Independent Contractors

Independent contracting is an ever expanding form of workplace engagement.  Kelly Workplace Lawyers has had a long history in providing sound commercial advice to independent contractors nationally.  We can assist independent contractors in many ways:

  • Drafting and reviewing Service Agreements;
  • Pursuing payment of invoices;
  • Advising on common law and taxation liabilities;
  • Drafting and reviewing Partnership Agreements;
  • Drafting and reviewing Confidentiality Agreements;
  • Advising on intellectual property rights;
  • Advising on restraint of trade;
  • Advising on State and Federal laws that cover independent contractors.


Independent Contractors Act 2006.

  1. What is an Independent Contractor?
  • No fixed definition, however is accepted Independent Contractors are not employees.
  • Employees subject to contract of service; Independent Contractors subject to contract for service.
  • Contract for service focused on result rather than method of achieving result.
  • Control Test – the how, where, when and by whom of the work.


Control Test

  • This is the common law test – is not absolute but indicia.
  • Bray CJ:

There is no magic touchstone.  The court has to look at a number of indicia and then make up its mind into which category the instant case should be put.  It is a question of balancing the indicia pro and con . . . But the power of control over the manner of doing the work is very important, perhaps the most important of such indicia.

  • Other indicia include:
Issue Test Employee Contractor
Control Is the employer given the right of control over the other party, and is this control exercised? Yes No
How the work is paid for Does the contractor submit an invoice on completion of task? No Yes
How is the contract determined? Does the contract provide for termination by x number of weeks’ notice or payment in lieu? Yes No
Individual or broader legal entity party to contract Is the legal entity employed to do the work a partnership or company? No Yes
Provision and maintenance of equipment Do the contractors provide their own tools and cover the cost of repair? No Yes
Hours of work Are hours set for attendance on site? Yes No
Leave Is leave paid? Yes No
Taxation Is PAYE tax paid? Yes No
Capacity to select own employees and delegate Can work be delegated at the contractor’s discretion to employees of contractor’s choice No Yes
Risk – capital investment Is the contractor exposed to a loss of capital investment in the contract? No Yes
Superannuation Are superannuation contributions being made? Yes No
Other jobs Is the person free to carry on other jobs at the same time? No Yes
Organisation Is the person interwoven or considered part of the organisation? Yes No
Professional indemnity (PI) Does the contractor carry his or her own PI insurance? No Yes


What is the Independent Contractors Act?

 The Independent Contractors Act received royal ascent on 11 December 2006 to commence within 6 months.

  • Was a key platform of the 2004 election campaign.
  • Its stated objectives are:
    • To protect the freedom of Independent Contractors to enter into service contracts
    • To recognise independent contracting as a legitimate form of work arrangements that is primarily commercial; and
    • To prevent interference with the terms of genuine independent contracting arrangements.


Who does the Independent Contractors Act apply to?

 The Act applies to service contracts entered into by independent contractors;

  • Independent Contractors is not defined in the Act – common law definition;
  • A service contract is a contract for service :
    • To which an Independent Contractor is a party;
    • That relates to the performance of work by the Independent Contractor; and
    • That has the requisite constitutional connection – i.e at least on party is:
      • A constitutional corporation; or
      • The Commonwealth or a Commonwealth authority; or
      • A body corporate incorporated in a Territory in Australia.


    • The work concerned is wholly or principally to be performed in a Territory in Australia;
    • The contract was entered into in a Territory in Australia;
    • At least one party to the contract is a natural person who resides in a Territory.


How does the Independent Contractors Act protect the freedoms of Independent Contractors?

 Protections for Independent Contractors under the Act include:

    • Federal Court unfair contracts protection from “harsh” and “unfair” contracts.  In reviewing a contract the Court can have regard to:
      • Relative bargaining positions of the parties;
      • Use of unfair influence, pressure or tactics;
      • Parity of total remuneration with employees performing similar work; and
      • Any other matter the Court thinks is relevant.
    • The Court can either set aside all or part of the contract or vary the contract – no express right to order the payment of money.
    • Costs can only be ordered where proceedings instituted vexatiously.
    • Unions and employer groups are excluded from accessing this jurisdiction on behalf of their members.
    • No requirement that at least one party be a natural person.

As part of the package of changes, the Fair Work Act provides protections for employees from sham Independent Contractor arrangements. This includes penalties for:

    • Misrepresenting a current or proposed employment relationship as an independent contracting arrangement;
    • Dismissing or threatening to dismiss an employee for the sole or dominate purpose of re-hiring as an Independent Contractor; and
    • Making false statements to induce a party into becoming an Independent Contractor.

 How does the Independent Contractors Act prevent interference?

The Independent Contractors Act overrides provisions of State laws that deem certain classes of independent contractors to be employees and provisions that deal with unfair services contracts.  This will exclude laws that deal with:

    • Remuneration, allowances or other amounts payable to employees;
    • Leave entitlements of employees;
    • Hours of work of employees;
    • Enforcing or terminating contracts of employment;
    • Making, enforcing or terminating agreements (not being contracts of employment) determining terms and conditions of employment;
    • Disputed between employees and employers, or the resolution of such disputes;
    • Industrial action by employees and employers;
    • Anything in the Workplace Relations Act or State IR Act;
    • Anything in Regulations


  • Preserves laws that deal with:
    • Equal Opportunity/ anti-discrimination;
    • Superannuation;
    • Workers compensation;
    • OH&S;
    • Child labour;
    • Observance of public holidays, but not the prescription of pay rates;
    • Deductions from wages and salaries;
    • Industrial action effecting essential services;
    • Jury service;
    • Professional or trade regulations;
    • Consumer protection;
    • Taxation;
    • Anything in the regulations.


Transitional Arrangements:

State Acts will continue to apply to contracts entered into before the commencement of the Independent Contractors Act for three years unless:

    • The contract ends earlier; or
    • The parties elect to opt into the federal system.


In Conclusion:

  • Independent Contractors must satisfy both PSI and common law test to get both legal and tax protection;
  • Applies to ‘service contracts’ with ‘requisite constitutional connection’;
  • Overrides ‘deeming’ provisions in State and Territory IR law – subject to 3 year transition;
  • Establishes national services contract review scheme for the review of unfair contracts;
  • Excludes State and Territory unfair contracts provisions as far as constitutionally possible.