How To Spot A Bad Employment Contract

By Sharon Livingstone

AMT maintains a strong position on how massage therapists’ services are engaged, and has been vocal in increasing awareness of sham contracts, and differentiating between contractor and employee status. And it seems the message is getting through. A member of AMT’s private Facebook group recently asked about the contents of a contract they had received from a prospective employer. An animated discussion followed.

A quick squiz of the contract itself set off my “dodgy af” klaxon.

As a former contract administrator, I have read plenty of contracts in my time and this one beggared belief. It looks like the clinic owners involved downloaded a free contract template offered online by a legitimate law firm, but they forgot to remove certain irrelevant clauses and added a few of their own in. It further looks like the clinic owners never got legal sign-off on their amended contract. At least, I hope no employment lawyer signed off on it.

It’d be foolish to expect that the ordinary massage therapist would be able to read a standard contract and understand everything written in it. I certainly don’t, which may explain why I quit the contract admin life to become a massage therapist. However, there are a few things to look out for in a contract that will let you know that you might want to get an expert involved, so let’s check them out.

Dress Code

A contractor determines what they wear to work, not the clinic owner. A clinic owner can only impose a uniform or a dress code with an employee.

Hours of Work

A contractor sets their own hours and works if they want to work, and doesn’t work if they don’t want to. A clinic owner contacting a practitioner to advise if their services are required indicates that the relationship is more likely to be that of employer/casual employee.

Equipment

A genuine contractor provides their own equipment, tools and “substances” (I’m hoping that means “oil”). If a clinic owner is providing all the equipment, this is more likely to indicate an employer/employee relationship.

Superannuation

Superannuation is an employee’s retirement money. Failure to pay the correct amount of superannuation under the Superannuation Guarantee robs the employee of money for their retirement. The Superannuation Guarantee, as prescribed in the Superannuation Guarantee (Administration) Act 1992 at Part 3, Section 19(2), sets out that the minimum amount an employer is obligated to contribute for their employees’ superannuation.

Paragraph 5.2 in the proposed contract really set the red flags waving. If a clinic owner reduces an agreed rate of pay before contributing to an employee’s super, they reduce the income of the practitioner, and they reduce the amount of super the employee’s fund receives, meaning the employee has less money for their retirement. The definition under the Superannuation Guarantee says that the employer will pay “a minimum of 9.5% of their ordinary time earnings”. Ordinary time earnings are the amount of money an employee is paid for their ordinary hours of work.

The contract quotes this piece of legislation, which is “an Act to impose a charge on any shortfall in the amount contributed by employers to RSAs or superannuation funds for the benefit of employees”. It is assumed that the employer is attempting to shift the burden of responsibility for paying superannuation back onto the contractor but this is ironic given their approach to skimming wages for super.

A business owner cannot lower an employee’s wage to a level below the award wage in order to fulfil their superannuation obligations.

In the case of a genuine contractor who has signed a contract agreeing to having their hourly rate reduced in order for a business owner to pay superannuation on their behalf, that contract may be binding.

If you believe that superannuation has not been paid lawfully on your behalf by an employer or former employer, unpaid superannuation can be claimed. The ATO provides a guide on unpaid superannuation.

Some useful resources for employers/clinic owners on superannuation:

ATO’s checklist for Super payments

ATO’s Super for Employers

Fair Work Ombudsman’s Tax and Superannuation information

Superannuation Guarantee (Administration) Act 1992

GST Obligations

The ATO information on GST is a good starting point to determine when and if a practitioner is required to register for GST and how they should mark up their invoices.

According to the ATO, you must register for GST if:

  • “your business or enterprise has a GST turnover (gross income minus GST) of $75,000 or more
  • you want to claim fuel tax credits for your business or enterprise.

“If your business or enterprise doesn’t fit into one of the above categories, registering for GST is optional. However, if you choose to register, you generally must stay registered for at least 12 months.”

It is important to note that the threshold of $75 000 GST turnover is NOT measured by financial year or calendar year, but over a 12-month period (“the current month and the previous 11 months”), so accurate accounting throughout the year is a must.

