relationship as one of employment or independent contractor will largely depend on the written contract between the parties and how that contract is performed. We have previously written at length about this decision. Please refer to our article https://sasphire.com.au/contractor-or-employee/

For the purpose of this article, we will examine the key indicia of an employment relationship and why this is important. Firstly, an employment relationship is characterised by the following matters:

  • The employee provides his labour or service to the employer;
  • The employer pays the employee for that labour or service;
  • The employer is under the direction and control of the employer; and
  • The employee provides the labour or services for the benefit of the employer and not for their personal benefit.

Why is it important to know whether there is an employment relationship?

Employers and employees both owe specific obligations to one another. An employer has an obligation to pay the employee, ensure the employee has a place system of work, remit tax on behalf of the employee and under Australian law provide certain basic entitlements to remuneration, working hours, and leave. Employers also have vicarious liability for the actions of their employees, such that they can be liable for the wrongdoing of their employees while they are at work.

Employees also owe duties to their employer, such as a duty of care to perform the work and act in the best interests of the employee, to maintain the confidentiality of confidential information of the employer amongst other duties.

These duties and obligations are specific to the employment relationship and as such, are not necessarily owed by or to volunteers, contractors, interns and other workers. It is therefore vital for employers to understand whether there is an employment relationship at law, and ensure that it is properly recorded so that the legal implications are known and managed.

Failure to provide the necessary remuneration, penalties, leave and otherwise provide required employment benefits may result in an employer being in breach of the relevant legislative and other legal requirements. This can give rise to significant back-pay liability and penalties, not to mention tax liability. This is even more important now where the economic and technological environment is changing so rapidly. One of the current issues facing the courts is the question of workers in the gig economy and whether they are employees or not. This is such a vexed issue that the new Labor Government has stated that it intends legislating for the new gig economy, potentially creating a hybrid form of employment.

Types of employment

Employees come in many different shapes and sizes (and we don’t mean literally). Australian employment laws recognise three distinct types of employment being:

  • Full-time employment;
  • Part-time employment; and
  • Casual employment.

All of the above employees, are engaged with the employer in an employment relationship. What differs is the manner of engagement. Full-time and part-time employment is exactly as the terms describe, being employees who work for the employer either on a full-time basis of at least 38 hours each week, or a part-time basis for hours that are less than 38 hours each week.

Casual employees, however, are employees who have no fixed no of hours and no ongoing expectation of work. Casual employees are employees who know there is no firm advanced commitment by the employer to give them ongoing work. Employees who do have a regular pattern of work and who expect to continue to get work from the employer, despite being labelled casual employees may well not be casual employees. This distinction is important as casual employees are not entitled to many benefits available to other employees and the corollary being that if the employer gets it wrong, the employee, despite being labelled “casual” may well be entitled to the benefits of permanent employment.

Getting it right

Given the significant legal ramifications that may flow from incorrectly characterising a employment relationship, it is really important that employers know whether the people working for the business are employees, and if so what type of employee. Once this is ascertained, the employer can take steps to ensure they are complying with their obligations and put in place appropriate contracts, policies and procedures to safeguard against liability.

If you require any assistance or information in relation to this client alert, please do not hesitate to contact us.

This article is not intended to constitute, and should not be treated as, legal advice.

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