Module 7 - Contract Law; Employer and employee Relationship Summary PDF

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Employees and Employers - SUMMARY NOTES Workers Most businesses need workers. Workers may be categorised as either employees or contractors. In general, an employee is a person who works for the business indefinitely for set wages while a contractor is a worker hired from time to time to perform specific tasks and is paid accordingly. Whether the business requires employees or contractors, or both, will depend on the needs of the business.

Topic 8.1 - Employee or Contractor? When hiring and managing labour, it is very important for business people to be clear about whether the workers of the business have been hired as employees or as contractors. Taxation, legal liability, insurance obligations and intellectual property rights will vary depending on the classification of workers. The degree of control over the worker is the main (but not the only) test for determining whether the worker is an employee or a contractor. The so-called ‘control test’ is commonly applied by the courts in determining whether a worker is an employee or a contractor. Under the control test, if the business paying for the services has the right to tell the worker not only what to do but how to do it, the worker is an employee. To put this another way, if the business may dictate all aspects of the work then the worker is most likely to be an employee. For example, a cashier at a department store is usually an employee, according to the control test, since the business operating the store may instruct the worker in all aspects of the performance of the work. By contrast, if a worker can expect to perform the work free from the supervision of the business then he or she is more likely to be classed as a contractor. For example, if a department store hires technicians to service its air conditioning system, the workers who perform the work are most likely contractors under the control test, as the business will not usually (and normally will not be able to) direct these workers about how to do their specific work tasks. The control test is the main consideration in determining whether a worker is an employee or a contractor but is not the only consideration. Consider the example of a computer programmer. Because of the technical and specialised nature of

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Enterprise Law Summary Notes – Employees and Employers

computer programming work, the business receiving the services of the programmer may not be able to instruct the programmer precisely how to go about his or her work. If the control test were the only consideration test then such a worker might well be categorised as a contractor. For this reason, other factors need to be considered before a conclusion can be drawn as to a worker’s status. These additional factors are summarised in the table below. If a court needs to determine whether a worker is an employee or a contractor it will examine the entire relationship between the employer and the worker using the matters listed below as a guide. The question is rarely, if ever, decided on the basis of one factor alone. Factors in considering whether a worker is an employee or a contractor

Employees

Contractors

Nature of tasks

Perform a continuing series of tasks under the direction and control of their employer.

Perform a specific task using their own discretion regarding how to complete the task.

Payments

Paid a consistent amount at regular intervals.

Paid a fixed amount that may vary according to the work done.

Hours of work

Work standard or set hours.

Determine their own working hours.

Provision of equipment

Primarily use employers’ tools and equipment.

Provide and maintain their own equipment or work from their own base.

Tax

Have income tax deducted by their employer.

Manage and pay tax themselves.

Delegation of tasks

Is not authorised to delegate tasks to others.

Can subcontract or delegate their work to others.

Employees

Contractors

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Enterprise Law Summary Notes – Employees and Employers

Entitlements

Entitled to superannuation contributions, annual and sick leave, workers compensation, etc.

Not entitled to paid leave, must acquire their own insurance and pay their own superannuation contributions.

Risk

Bears no financial or commercial risk and is not liable to remedy defective work (employer holds vicarious liability).

Bears the full financial and commercial risk of their work and can be held liable for defective work.

Vicarious liability for conduct of employees One important consequence of a decision that a person is an employee and not a contractor is that the employer is legally responsible for the conduct of their employees in the course of employment – but not for contractors, unless the employer has specifically instructed the contractor to do the act in question. If an employee commits a crime, or negligently injures someone else or damages property in the course of doing their job, then liability falls on the employer, not (usually) the employee. This legal responsibility for the actions of employees is called vicarious liability. There are two key aspects to this concept – the first is the question of whether or not a person is an employee – which we’ve already looked at above. Secondly, there is a question about what is and is not ‘within the course of employment’. This raises questions about whether the employee’s conduct was an unauthorised, but foreseeable, way of doing the employee’s work (eg, lighting a cigarette while delivering petrol and starting a fire). The employer would be liable when the employee does what the employer has authorised him or her to do, but has just done it in an unauthorised way - this is still considered to be within the course of employment. Another way to determine this question is to ask whether the employee was doing something related to his or her normal work – or was it unrelated? If the act that caused the injury or other damage is so closely related to the employee’s normal work that it could be considered to be a mode, or way, of doing that work (just not very well!) then that will be within the course of employment and the employer will be responsible for it. There is also a presumption that if a vehicle belonging to the employer is involved (being driven by the employee usually) that whatever has happened is within the employee’s scope of employment. The presumption may be rebutted – or disproved – but it increases the burden on the employer to prove the vehicle was not being used in the course of employment.

