Beware of the “employee” relationship

Whilst not as exciting as talking about a workplace affair, there are two recent developments in relation to the employer/employee relationship that should prick the ears up of every business owner and manager. Casuals are no longer casual, and sub-contractors (despite having their own machinery etc) could very well be deemed employees. The impact could mean employers have to pay billions, and the rules have of course been backdated.

Receiving less publicity than the casual “double dipping” ruling (see below), the high court last month ordered a company to back pay two contractor truck drivers for unpaid leave and superannuation entitlements, despite the contractors having been hired through independent contractor agreements since 1986. The key points to be aware of are:

  • The contractors were originally employees (commenced in 1977), and rather than be made redundant, they were offered to set up their own company, buy their own trucks (including paying all ownership and running costs) and sign a subcontractor agreement.
  • Despite the head company changing ownership several times over the nearly 40 years, the court deemed there to be a continuing employment arrangement. The contract changed on numerous occasions, with one contract in 1993 for instance giving payment for a minimum of 9 hours per day (even if they worked less), and allowances for annual leave, public holidays and sick days. The continuity was upheld despite that during some periods, there was no contract in place, due to expiry or change of ownership.
  • The sub-contractors were required to complete some paperwork in accordance with the employer’s processes (such as run sheets, scan delivery dockets etc). During some periods (but not always), they were also required to display the employer’s logo on their vehicles and/or wear their uniforms.
  • The contractors were mainly engaged by this one employer, and as such had limited opportunity to influence the price paid and profitability they could achieve. It also meant no goodwill was being generated, and hence the “business” was not saleable (other than the physical assets).
  • Even though the sub-contractors had the right to work for third parties, and despite having certain control over how and when during the day they performed their work, the contract required them to work at certain times (for instance be available a minimum of Monday to Friday, 6am to 3pm).

Whilst I don’t know the required payout figure, having to backpay 34 years of leave entitlements (despite this having been included in the contract rate) is a very significant cost, enough to send companies broke. Another implication could be that the contractors full pay rate (not just the employee cost) gets added to any payroll tax requirements.

So what can you do? I’m not a lawyer, and all circumstances are different. Employers can’t change the past (unlike, it seems, courts/Governments can), but for the future:

  • Ensure any sub-contractor arrangements are at arm’s length, that is, they set their own charges, have their own processes and methods so they can influence the profitability of the job. In some cases, this means paying for an outcome (move Xm3 from A to B) rather than on say an hourly basis.
  • Any Sub-contractors do not work solely for one employer.

The casual “double dipping” ruling by Fair Work against Workpac will also change the employer/employee relationship. Like the above situation, it has opened the flood gates to an estimate $8 billion in back pay penalties. Key features on this ruling were:

  • Despite the person being paid 25% in pay loadings in lieu of benefits (such as annual leave, personal/carer and compassionate leave), because the person worked regular shifts rostered in advance, they were deemed to be permanent employees. (step 2 will no doubt be actions to increase the pay of the permanent employees by the equivalent 25% they “missed out on”).
  • The employee was employed as casual labour hire for a mine site, and Workpac had 6 contracts with their customer during the 4 year tenure of the employee, but the court still ruled there was continuity and “a firm advance commitment” to the days and hours of employment.

As there are 2.6 million casuals in Australia with an estimated 1.6 million of them working regular shifts, this will have many unintended consequences. This decision will deter employers from taking the risk on employing casuals (that often lead to full time opportunities). For many people, especially the young entering the workforce, this is a good way for both parties to have employment flexibility. There were already requirements on employers to have to offer a permanent position at each 12 months of employment.

So what can you do?

The push is clear from Fair Work, lawyers and Unions: don’t employ people on a casual basis. In reality though, there are many instances when casual employment is required. In these cases, make sure:

  • Hours are not fixed, but variable. Change days of work and start/finish times as well as length of shift.
  • Some days, that will mean that shifts are cut short/extended on the day. It may also mean shifts are cancelled (if there is no work), or they are called on to work extra days (job runs over time, more work has come in). This means the employee has the same flexibility too though, i.e. the option not to work.
  • Whilst not ideal for either party, it might mean having a policy that casuals must become permanent employees at the 12 month mark or leave the company.

Much as I’m sure you would have preferred this column to be a saucy tale of managing a workplace affair in a backroom cupboard, it’s a frightening real-world suspense story still unfolding in front of what should be a captivated audience. Sadly, too many people are too disengaged to do anything until it will be too late. Both the above rulings show a shift in our society to remove personal freedoms and stifle entrepreneurism. With Union membership still declining in our society, these changes are cementing more and more people to work under regimented employment agreements. With our economy requiring a rapid COVID recovery, the above two rulings will severely impact on the flexibility employers will require to take on the risk of employing people. Not only are these changes wrong (the employers were paying allowances to compensate for leave etc, and now must pay a second time) and a disadvantage to both people and employers, they create uncertainty and risk. I don’t know many, if any, business that could cop having to back pay 25% of the cost of their current and past employees back to some unpredictable date, and therefore sincerely hope our Governments can see the disastrous implications of back dating changes to employment conditions (or indeed any other areas).

As always, onwards and upwards!

Fred Carlsson

General Manager

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