Independent Contractors Act 2006 (Cth)
The primary function of the Act is to change the regulation of independent contractors from workplace and industrial law to
commercial and contract law. It achieves this objective in a number of ways. Primarily, it:
• Maintains the common law distinction between an employee and an independent contractor.
• Excludes the operation of certain state and territory laws which limit the ability of genuine independent contractors to
enter into commercial agreements or which seek to draw independent contractors into the net of workplace relations
regulation;
• Provides a more accessible national services contract review mechanism for independent contractors;
• Retains existing state and federal protections relating to outworkers;
• Retains existing state protections for owner-drivers in New South Wales and Victoria; and
• Provides a transitional scheme for workers deemed by state or territory laws to be employees.
Additionally,
• The Act does not change the position of independent contractors concerning workers’ compensation, superannuation or tax.
• The Act provides for variation of unfair contracts, which is much more lenient then the previous State legislation.
• There are also provisions that repeal state laws, which deem independent contractors to be employees in some circumstances.
The effect of this is that a national commercially based unfair contracts jurisdiction overrides the unfair contracts jurisdiction in New South Wales and Queensland.
Workplace relations Amendment (Independent Contractors) Act (2006) Cth.
This act primarily seeks to penalise people entering into ‘sham’ independent contractor arrangements. Sham arrangements occur when an employer seeks to avoid taking responsibility for the legal entitlements due to employees. This can occur when employers attempt to disguise as an independent contracting relationship what is in reality an employment relationship.
Hence, an employer cannot seek to avoid providing entitlements to legitimate employees by classing them as independent contractors. Additionally, the Act ensures that employers are not allowed to dismiss an employee simply to rehire them as
an independent contractor. They are also prohibited from making a false statement to persuade or influence an individual to enter into an independent contractor arrangement.
Who will this legislation impact upon?
This legislation impacts upon employers, independent contractors and employees who are being classified as independent contractors so their employers avoid paying certain entitlements, as occurs in sham arrangements. The explanatory memorandum
of the Independent Contractors Act, estimated that there were between 800,000 to 2 million independent contractors in 2004. This equates to between 8 to 20 per cent of all Australian employed persons.3 Given this figure, it is likely that a great number of employers and their staff will need to be aware of the impact of reform in this area.
What are the implications of this new legislation?
It seems that the main implications will be on the unfair dismissal jurisdiction in the states, so far as it relates to “deemed employees” independent contractors. This is a result of the states laws being repealed in order to create a federal system for
independent contractors.
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The legislation does impose some additional obligations on principals. It protects both employees and prospective employees, against any misrepresentation as to their contract being that of employer and independent contractor. It may be that Employers need to seek advice about these penalty provisions and act with caution. They will need to ensure that any dismissal of an employee and that employee’s replacement with independent contractors performing predominately the same work,
does not contravene the new provisions.
The implementation of this legislation has proved to be controversial. Some groups, such as Independent Contractors of Australia, hail the legislation as a highly beneficial achievement for independent contractors. This group resented laws which treated independent contractors as employees. They claim that there are definite benefits to this legislation such as increased flexibility for independent contractors, which will allow them to choose working hours, holidays, who they work for and what work they will do. The legislation enables business’ to use specialist contractors for a range of non-core activities, as needed. This allows them to focus on their core business more efficiently and can facilitate their ability to compete more effectively in both the Australian and international markets. It also allows business to adapt to changing economic conditions.
Additionally it is claimed that higher demand for specialist contractors would contribute to higher wages and ease of worker mobility.
Other groups, such as the union movement, do not support the legislation. They state that the Australian Government ‘risks creating an underclass’ of workers who will ‘undercut those workers who are represented collectively.’5 Whether this actually
occurs is yet to be seen.
Despite the benefits and disadvantages which may occur with this legislation, it only commenced on the 1st March 2007, hence it is yet to be tested. At first instance, the legislation seems to provide protection for employees who are not legitimately
independent contractors. However, time will tell as to whether the changes are effective and beneficial to independent contractors and whether the protections extended to employees not wishing to be classed as independent contractors, are effective.
1 Hollis v Vabu (2001) 50 AILR 4 – 476.
2 House of Representatives, Independent Contactors Bill 2006, Explanatory Memorandum.
3 House of Representatives, Independent Contactors Bill 2006, Explanatory Memorandum.
4 House of Representatives, Independent Contactors Bill 2006, Explanatory Memorandum.
5 Simon Hayes. Media Report. “Unions say Contractor Bill bad news.” The Australian, May 2, 2006.