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Enterprise Law Summary Notes – Employees and Employers

There are several case examples involving shoppers being detained by store employees on suspicion of shop-lifting, but later being cleared. If the shopper successfully sues for false imprisonment, then the store - as employer - will be vicariously liable for their employee’s actions because it is within the scope of their employment, or at least directly related to it, to be on the lookout for shop-lifters. 1 If the employee was doing something quite unrelated to work when the incident happened – if the employee had gone off on ‘a frolic of their own’ as some of the cases rather quaintly put it – then the employer will not be liable for the employee’s conduct. Case examples include delivery drivers going a long way outside their assigned route for a personal reason (giving a friend a lift or visiting a family member)2 and a waitress throwing a glass at a customer,3 and bouncers assaulting customers in the course of removing them from clubs/hotels. 4 All of these situations have been held to be outside the scope of the employee’s authorised work, and those employees were liable for the damages personally – their employer was not vicariously liable. Employers can minimise vicarious liability by: 

ensuring that employees are properly trained in their work and have access to the resources they need to perform their tasks properly

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training employees to take care in performing tasks which may lead to harm to a member of the public or their property

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providing written policies, procedures and job descriptions to all employees

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establishing an internal complaints and dispute resolution process

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ensuring that appropriate action is taken to address workplace issues effectively.

Ownership of Intellectual Property Another legal consequence of being an employee is that your employer will own the rights to any intellectual property that you create within the scope of your employment. This ‘scope of employment’ issue is decided along quite similar lines to 1 Myer Stores Ltd v Soo [1991] 2 VR 597; Coles Myer Ltd v Webster [2009] NSWCA 299. Cases of this sort often also raise questions about defamation of the victim. The police are protected by legislation for their roles. 2 Storey v Ashton (1869) LR 4 QB 476.

3 Deatons Pty Ltd v Flew (1949) 79 CLR 370. 4 Day v Ocean Beach Hotel Shellharbour Pty Ltd 92013) 85 NSWLR 335; [2013] NSWCA 250. 4

Enterprise Law Summary Notes – Employees and Employers

the same concept in the context of vicarious liability. For intellectual property (copyright, patents,etc) factors in deciding whether work was done within the scope of employment or not include: 

Whether the work was done within business or work hours (which is increasingly difficult to measure as 9 - 5 jobs are becoming less common);

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Whether the employers equipment or premises were used to do the work; and

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The relationship of the intellectual property to the usual work of the employee and what s/he was hired to do.

As an employer you need to make sure that if you have hired any contractors to do anything like writing or creating content or computer programs, inventing things or perhaps taking photographs, etc (revisit the earlier parts on intellectual property for a fuller description of how much Intellectual Property covers) then the contractor will own the copyright or patent / design, etc rights unless there is an assignment of intellectual property back to the employer in their contract for services. If there is no written contract, a deed of assignment can be used but remember that, like other contracts, it is always best to have things in writing as it can be difficult to prove what was said in a conversation later on – if you should need to.

Topic 8.2 - Employee entitlements An employee’s entitlements and conditions of work will be set out in their employment contract. However, the scope of employee entitlements and work conditions may be constrained by legislative standards, awards or agreements. Of relevance in this regard are the National Employment Standards, modern awards and enterprise agreements. Each will be dealt with separately.

National Employment Standards On 1 January 2010, the National Employment Standards (NES) came into effect. The Standards set out ten minimum workplace standards which apply to all employers and employees covered by the national system. These standards relate to: 

maximum weekly hours of work

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requests for flexible working arrangements

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parental leave and related entitlements

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Enterprise Law Summary Notes – Employees and Employers



annual leave (for employees other than casuals)

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personal / carer’s leave and compassionate leave

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community service leave

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long service leave

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public holidays

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notice of termination and redundancy pay

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provision of a Fair Work Information Statement.

Modern Awards From 1 January 2010, various federal and State-based awards were also replaced by a new, simplified system of awards called modern awards. These are industryor occupation-based minimum employment standards which apply in addition to the NES and cover issues relating to: 

minimum wages

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types of employment

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overtime and penalty rates

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annualised wage or salary arrangements

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allowances

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leave related matters

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superannuation

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representation and dispute settlement.

