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When is a casual employee really a permanent employee?

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In Australian employment law matters, the real world substance of a work relationship often trumps what the contract says.

For example, sometimes people called independent contractors in contracts are really employees. Similarly, sometimes people called casual employees in contracts are really permanent employees – a point recently made clear by the Full Court of the Federal Court of Australia (the Court) in WorkPac Pty Limited v Skene (see case citation and link below).

Casual v permanent employee: Why does it matter?

Unlike permanent employees, casual employees are not entitled to lots of benefits under the Fair Work Act 2009 (Cth) (the FW Act), including paid leave, notice of termination, redundancy pay and paid holidays. To compensate for the lack of these entitlements, casual employees are paid a “casual loading”, currently 25% of base pay for Monday-Friday hours for speech pathologists in private practice under the Health Professionals and Support Services Award (see clause 26.2).

To be a true casual employee, the employee must have no advance commitment as to the duration of their employment or the days (or hours) worked. Some indicators of casual employment include:

  • irregular work patterns;
  • uncertainty as to the period over which employment is offered;
  • discontinuity; and
  • intermittency of work and unpredictability.

Can you side-step the issue by simply defining an employee as “casual” in their contract? 

No.

Things like what the contract says, payments of casual loading, the need to submit timesheets, and the right to terminate at short notice (e.g. 1 hour) are relevant, but not of themselves decisive. Instead, what matters is the real world “objective” substance of the relationship between the employee and employer at the time. For example, there must be no long-term, firm, advance and mutual commitment to work an agreed pattern of hours.

What happens if the employer gets it wrong?

If the employee is really a permanent employee, she/he is entitled to annual leave and other entitlements under the National Employment Standards and/or the Award. In theory, employers should be able to set off any casual loading paid to the employee against these payments. But, in the Skene case, this didn’t happen because the employer had not designated a specific amount or percentage of wages to be casual loading.

Another consequence of getting it wrong is that the employer might be liable for penalties under the FW Act. The Court made it clear that ignorance of the law is no excuse, and that it’s a serious offence to mis-classify a permanent employee as a casual employee.

Bottom line

When deciding whether an employee is casual or permanent, Australian courts apply a substance over form test. Simply labelling an employee as “casual” in the employment contract and/or paying casual loading is not enough to guarantee the employee is truly casual from a legal perspective.

To mitigate the risk, employers should ensure that any casual loading paid to employees is specifically quantified in the employee’s contract and payslips. This may allow the employer to set-off that amount against any claimed entitlements. But the risk cannot be eliminated by legal drafting, as Courts will look at the true relationship between the employer and employee. Employers should therefore seek legal advice to assess the level of this risk for their businesses.

Case: WorkPac Pty Limited v Skene [2018] FCAFC 131. Full case access via the Federal Court of Australia website here.

Principal source: De Flamingh, J. & Kiley, E. (2018). Another casual conundrum: substance over form prevails (again), Law Society of NSW Journal, 72-74.

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Australian speech pathologists: is it ethical to hire juniors as independent contractors?

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For speech pathologists in private practice, hiring independent contractors seems cheaper and more flexible than hiring employees, e.g. if your practice has unpredictable workflows or seasonal “slow” and “busy” periods.

But there are a raft of ethical, client and commercial reasons why it may make more sense to grow your practice with employees. There are also compelling legal reasons not to go down the independent contracting route – at least without first understanding all the risks.

A. Not a new issue

I’ve addressed independent contracting arrangements in speech pathology private practice before. It’s one of those issues I come across regularly – especially with new graduates calling me for guidance about their “first job” contracting arrangements (often after signing on the dotted line).

As a profession, I think independent contracting and ethical employment practices are important topics to address openly.

B. Update

Recently, we enjoyed an excellent talk by lawyer Anna Elliott about the differences between contractors and employees*. Interestingly, the talk focused on the downsides of getting the employee-independent contractor decision wrong.

Here are some of our key takeaways from Anna’s talk, which we consider highly relevant to Australian speech pathology private practices:

1. Whatever you call your hire (independent contractor or employee), you can’t guarantee a Court or regulator will agree.

