April 2012 – Update

Protect your business in tough economic times

When business feels the pinch of economic tough times there can be an urge to reduce labour costs and consider options that provide the required variability and flexibility. However in doing so, businesses need to be mindful of their obligations and possible consequences:


The first step business generally considers to reduce fixed cost is to select positions that can be made redundant. Redundancy occurs when the job being done by an employee is no longer required to be done and there are no suitable alternate roles within the business or related businesses. However, whilst a business may be able to ‘tick the boxes’ on this criteria, a redundancy can still be deemed unfair if there are consultation requirements of an applicable Modern Award, Enterprise Agreement or other industrial instrument that were not met. Further, it is unlawful for employees to be made redundant in order to engage an independent contractor to perform the same work under a contract for services.

Employee or Independent Contractor?

Business may also consider outsourcing to independent contractors as a way of promoting flexibility and avoiding a casual conversation obligation in an applicable Modern Award or industrial instrument. There have been many prominent cases in recent times to establish the common law on who will be deemed an employee as opposed to an independent contractor and the multiple indicia control test remains the authority (Hollis v Vabu Pty Ltd (2001) 207 CLR 21).

This test tells us that there is no one criteria that will distinguish an employee from an independent contractor however a range of factors need to be considered, including in no particular order of importance:

Control—does the business direct the tasks to be done or just set the outcome to be achieved?

Independence—can the person determine how and when they achieve the outcome or does       the business dictate time / process? Is the person free to accept or reject work at their discretion?

Payment—is the payment by the hour and include leave entitlement or paid by outcome? Is the payment made to an individual or a business with ABN?

Commercial risk—does the person take any risk over profit / loss or does the business control income? Does the person offer services to other businesses or are they exclusive?

Delegation—can services be substituted or does the business dictate who performs the work?

Tools—does the person provide their own tools / resources or does the business supply tools / resources such as uniforms, business cards, technology?


Before acting on plans to make labour costs more flexible, contact Nicole or John at Industrial Relations Law to discuss the best strategy for your business.