A Discussion of the Advantages and Disadvantages of being an Independent Contractors Compared to being an Employee and some observations generally
Some months ago, a group of independent contractors working solely for Electrolux approached the ETU to discuss a number of issues that they had, including unpaid superannuation, becoming direct employees, joining the ETU and bargaining collectively for an EBA with ETU assistance.
On meeting with the whole group together for the first time it became apparent that the majority of them did not want to become direct employees of the company and preferred to remain as independent contractors.
Why would they make such a decision?
Advantages of being an independent contractor
Being your own boss
Contract work provides greater independence and control over how and when work is performed. It allows a choice of clients and work. Freedom from supervision, contractors are only ultimately accountable to their clients.
Maintain a good work-life balance
Probably less travelling and commuting, fewer meetings and the ability to work the hours that suit them. A variety of clients means a variety of working experiences rather than the more routine experience of working for the one employer in the same environment.
The potential to earn more money
Being a contractor means payment for every hour of work, or task or project, completed at the market rate.
The potential to deduct business expenses
Most of the expenses incurred in working as an independent contractor are deductible as business expenses.
Disadvantages of being an independent contractor
Insecurity of work
Contracts end and there may be periods where no money is coming, so there is the potential to actually earn less money over a period of time. Time and money will also have to spent in securing new contracts.
Leave
Independent contractors are not entitled to sick leave, annual leave, parental leave etc.
Wrongful dismissals
There is no protection from unfair dismissal. There is no minimum notice period of termination.
Time spent running the business
Independent contractors have to spend unpaid hours ensuring their tax requirements are properly fulfilled, insurance cover is taken out and kept up date and time on other miscellaneous administrative work requirements.
Lack and limitations of bargaining power
Many independent contractors are frequently not in a strong bargaining position when it comes to negotiating the terms and conditions of their contracts. Often, they are simply offered a take it or leave it contract with no genuine negotiating being entered into. There is something they can do about if they organise themselves with other independent contractors. (See the discussion on bargaining below.)
Contracting Arrangements
There are many differences between legitimate independent contractors and employees, and depending on which they might be affects many legal entitlements and obligations, such as tax, superannuation, intellectual property ownership, insurance requirements, personal and annual leave and the right to bargain collectively. Only employees can apply for reinstatement under unfair dismissal or unlawful termination provisions in the Fair Work Act 2009 (FW Act). Persons engaged as independent contractors must look to the general law, supplemented by unfair contracts provisions for any remedy on termination.
Contractors are generally:
• paid for results achieved,
• provide all or most of the necessary materials and equipment to complete the work,
• are free to delegate work to others,
• have freedom in the way they work,
• provide services to other businesses,
• free to accept or refuse work, and
• in a position to make a profit or loss.
In contrast to independent contractors, employees have little control over the work they perform, their place of work, and their work hours.
A worker is usually considered an employee if he or she:
• is paid for time worked,
• receives paid leave (personal, annual and long service),
• is not responsible for providing the materials or equipment required to do the job,
• must perform the duties of the job position,
• agrees to provide their personal services,
• works hours set by an enterprise agreement or award,
• is recognised as an integral part of the employer’s business, and
• takes no commercial risks and cannot make a profit or loss from the work performed.
Independent contractors may or may not be entitled to superannuation payments by their employer/hirer. Employers, or hirers must pay super contributions for independent contractors if they:
• are paid wholly or principally for their personal labour and skills,
• perform the contract work personally, and
• are paid for hours worked rather than to achieve a result even if they quote an Australian Business Number (ABN).
Ownership of intellectual property (IP) for hirer and independent contractor relationships is treated differently to employer and employee relationships.
• IP created by an employee is considered the property of their employer.
• IP created by an independent contractor for a hirer is by law considered the property of the independent contractor, unless otherwise stated in the contract.
If there is no written agreement giving the hirer ownership of any IP generated, the independent contractor will own any IP they create and will legally be able to disclose and re-use the IP.
Independent Contractors and Collective Bargaining
Collective bargaining allows independent contractors to come together and negotiate terms and conditions (including price) with a hirer. Collective bargaining by independent contractors is subject to the Competition and Consumer Act 2010 (CCA). Small businesses are often more likely to be heard on terms and conditions if they join with other small businesses to collectively negotiate with a larger business, rather than one-on-one.
However, collective bargaining by independent contractors is usually prohibited under the CCA (under section 45) as it can have a detrimental effect on competition and consumers-referred to as lessening competition under the CCA.
To determine whether a substantial lessening of competition may or has occurred, the effect on the overall market for the particular product and its substitutes must be analysed.
The Act also prohibits agreements which contain a cartel provision. A cartel provision is a provision relating to price fixing, restricting outputs in the production and supply chain or allocating customers, suppliers or territories.
Collective arrangements, including in limited circumstances collective boycotts, may produce public benefits. The CCA therefore allows immunity from legal action to be granted to parties to engage in anti-competitive conduct, including collective bargaining and collective boycotts, when in the public interest. Bargaining collectively, rather than on an individual basis, can generate public benefits by improving the efficiency of the bargaining process and negotiated arrangements. These benefits are achieved by lowering the time and costs associated with putting supply arrangements in place (transactions costs), reducing information asymmetries and strengthening barga
ining power.
Independent contractors must apply to the Australian Competition and Consumer Commission (ACCC) for permission to collectively bargain with a hirer. The ACCC can grant independent contractors immunity from legal action if it is satisfied that the public benefit from the arrangements outweighs any public detriment.
There are two processes under the CCA which allow for independent contractors to bargain collectively. The first process is the lodging of a “collective bargaining notification”.
Although it is open for independent contractor to join a trade union and have the union represent their interests in any bargaining, a union, an officer of a union or a person acting on the direction of a union cannot lodge a collective bargaining notification. The current notification fee is $1,000, but may be waived in certain limited circumstances.
The statutory protection provided by a notification comes into force automatically (either immediately or after 14 days depending on the type of notification lodged). The statutory protection provided by a collective bargaining notification will remain in place for three years unless revoked by the ACCC. The statutory protection for notifications involving exclusive dealing conduct, or the private disclosure to competitors of price information remains in place unless revoked by the ACCC.
The alternative to the collective bargaining notification process, namely the ‘authorisation process.’ Authorisation provides statutory protection against legal action under certain of the competition provisions of the Act.
It takes longer (generally three, but up to six months) and is more expensive. The current authorisation fee is $7,500, but may be waived in full or in part.
The ACCC can grant authorisation if it is satisfied that the public benefit from the conduct outweighs any public detriment, including any lessening of competition. Examples of the types of conduct or arrangements where authorisation has been sought and granted include non-prescribed voluntary industry codes of conduct, industry levies, certain types of joint ventures or alliances, and collective bargaining.
When an authorisation is in place it is possible for independent contractors to legally engage in a collective boycott. This occurs when two or more competitors (independent contractors) agree not to acquire goods or services from, or not to supply goods or services to, a business with which the group is negotiating, unless the business accepts the terms and conditions offered by the collective bargaining group. The ability to threaten and/or engage in a collective boycott can be an efficient negotiating tool, and may enable the efficiency benefits of collective bargaining to be realised.