Independent Contractor Changes

There have been several recent changes to independent contractor laws, including:

·         the definition of employment for determining whether a contractor is an employee at law; and

·         sham contracting terms;

·         unfair terms in contracts.

Definition of employment

From 26 August 2024 a new employment definition was added to the Fair Work Act 2009 (Cth), in which courts must have regard to the “reality” of the relationship when considering if independent contractors are actually employees for legal purposes. Where an independent contractor is actually an employee they will be entitled to backpay for minimum wages, leave and other employee entitlements such as protection from unfair dismissal. The move reverses the landmark High Court ruling on freedom of contract that prioritised the worker’s contract terms when determining if they were really an employee.

Applying the new definition may:

·         mean that some working relationships are characterised differently; and/or

·         result in different rights and obligations for people affected.

The new definition doesn't apply to some businesses and workers (such as state referred businesses).

Certain workers who earn more than the contractor high income threshold are also able to ‘opt out’ of this definition which will benefit employers. From 1 July 2024, the contractor high income threshold is $175,000.

Action: please review your contracting relationships to ensure that contractors are correctly characterised as there are fines for sham contracting. If your contractors earn above the high income threshold ($175k), then you should consider asking them to opt out of this new regime.

Sham contracting

The defence to a sham contracting claim has also been tightened, with employers now required to prove that at the time the representation was made they reasonably believed the worker was engaged as a contractor.

Unfair contract terms

Contractors will now have the right to apply to the Fair Work Commission if they think a contract term is unfair.

The Commission has the authority to:

·         assess whether a term in a services contract is unfair, considering various factors; and

·         issue an order to set aside, amend, or vary all or part of a contract if it contains one or more unfair terms.

These new laws only apply where there is a ‘constitutional connection,’ such as when the contractor is engaged under a services contract with a constitutional corporation.

Contractors earning above the high-income threshold are not eligible to seek an unfair contract remedy from the Commission.