The contract presented to the Facebook group member says:

A clinic owner cannot force a contractor to register for GST if the contractor has not reached the GST threshold and the contractor does not want to register until they reach the threshold. As the ATO says, registering for GST is optional before hitting the GST threshold.

Non-Compete

“… But if a practitioner steals a database, that’s a whole other level of f#%&ed up.” R. Barnett, 2018.

Lawyer Andrew Jewell from Melbourne based employment law firm McDonald Murholme wrote a useful article on non-compete clauses, and kindly provided input to this section.

The non-compete clause is generally included in contracts to prevent a former employee poaching business/clients. However, a non-compete clause has to be fair and reasonable, otherwise they can successfully be challenged in court. A massage therapist cannot be prevented from fairly earning an income after they terminate a contract/employment. Many non-compete clauses fall under the category of “restraint of trade”.

Preventing a massage therapist from working as a massage therapist in Australia for a 12-month period (see contract excerpt below) is an extreme version of restraint of trade and anti-competitive behaviour, and would be challenged in court.

The issue that the courts look at are the period of time the non-compete clause exists for and the distance from the original business that the non-compete clause affects.

Some non-compete clauses will list a radius (e.g. 5km from the business) and a fixed time period (e.g. 12 months from termination of the contract).

Andrew Jewell advises that, in the case of the contract provided (see excerpt above), the clinic owner has used a “cascading” clause, explaining that:

“A ‘cascading’ clause (is) where the party seeking the restriction starts broad and includes narrower restrictions in case the Court strikes out the more broad restriction. So they are trying to enforce for 12 months, but if a Court strikes that out they will go for 6 months and again for 3. Generally Courts do not like these and will only look at the more limited restriction.”

Another concerning aspect of the provided contract is that, under the “Non Compete” clause, it states that the former employee cannot work for themselves or a competitor after the contract ends (clause 16.3(a)) where the therapist would compete with the “Principal’s business”. There is no stated time period that the massage therapist must be unemployed, and as such, this is a severe restraint of trade.

Something for all clinic owners to consider is that, in 2018, we live in a world of Google and social media. It takes minimal effort for a client to seek out, track down and engage the services of their beloved massage therapist. As suggested in the R.Barnett quote above, a former employee who has nicked a client database is different from a client going to a therapist of their choice who now works in a different location.

Andrew Jewell advises that the “don’t nick our client database” clause “is implied (in) employment contracts under the implied restriction on use of confidential information. Restrictions on use of confidential information are enforceable and should be in all employment contracts where an employer is seeking to protect client information.

Need Help?

Do you work under a contract that you think might not be entirely above board? Are you job seeking and want to know if a contract you’ve been offered is fair?

AMT staff do not have the expertise to provide legal advice to members. However, AMT can offer support and suggestions on how to seek legal or other advice on employment contracts.

Resources for Clinic/Business Owners

The ATO Employee/Contractor Decision Tool should be run to determine whether the business will be engaging a contractor or employing a staff member. No matter how convinced the business is that they are that offering work to a contractor, the definition is in the eyes of the Fair Work Ombudsman and the ATO, not the business owner.

The Fair Work Act 2009 is the legislation business owners must comply with when engaging the services of practitioners (or other staff).

The Fair Work Ombudsman provides a lot of resources for business owners looking to engage the services of others, or who have practitioners/staff working in their business. Some of the most useful resources are:

The Fair Work Handbook summarises responsibilities under the Fair Work Act 2009.

Small Business Hiring Employees sets out further resources for hiring new staff.

Small business Best Practice Guide lists further resources to help small businesses comply with the Fair Work Act 2009.

Finally, to help business owners understand the intricacies of employing others, the Fair Work Ombudsman has a free online learning centre, with a range of short (20-40 minute) courses, including hiring and managing employees, record keeping and pay slips.

About the Author

Sharon Livingstone is a massage therapist in Sydney, NSW. A love of sport drew her to the industry but discovering job satisfaction came from helping people live with less pain keeps her in it. Sharon is a writer, keen bushwalker and frustrated traveller, who is in full on training (including hiking poles and a lot of stairs) to walk across France not on a pilgrimage.

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