Enterprise Agreements Enterprise agreements set out conditions of employment for a group of employees at one or more workplaces. From 1 January 2010, an enterprise agreement can only be made between employees and employers provided that it: 

satisfies the ‘better off overall’ test when compared with the relevant modern award

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Enterprise Law Summary Notes – Employees and Employers



has an expiry date of four years or less

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is genuinely agreed to by the employees covered by it

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does not contain any unlawful content

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includes a dispute settlement procedure

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contains a flexibility term so the employee and the employer can agree to vary the agreement to meet their mutual needs if required

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has a consultation term which requires the employer to consult with employees about major workforce changes.

Topic 8.3 – Recruitment and Dismissal Recruitment is the process of hiring employees for the business. Before a business begin the process of recruitment it is important that its operators understand the legal obligations of the business as an employer. These obligations do not end with the recruitment process but extend to the management, supervision and (if necessary) dismissal of employees. Employers need to develop a clear definition of the type of position they are seeking to fill and list all responsibilities that are applicable to that role within the business. There are a number of ways in which to advertise for employees, such as online, in newspapers, using a recruitment agency or even through word of mouth. However, it is important to note that the same laws apply regardless of how an employer advertises a position. When advertising positions and conducting interviews with candidates, employers are prohibited under law from using any discriminatory language. Employers are also prohibited from asking questions that may exclude potential employees on the basis of such matters as: 

race or cultural background

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age

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gender

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marital status

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family status or responsibility

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Enterprise Law Summary Notes – Employees and Employers



pregnancy

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religious and political beliefs

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disability or special needs

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sexual orientation.

Employers that discriminate against a candidate during the recruitment process can be prosecuted under federal or State legislation.

Dismissal There are strict laws regarding the dismissal of employees. An employer cannot terminate a person’s employment without a valid reason. Penalties may be imposed upon employers for unfair or unlawful dismissal (defined below). An employer may be entitled to dismiss an employee due to: 

redundancy or business restructuring

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poor employee performance

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refusal to follow instructions or correct mistakes

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misconduct in the workplace.

In most cases, if an employer needs to dismiss an employee, a notice of termination must be provided outlining why the dismissal is taking place. However, under limited circumstances an employer is entitled to dismiss an employee instantly, in particular when there is serious misconduct such as theft, fraud, assault, or intoxication. The employee must always be given a fair opportunity to enquire about the reason why he or she has been dismissed. Unfair dismissal occurs when the termination of an employee’s employment is harsh, unjust or unreasonable and it is not a result of genuine redundancy. A number of factors are considered when determining a case of unfair dismissal including: 

Is there a valid reason for the dismissal associated with the employee’s conduct or capacity?

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Has the employee been notified of the reason and given an opportunity to respond?

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Enterprise Law Summary Notes – Employees and Employers



Does the dismissal relate to unsatisfactory performance of the employee, and if so, has the employee been warned about this unsatisfactory performance prior to the dismissal?

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Any other factor considered relevant to the individual case.

Employees are entitled to apply for remedies, including reinstatement, following unfair dismissal provided they have worked in the business for a minimum qualifying period (usually 6 months). Casual employees can also make unfair dismissal claims if they have been engaged on a regular and systematic basis and had a reasonable expectation that their employment would continue. Unlawful dismissal occurs when an employer terminates an employee's employment for a discriminatory reason or some other reason contrary to law. According to the Commonwealth Fair Work Act 2009, termination of employment will be unlawful if it is a result of: 

the employee's race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer's responsibilities, pregnancy, religion, political opinion, nationality, or social background

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temporary absence from work due to illness or injury

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being absent from work during maternity leave, other parental leave or to engage in a voluntary emergency services activities

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membership or Non-membership of a trade union

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acting as a representative of employees

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filing a complaint, or participating in proceedings against an employer.

Fair Work Australia (FWA) provides a service that employees and employers may access for assistance in dealing with unlawful dismissal disputes. If the dispute is unable to be resolved, the matter will be passed to the Federal Court. Court remedies available for unfair dismissal claims include reinstatement and damages.

Topic 8.4 – Work Health and Safety All business people should recognise the importance of maintaining a workplace that is safe for all employees, customers and visitors. A new scheme of work health and safety legislation (known as the ‘Model Work Health and Safety Legislation’) commenced on 1 January 2012 in the Commonwealth, New South Wales,

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Enterprise Law Summary Notes – Employees and Employers

Queensland, the Australian Capital Territory and the Northern Territory. Consequently, businesses operating in these places are subject to the same work health and safety laws. Efforts are underway to introduce the same laws in South Australia, Victoria, Western Australia and Tasmania. If implemented by these States work health and safety legislation would become consistent across Australia, a situation that would greatly assist compliance by businesses that operate nationally. In addition to OHS obligations, employers owe a duty of care to employees under the common law. A breach of this duty may expose an employer to acti...