A recent decision in the Full Federal Court has again put service agreements to the test with a decision that is likely to widely impact the medical profession.
The Full Federal Court has unanimously held that a dentist, Dr Moffet (the dentist) who operated under a service agreement was an “employee” under the Superannuation Guarantee (Administration) Act 1992, and not an independent contractor.
The dentist in question had sold his practice to Dental Corporation Pty Ltd on the agreement that he would continue to work in the practice. Under his service agreement, the dentist was to provide dentistry services to his patients and was provided with administrative services, including staff to support him whilst he practiced at the surgery.
However, the service agreement also provided that the dentist was to compensate Dental Corporation Pty Ltd to pay a “shortfall” amount to the practice in the event the practice’s annual cashflow fell below a specified amount. The court ultimately found that whilst these two components were distinct from each other they could not be disentangled and the agreement was substantially “for” the purpose of the dentist’s labour and relied on section 12(3) of the Act defining an “employee” to include a person working under a “contract that is wholly or principally for the labour of the person”.
Dental Corporation Pty Ltd now has a liability under the Superannuation Guarantee (Administration) Act 1992 to make superannuation contributions for the benefit of, and given the nature of its contracting arrangements with, Dr Moffet.
This case is a timely reminder of the importance of a well written service agreement and how superannuation guarantee (and other on costs such as payroll tax) can apply to independent contractors.
It is also important to note in this case that the dentist did not succeed in his additional claim for annual leave and long service leave as it was found that he was not an ‘employee’ for the purposes of the Fair Work Act and Long Service Act (NSW) respectively.
It is therefore important for practices to review their service agreements to ensure they are not going to be hit with any unanticipated employee related obligations. There is potential that claims for superannuation may begin to rear their heads as a result of this case.
If you need help in this area please do not hesitate to get into contact with our team.