  • Even with good lawyers and great contracts, there is nothing you can do to guarantee your contractor is really (legally) a contractor.
  • The label you use to describe the worker in the contract is relevant, but doesn’t determine the answer on its own.
  • If there is a dispute (e.g. with a worker), a Court will look at all of the facts and circumstances to figure out if someone you are calling an independent contractor is really a contractor or an employee.
  • There’s a long list of factors Courts look at when deciding whether a hire is a contractor or employee (we’ve talked about some of them before). They include whether the hire:
    • has control over her/his work (freedom to decide how, when and where the services are performed);
    • can delegate or subcontract their work to others (i.e. can the hire delegate their work to another person);
    • is free to engage in other business activities and provide other services to others;
    • is really an entrepreneur who owns and operates their own business; and
    • is really working for and representing their business (and not yours).

As speech pathologists, let us pause for a second and think about the realities of some common contracting arrangements in our profession:

I’ve seen some arrangements – e.g. involving the short term hire of senior/experienced speech pathologists in practice for themselves to cover for principals or staff on leave  – where these factors are present.

I’ve seen (many more) arrangements – particularly involving new graduates and junior members of the profession – that do not satisfy any of these factors, exposing the hirer to the real legal risk that the worker is legally an employee (see below).

I’ve also seen several terribly drafted “independent contractor” contracts in the market where employee and independent contracting concepts are hopelessly muddled. Again, the risks of these arrangements lie mostly with the hirer (see below).

  • Different Courts attach different weight to factors/indicators in different cases.
  • Different regulators (e.g. the Australian Taxation Office (ATO)) have their own tests for when they think someone is a contractor.
  • Different laws define contractors and employees differently for different purposes.

Example: hirers are liable to pay superannuation entitlements for employees and for contracts wholly or principally for the labour of an individual (i.e. where more than 1/2 the contract value is for the worker’s labour, whether physical, mental or artistic). This means that, in some cases, you may be liable for a speech pathologist’s superannuation payments, even if the person is an independent contractor.

See, the ATO’s information about contractors and superannuation.

Key and recent employee/contractor cases:

2. In any event, is it ethical or commercially sensible to allow unsupervised junior independent contractors to work with your clients?

One of the (many) factors Courts look at to decide if a person is an employee or contractor is whether a worker is or has been supervised by the hirer. Employees are generally supervised by their employers because employers are usually liable for employees’ work. However, true independent contractors are expected to receive no or little supervision.

Clause 3.3.4 of Speech Pathology Australia’s (SPA) Code of Ethics deals with supervision. Among other things, it says SPA members:

  • provide appropriate supervision;
  • accept responsibility for clinical and support staff, students and volunteers who are assigned to us;
  • take reasonable steps to ensure that those clinical staff and students under our supervision:
    • understand and apply the Ethics Code; and
    • operate within their level of competence; and
  • demonstrate and discuss ethical practice with those we supervise to facilitate their ethical reasoning skills.

Not supervising an inexperienced speech pathologist who is working with your clients is a recipe for disaster. Deciding not to supervise a hire (e.g. to help ensure the hire is seen as an independent contractor) may conflict with:

  • your ethical duties to clients and to SPA;
  • your consumer rights-based duties to clients to ensure you are providing a fit and proper service;
  • your insurance obligations to your professional indemnity insurer; and
  • your commercial objective to protect your reputation and the reputation of your practice.

This is especially the case with junior members of the profession – and, in particular, with new graduate speech pathologists.

3. If you get it wrong, it can be expensive for your practice (and for you personally).

If you think you’ve hired a contractor and, down the track, the worker or a regulator claims the worker is or was really your employee, you may be liable for:

  • unpaid employment entitlements (e.g. annual leave, reasonable notice, and civil penalties for breaches of the National Employment Standards);
  • Pay As You Go (PAYG) tax penalties up to 100% of the tax that should have been withheld;
  • civil penalties for sham contracting arrangements (It’s an offence to represent that an employment contract is an independent contracting arrangement (also known as a contract for services). This is known as “sham contracting”.);
  • damages for breach of contract;
  • unfair dismissal claim (reinstatement or up to 6 months salary); and/or
  • uncapped damages/civil penalties for “adverse action penalties”.

