Kristen Porter simplifies what employee Vs contractor decision means for real estate

In the wake of two recent High Court decisions regarding the distinction between employee and independent contractors, O*NO Legal founder Kristen Porter said some of the grey areas had been clarified.

“Previously the court has held that regardless of what is in a written contract, they look at the situation as a whole as to what, in practice, is the relationship between the agency and the contractor,” she said.

“Now, the court has said that if there is a written contract in place and it has certain items listed in it, then that is enough to show the person is a contractor.”

But Ms Porter said this would not apply if you had a “sham contract”, which is when a written contract is in place but it doesn’t reflect the actual working arrangement.

“If you’ve just thrown a contract in place but said, ‘wink, wink, let’s ignore that and actually do things this way’, then the court will look beyond the terms of the contract as, essentially, it’s a sham contract,” she explained.

“Courts should only consider conduct in cases where the conduct may have varied the terms of the contract after it was made.”

Ms Porter said the key thing an agency needed to show the court was that the contractor was running their own real estate business and this could be achieved by several specific clauses in the contract.

She said the first thing to make clear was that the contracting party was a company, trust or partnership, and not an individual, as these legal entities were more likely to act as a business.

Also, don’t tie the contract to a single person.

“You can note that there is a specified person to carry on the services, but that person can’t be contractually bound to be the only person to deliver those services,” Ms Porter said.

“For example, if that person takes leave or moves on then there needs to be the ability for someone else in the contracting company to jump in.”

Ms Porter noted that the contracting company also needs to be able to employ its own staff or pay to use the agency’s staff.

“If the contract is tied to just one person, it looks more like a contract for the provision of labour and that is not generally a contractor-type arrangement,” she said.

Allowing flexible remuneration, such as a commission structure, is also a step in the right direction as an agency that asserts a lot of control over a person, such as working 9am to 5pm for a set wage, is more indicative of an employment relationship.

Ms Porter said agencies could not stop contractors from performing services for others.

“This is the one most agencies have the biggest issue with when I speak with them,” she said.

“They want their agents to only work for them, however a true contractor can offer services to the world at large.”

The contract the agency puts in place should also show any equipment or services are provided through the contracting company, that the contractor carries commercial risk and has to pay their own bills.

Ms Porter said an agency should also include an intellectual property licence in the contract to allow the contractor to use its brand, logo and other IP as someone can’t use these things without permission.

If you don’t grant this permission in the contract it could look like an employment relationship.

Ms Porter said the contractor must invoice the agency for its fee or commission and the contract must be in writing.

“If you need to show the court your contract it’s much easier (if it’s in writing) and if contracts are verbal you can get into a ‘he said, she said’ situation and that can be hard to defend,” Ms Porter said.

Ms Porter noted that the court would also consider how leave, GST and clients are dealt with, who pays for insurances, the degree of independence the contractor has, whether the contractor’s primary source of income comes from one agency and the fact that an agency cannot use an independent contractor to deliver services they would usually require an employee to provide.

“In other words, instead of the agency being a business of selling property and hiring people to sell property on their behalf, it becomes a hub for people conducting business for the purposes of selling property,” Ms Porter said.

“It is a subtle change, but is absolutely imperative if you wish to prove an independent contract.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.