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This
information has been provided by Australian Lawyer
Peter
Janssen
Employment & Contracting Issues
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Employees
vs Contractors
The law has developed tests to determine whether someone is a contractor or really an employee of your business. This is because different rights and obligations rest on the parties depending on which category they
fall into. For instance, employees may have more entitlements such as superannuation, holiday and sick leave, and other benefits (eg awards benefits). One important difference for business owners in the IT & E-commerce space is that normally all creative and inventive work done by an employee is owned by
the business owner (employer). But a Contractor owns the intellectual property in their work, even after the Owner has paid them for that work (the Owner simply has an indefinite licence to use
it).
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If you are a business owner, make sure that you get a written contract with your
consultants/ contractors such as computer programmers, web designers and other key personnel that assigns the copyright in their work to you. The Legalmart Contractor’s/
Consultancy Agreement (for general contractors ) and the
Computer Consulting Agreement (for Computer and Software
Consultants) does this for you. For more information, click
on the appropriate boxes in the right hand margin.
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So the distinction between
employees and contractors is an important one, as ownership of the business’s ideas and designs/inventions are very
valuable.
The Courts look at all the circumstances to determine whether a particular worker is an employee or a contractor. It is not enough that you call them an ‘employee’ or a ‘contractor’ – the Court will look at the substance, not just the form. In other words, it calls for legal conclusions which a Court will reserve to itself rather than a mere matter of form which the parties may chose to adopt to help their own tax position or liability position in so far as the unfair dismissal rules, for example are
concerned.
The following Table gives you a quick checklist on what factors go to show an employer/employee relationship, and which ones are more likely to show an Owner/Contractor relationship. Obviously you do not have to satisfy all of the factors listed below – it is a question of
degree.
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Employee
- You work exclusively for one business
- The business owner can direct you as to what work shall be done and how it will be done
- You use the business owner’s staff and equipment
- You are paid a salary based on time spent
- The business owner pays your group tax, super and other benefits·
- Your work is for an indefinite
period
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Contractor
- You have your own independent business
- You employ/contract your won staff
- You have your own capital and equipment· You have a number of clients
- You have a business which you could sell (with goodwill)
- You are paid a fixed fee for a specific job
- You pay your own tax, super and other
entitlements
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| Contracts for
Employees and Contractors
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When you employ or contract someone, you are entering into a Contract that carries with it legal obligations on both sides. These obligations are promises that are enforceable at law. Your Contract can be a purely verbal one, or one that is in writing.
Has a Contract been
formed?
This becomes an important question when you are having second thoughts about proceeding with a matter, which could be because you have found someone else that you would prefer to do the job, or if you are the Consultant, you have got other commitments that are more
lucrative.
If you have a Contract in place, there are penalties for breaking it, so it becomes important to ask whether at this stage there is any contract on foot at all. This is normally only relevant in the beginning stages, particularly during
negotiations.
The law of contract basically states that a Contract is formed
when:
- There has been an offer (written or
oral)
- Which is accepted without amendment or counter offer,
and
- The acceptance has been communicated back to the
Offeror.
If the acceptance changes the terms of the offer in any material sense, then it is a counter offer (not an acceptance) and no Contract is formed.
Example: You have discussions with a web designer to get some work done for your web site. You write to him making an offer of $2,000 for the works that you have discussed, with completion on 10
June. The web designer writes back and accepts your offer, but says that he will complete the work on 10
August.
You go and hire another web designer, and the first one tries to sue you for breach of
Contract.
Answer: There is no contract between you and the first web designer, because his ‘acceptance’ was really a counter offer. Had you then accepted his counter offer, there would have been a binding
contract.
Terms of the Contract
The problem with verbal agreements is that when a dispute arises, it is difficult to prove who said what, and who agreed to what. Nobody’s recollection of event seem to be the same, and it can eventually come down one person’s word against the
other.
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Don’t rely on a handshake for your important business matters. Even if you are contracting someone you know well, it is a good idea to discuss the terms of the Contract eg the nature of the job, the price for the job, when it will be completed, etc. and then commit these agreements to writing. For more information on the Legalmart
Contractor /Consultancy Agreement, click on the box in the
right hand margin.
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Some Conditions that are
normally implied in employment contracts:
- Implied duty of Employee to be Faithful - If someone was an employee then in addition to any oral terms that govern the relationship, the common law will imply into every contract of employment a fiduciary duty of an employee to give "faithful
service".
A classic example of the breach of the obligation of fidelity would be an employee who sets up a business in competition with that of the employer company. The Courts would grant an injunction to stop an employee acting in such a clear conflict of duty and
interest.
- Restraint of Trade -
In the example above the fact that you may have a cause of action to sue an employee for a breach of that implied duty of fidelity and seek damages whilst
he/she is in your employ becomes less stringent once the employment relationship
terminates.
In the case of ex-employees, an employer will not be able to restrain
past employees from setting up in opposition to the employer unless there is a written and valid restraint of trade clause signed by both
parties (usually contained in the employment agreement).
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Have an employment contract in writing with each of your staff. In the world of the Internet, where ‘knowledge is power’, it is very risky to allow your staff to leave you and go to a direct competitor, or set up a similar business themselves.
Please contact
me if you would like more info.
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- Duty of Confidentiality – Courts have ruled that even ex-employees can be restrained by an injunction from using or disclosing secrets confided to them by former
employers.
This is generally called the duty of confidence which is a continuing duty notwithstanding the termination of the employment
relationship.
However, to be successful in an injunction, you would have to be able to prove that the information which was confided in that employee was in fact confidential. Where the company has made no particular effort to prevent the information from freely circulating within or outside the business, a claim against an ex-employee who remembers that information and subsequently uses it (even in competition) with the former employer will
fail.
There is an exception however if it can be proved that the ex-employee obtained the information by improper means, for example, by taking photocopies or actual client lists.
In that case the Court will grant injunctions or damages in respect of the breach of duty of confidence. The rationale for this is that an employee can not say that it is knowledge which has become his own simply by use because he has taken active and unauthorised steps to acquire that
information.
Obviously, the distinction is often hard to draw. In the case of Printers and Finishes v Holloway, the Court said: "If the information in question can fairly be regarded as a separate part of the employees stock of knowledge which a man of ordinary honesty and intelligence would recognise to be property of his old employer, and not his own, to do as he likes with, then the Court, if it thinks that there is a danger of the information being used or disclosed by the ex-employee to the detriment of the old employer, will do what it can to prevent that result by granting an
injunction."
NOTE: The contractor’s agreement provided on the Legalmart site is a standard document available for you to download at an inexpensive price.
You can contact
me FREE to discuss whether it is suitable for
your needs.
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10 September, 2010
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