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‘ABC’ Test to resolve the controversial Contractor V Employee debate in USA

In reflection of global trends and the ongoing debate of contractor or employee determination, a ruling in the United States may be the presumed method of depicting the differentiations between the two.

A ruling by the Supreme Court of California in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018) unanimously declared a new method for the courts to decide whether a worker is classed as an employee or an independent contractor, referred to as the “ABC test”.

The test is outlined by three subsections that aim to classify workers based on their work environments. The three sections must all be verified for the worker to be deemed as a self- employed worker that leases their skills to the client, by adhering to the segments below:

ABC Test
A – that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
B – that the worker performs work that is outside the usual course of the hiring entity’s business; and
C – that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity

Australia does not have legislation that clearly defines a contractor in comparison to an employee, but rather leaves it to the Courts to assess the indicia on a case by case basis to determine a workers true status.

However, the Fair Work Act (2009) does extend to include a very specific definition of sham contracting. Under the sham contracting provisions of the FW Act, an employer cannot:
  • misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement;
  • dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor; or make a knowingly false statement to persuade or influence an employee to become an independent contractor.
  • In Australia there has been an increase in the number of organisations that have been involved in cases of Sham Contracting.
These decisions demonstrate the Courts low tolerance for the misclassification of workers:
  • 2016 Mondial Sydney Fundraising company charged to pay back $770,000 to 824 workers.
  • 2014- Brisbane Based hospitality company penalised penalised $126,540 and ordered to pay back $60,000 to previous workers.
  • 2008- Sydney housekeeping organisation pledged to pay back previous cleaners for the company a total of $1.9 million.
  • Melbourne bike couriers fined $72,000 in result of underpaying workers.
Given the landmine territory of Industrial Relations, it is recommended to seek advice from Industrial Relations experts. If your organisation is engaging contractors / subbies / freelancers / gig workers / flexible workers, then you can always contact Certica® for a workplace engagement assessment.

Our solutions assist in compliantly engaging contractors by ensuring insurances are in place, liabilities such as tax and super are remitted and fair contracts are established.

Email rachel.leclair@certica.com.au if you wish assistance within your Enterprise Journey.

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