The Australian High Court recently handed down two important decisions about the identification of employment and contracting relationships, which emphasises the importance of having all-inclusive written agreements in place for practice employees and contracting doctors.
Until recently, the courts applied a “multi-factorial” approach when deciding whether a worker is a contractor or an employee. This approach considered how the parties conducted the relationship by looking at circumstances such as:
- whether the principal controlled how work was performed
- whether the worker had their own tools and equipment
- whether the worker conducted their own business, or was integrated into the business of
a principal, etc.
The courts considered the terms of a written agreement between the parties but focused attention on the way the relationship worked in practice over time.
The terms of the written agreement is now the primary consideration
Now with this new ruling, the terms of a written agreement are now what should determine whether a worker is an employee or contractor (provided the agreement is valid, enforceable and comprehensively sets out the rights and duties of the parties).
The conduct of the parties after the agreement is formed should not be considered. For example, if the agreement says that the worker is a contractor, is not entitled to leave, is required to pay GST and can choose their own hours of work, the courts will find the worker is a contractor even if the practice ultimately directs the worker’s work.
Handshake versus written agreement
Over the years, many healthcare practices and practitioners have preferred a ‘handshake agreement’ over a detailed written agreement setting the agreement’s terms and conditions.
But recently, it is clear written agreements are an increasingly important tool to minimise the risk of healthcare practices being required to pay payroll tax or superannuation to contractors.
The recent High Court decision has made it even more important. The written agreement will now be the primary source used to determine whether a worker is an employee or contractor.
Healthcare Practices should review their arrangements with contracted doctors.
- If there are written agreements in place, your practice might need to consider whether those agreements properly characterise the doctor as a contractor and minimise the practice’s liability for payroll tax and superannuation.
- If there is no written agreement, the courts will continue to use the multi-factorial test to determine whether a worker is an employee or contractor. To avoid unintended and uncertain outcomes, healthcare practices should ensure there are comprehensive and accurate written agreements (for example, if the doctor is found to be your employee, or you are required to pay payroll tax).
- Be even more concise about the terms you engage any healthcare professional who is working temporarily
- The courts are unlikely to find that a doctor is an employee if the written agreement is with the doctor’s practice entity rather than the doctor personally.
- An increasingly common engagement model is to have the agreement set up so that the doctor engages the practice to provide practice management services to the doctor (rather than the practice engaging the doctor to provide healthcare services to the practice’s patients).
Even if you are an employed doctor you could consider whether you require your own medical indemnity insurance.
Investigate and if in doubt, speak with your medical indemnity insurer
Doctors and health care facilities should have their contracts in writing to protect both the employee and healthcare professional.
If you are looking at starting your own medical practice, make sure you consider these important aspects before doing so.
We are experts in medical indemnity insurance, medical malpractice insurance, doctors indemnity insurance, GP medical indemnity insurance, medical practice insurance, medical practice insurance and more. If you are a medical practitioner with Tego, we offer 24/7 medico-legal advice and support.
This publication is general in nature and is not comprehensive or constitutes legal or medical advice. You should seek legal, medical or other professional advice before relying on any content, and practice proper clinical decision making with regard to individual circumstances. Persons implementing any recommendations contained in this publication must exercise their own independent skill or judgment or seek appropriate professional advice relevant to their own particular practice. Compliance with any recommendations will not in any way guarantee discharge of the duty of care owed to patients and others coming into contact with the health professional or practice. Tego Insurance Pty Ltd is not responsible to you or anyone else for any loss suffered in connection with the use of this information.
All content on this page has been written in a generic way, and has not been presented with any knowledge of your personal objectives or financial needs.