An independent contractor is not an employee, but rather a worker running their own independent business. They are sometimes also referred to as “contractors” or “subcontractors”.
Generally, an independent contractor:
- controls their own hours and work arrangements;
- can undertake work for multiple parties;
- often supplies their own tools, materials and equipment; and
- provides a rate for a specific job, and an invoice for work performed.
Objective test in state employment laws
In the WA state industrial relations system, there is an objective test set out in the Industrial Relations Act 1979 for determining whether a worker is an employee or an independent contractor.
The objective test required an employment relationship to be determined by assessing the real substance, practical reality and true nature of a relationship.
Consideration must be given to the totality of the relationship including the terms of any contract governing the relationship and also other relevant factors, including how the contract is performed in practice.
The objective test safeguards against workers being artificially labelled as independent contractors by the terms of a contract.
Where a party to proceedings before the Western Australian Industrial Relations Commission or the Industrial Magistrates Court claims an individual who carries or carried out work is or was not an employee of the party, the onus will be on the party to prove that the individual is not or was not an employee of the party.
It is recommended that employers and workers seek legal advice if they are unsure whether a particular working arrangement is an employment or contracting arrangement.
Prohibition on sham contracting
In the WA state industrial relations system, the Industrial Relations Act prohibits sham contracting. A ‘sham contracting’ arrangement may occur when an employer knowingly disguises an employment relationship by telling an employee that they are being hired as an independent contractor when they are really an employee.
An employer is prohibited from representing, or telling an employee or prospective employee, that a contract of employment (where the worker is an employee and entitled to minimum wages and other protections) is a contract for services (where the worker is an independent contractor).
It is a defence for the employer to prove that, when the representation was made, they did not know (and could not reasonably be expected to have known) that the contract was a contract of employment rather than a contract for services. The onus is on the employer to prove this.
An employer is prohibited from dismissing (or threatening to dismiss) an employee performing particular work for the employer in order to engage them to perform the same (or substantially the same) work under a contract for services. If enforcement proceedings are taken against the employer in the Industrial Magistrates Court (IMC) for breaching the sham contracting provisions, the employer bears the onus of proving that they did not dismiss (or threaten to dismiss) the employee for the prohibited reason.
An employer is prohibited from making a statement that the employer knows (or could reasonably be expected to know) is false in order to persuade an employee to enter into a contract for services to perform the same (or substantially the same) work. If enforcement proceedings are taken against the employer in the IMC for breaching the sham contracting provisions, the employer bears the onus of proving that they did not make the statement for the prohibited reason.
If the IMC determines that an employer has breached the provisions preventing sham contracting, it may impose a penalty on the employer, and may make an order to:
- reinstate the employee if they were dismissed from employment;
- employ a prospective employee who was refused employment; and
- pay the employee compensation for loss or injury suffered as a result of the contravention.
The IMC is not able to make an order in relation to sham contracting if the employee has applied for relief in relation to the matter (e.g. the same dismissal) under another provision of the Industrial Relations Act or any other written law.
Disputes about unfair contract terms for independent contractors
In some circumstances independent contractors can apply to the Fair Work Commission for help to resolve disputes about unfair contract terms relating to workplace relations matters. Visit the Fair Work Commission for more information.