For example, in a 2015 case, the employer company was hit with a penalty of almost $200,000 and the director was fined over $35,000 personally for sham contracting, failure to pay superannuation, holiday, weekend and casual loadings and failure to keep records. (It could have been twice as much if the employer hadn’t admitted contraventions, or if it had involved more than one employee.)

Some of these risks – e.g. sham contracting and unpaid entitlements – remain risks for 6 years from when they first arise. Others may remain for even longer than this.

These risks can also affect your ability to sell your practice, e.g. you might have to give the buyer an indemnity for these risks, and you can’t contract out of statutory obligations.

4. Even “true” independent contractors may be able to claim against you if they think their contract is “harsh or unfair”.

The Independent Contractors Act 2006 (Cth) gives the Federal Court of Australia (on the application of an aggrieved worker) the ability to review contracts that are harsh or unfair, e.g. because:

  • the bargaining power of the hirer was much stronger than the contractor, and the hirer used their better bargaining position to put undue pressure on the contractor; or
  • you are paying the independent contractor less than they would have received as an employee.

This exposes hirers of independent contractors to additional risks, especially if hiring inexperienced new grads with little bargaining power and not paying them enough.

Read the recent cases:

5. Hiring staff through labour hire companies is also risky.

In some industries, hirers have attempted to reduce some of the above legal risks by hiring staff through labour hire companies. These are arrangements where the hirer engages the labour hire company to supply staff.

While these arrangements may reduce some risks (e.g. superannuation liabilities), they don’t eliminate others. For example, in the recent Quest case, the High Court of Australia found that using a labour hire company did not eliminate a hirer’s risk of being found to have engaged in sham contracting arrangements.

Politically, labour hire companies have come under significant parliamentary scrutiny recently, including in Queensland, Victoria and South Australia.

With the ongoing “Uberfication” of service jobs (including speech pathology), we expect that labour hire companies and the businesses that use them will remain under the spotlight for the foreseeable future.

Bottom line

Speech pathologists who hire independent contractors to work with their clients need to know about the risks. Some legal risks can be reduced by using good quality contracts. But the conduct of the parties – the “real world reality” of the situation – must be consistent with the intended/stated relationship. Regulators and Courts look at all the facts and circumstances to assess whether a hire is really a contractor or an employee. Getting it wrong can be very expensive.

Hiring contractors to provide speech pathology services to staff also gives rise to ethical and commercial risks. These include how to delegate to and supervise staff adequately (especially junior staff), how to monitor the quality of your services, and to protect your reputation.

There are no easy answers here; and I’m not suggesting that the use of independent contracting arrangements in our industry should cease. But speech pathologists who want to hire contracting staff to grow their business should first educate themselves on the legal risks (and take legal advice if unsure), think through the ethical issues, and consider the commercial pros and cons (including to team morale and reputation).

What do I do in my practice to manage these risks? At the moment, I hire staff as employees.

Principal source: * Elliott, A. (2016). “Contractor v Employee: Getting the Relationship Right and the Consequences of Getting it Wrong”. College of Law online course, watched on 17 March 2017.

Important disclaimer: The information in this article is for general information purposes only and is not legal advice. It is current as at its date of publication. It cannot be relied on by any person for any purpose. If this issue raises any issues for your practice, you should seek independent legal advice based on the facts and circumstances of your situation. The application of laws and statutes may vary depending on the circumstances. We do not assume any liability for any damage that may be caused to anyone as a result of any act or omission on the basis of the information contained in this article.

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Australian Speech Pathologists: Ethical Employment Practices 101

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I’m an optimist when it comes to the future of the speech pathology profession. But I’m also a realist.

A. Supply > demand = exploitation?

Although I remain bullish about the long-term prospects of the profession, I agree with many colleagues who think that the current supply of speech pathologists is out of whack with demand in Australia in some areas of practice. For speech pathologists seeking a job in a capital city, the risk of exploitation is real – particularly for new graduates in private practice. As a lawyer, I’ve seen it in some of the cases that come across my desk.

Speech pathology employers face a slew of legal risks in this market, too, particularly when dealing with some of the less clear-cut legal issues. Risks range from civil employee claims to criminal prosecutions, from financial strain to bankruptcy and loss of practising rights.

Some legal risks are unavoidable in business. Others are caused by a lack of knowledge about legal responsibilities or compliance systems to manage them. As with every profession, there are probably also some hirers out there engaged in what I would politely call “questionable practices”. (More on that later.)

B. Duty to be informed

In the current job market, knowing your legal rights as an employee is essential. On the employer side, you need to know this stuff if you want to protect your reputation and stay in business: ignorance of the law is no defence if a regulator comes knocking or you get sued.

So here are some employment law basics that everyone in private practice in Australia should know about. None of what follows is intended to be legal advice. But it is intended to alert you to some of the main issues you need to think about when hiring, or being hired as, an employed speech pathologist in private practice in Australia.

C. Key things you should know

1. Legislation

Australian employment arrangements are subject to the Fair Work Act 2009 (Cth).

2. Award

The modern national award for speech pathology employees in private practice is the Health Professionals and Support Services Award 2020 (MA000027). Read it. It takes 20 minutes. If you are a graduate:

  • you are a “Health Professional employee – level 1″ for the purposes of the Award;
  • if you have a Masters degree, you should be paid at least at pay point 4 (currently $1032.90 per week full-time); and
  • if you have a 4-year Bachelors degree, you should be paid at least at pay point 3 (currently $998.40 per week full-time).

These are the rates current as at 1 July 2020.

In addition to minimum wages, the Award covers types of employment (full time, part time, casual), ordinary hours, leave, allowances (such as travel allowance, currently $0.80 a kilometre), termination of employment, redundancy and dispute resolution.

3. Minimum employment standards

Speech pathology employment arrangements are subject to the 10 minimum National Employment Standards covering things like annual leave, long service leave and redundancy pay. Read more about these important topics via the Fair Work Ombudsman:

4. Income tax and PAYG

Employed speech pathologists earn salary and wages that are subject to income tax under the Income Tax Assessment Act of 1997 (Cth) and the Income Tax Assessment Act of 1936 (Cth). This tax is withheld from employees and “paid as you go” (PAYG) by employers on their behalf. You can read more about PAYG here.

5. Superannuation contributions

In addition to employee salaries, employers must make superannuation payments for employees under the Superannuation Guarantee (Administration) Act 1992 (Cth). Currently, these superannuation contributions are equal to 9.50% of an employee’s salary and wages. You can calculate superannuation contributions here.

6. Employment Contracts – key things to look out for and to seek advice on

Before signing up, read your draft employment contract carefully. Unfortunately, as we’ve lamented elsewhere, many of the precedent speech pathology contracts floating around are littered with serious errors. Some contain very outdated references. Some contain straight-out illegal terms.

At a minimum, make sure your contract refers to the correct Award (including pay point), the National Employment Standards and the Fair Work Act 2009 (Cth). Make sure you are being hired as a speech pathologist (seems obvious, but be wary of titles like “consultant” or “advisor”, and especially “assistant” or “support worker”).

Watch out for:

  • overly long probation periods – probation periods should not be longer than six months – and provisions that seek to claw back expenses or costs if an employee is terminated at or before the end of the probation period;
  • clauses that seek to restrict what paid work you can do for others while you are employed;
  • clauses that seek to restrict:
    • where you can work; and/or
    • what kinds or work you can do,
      if/when you leave (I’ve seen some pretty broad restraint of trade clauses out there in the market);
  • clauses that purport to restrict your ability to start your own practice if you leave;
  • minimum numbers of clients you must see every day, especially if the number is disproportionate to your experience levels to do the job ethically; and
  • clauses that purport to make your pay conditional, e.g. on the employer first getting paid by a client or third party.

Prospective employees should also be aware of their key duties to the employer, e.g. to co-operate, to use care and skill, to act with fidelity and good faith (e.g. not to steal business, make secret profits on the side, seek to entice other staff away, not to disclose confidential information to others, not to assert ownership rights over the employer’s intellectual property). A solid written employment contract will deal with many of these terms, but Courts sometimes imply these terms when the contract is silent (or not written down).

7. Sham contracting arrangements – pretending an employee is an “independent contractor”

This is a big topic and warrants a couple of articles on its own.

In short, hiring independent contractors is a common practice for speech pathologists. It’s usually cheaper for hirers because they don’t have to pay employee entitlements (like leave) or make superannuation contributions or pay PAYG tax instalments. It can also be more flexible for the workers who can work for different hirers and do different kinds of work.

Some of the independent contracting arrangements I see out in the market are, in reality, poorly disguised employment arrangements. It’s a grey area in some cases – the principles are clear, but the application can be tricky. But the legal risks of getting it wrong fall mostly on the hirer/employer. For example:

  • a disgruntled contractor may sue a business claiming he/she is an employee entitled to annual leave and other employee entitlements;
  • Fair Work Australia may fine a business for entering into a “sham” arrangement, i.e. alleging the ’employer’ attempted to disguise an employment relationship as an independent contracting arrangement to avoid responsibility for employee entitlements; and/or
  • the Australian Taxation Office (ATO) may audit and then prosecute the business (and sometimes its owners), e.g. for failing to withhold ’employee’ income and other taxes as required for employees.

If you don’t know much about this important issue, start with these resources:

If you’re still not sure, seek legal advice before signing up.

8. “Volunteers” doing speech pathology work

This another area of controversy – and one where I hold strong views. Here, I’m not talking about students on placements, which are usually classed as “Vocational Placements” for the purposes of the Fair Work Act and are thus legal.

I’m talking about speech pathology graduates and other speech pathologists being given the “opportunity” to do volunteer work for other speech pathologists, e.g. to overcome a “lack of experience” hurdle. These are sometimes very informal arrangements, with nothing in writing. Other times, they are structured as an “unpaid trial” or “unpaid internships” offering alleged perks like free training, networking opportunities and training.

Spoiler alert: I think many “volunteer arrangements” are legally questionable and should be stamped out.

The Fair Work Ombudsman makes it clear that true volunteers:

  • must not do “productive work” – this would, in my view, clearly capture providing speech pathology services for money and would probably apply to doing free screeners too if they are part of an initiative to generate business for a private practice hirer (which they almost always are);
  • should be the main beneficiaries of the arrangement; and
  • must receive a meaningful learning experience, training or skills development from the position.

Otherwise, there’s a good risk that the “volunteer” is, in reality, an employee and entitled to be paid accordingly. Again, the main legal/economic risks of getting this wrong is on the hirer, although the short-term damage of engaging in dodgy volunteer “hiring” of course hits the volunteers too, with collateral damage to the profession’s reputation.

In my view, short-term, purely observation/shadowing arrangements might be okay, provided the volunteer learns a lot and isn’t expected to do anything productive. But, if the “volunteer” is expected to engage in speech pathology-related professional work to benefit the hirer, the volunteer might have good grounds down the track to make a claim against the hirer for unpaid wages and entitlements (and interest) as an employee – especially if the volunteer comes away from the “opportunity” less than impressed or feeling exploited.

You can read more about unpaid work arrangements here. For members of Speech Pathology Australia, there is a Position Statement on Volunteering in Speech Pathology (behind the members’ wall), which binds members. But the Position Statement is arguably more permissive than employment laws, and remember that your legal obligations come first.

Bottom line

There’s lots of speech pathologists around, especially in big cities, and more competition between private practices than ever before. This makes it hard to land a job; and puts business pressure on private practices to hire efficiently. If we want to avoid a race to the bottom, we must uphold good hiring practices; and, to do that, we need to know our basic employment rights and responsibilities. I hope that this overview was a useful start for some of you pursuing this goal, though you should seek legal advice particular to your own situation before doing (or not doing) something related to any of the topics touched on above.

Just as a nation’s greatness is measured by how it treats its weakest members*, a profession’s greatness is measured by how it treats its new graduates and other vulnerable members. As a profession, we’re good at helping our clients. But we need to help each other, too. A good start is to ensure we meet – and preferably exceed – our employment law responsibilities.

*Quotation: Mahatma Gandhi.

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