Medical practices can engage practitioners under a variety of contracting arrangements.  In our experience, many practices are not clear regarding the type of contracting arrangement under which their practitioners are engaged.

This can lead to confusion around how the customs and procedures of the business are or should be managed. In some instances, medical practices inadvertently treat their practitioners like employees although they are purportedly independent professionals or contractors. This creates legal risk, which if not carefully managed can prove costly.

This article outlines why it is important to ensure that your customs and procedures reflect the contractual arrangement your practitioners are engaged under.

Common contracting arrangements

The first step is to understand which legal relationship is, or should be, in place with your practitioners. Common contracting arrangements in medical practices include:

1. Service arrangements: This is where the practice (or service entity) acts as a service provider to the practitioner. The practice supplies the premises, administrative support and resources to the practitioner in return for payment of a “service fee” from the practitioner. The practitioner carries out a business of their own, and are at no time contracted to perform “work” for the practice.
2. Independent contractor:  This is where the practice contracts with the practitioner to provide services to the medical practice. It is a contract “for services”, in that the practitioner carries on their own independent business and provides services to the practice;
3. Employment: This is where the practitioner is employed by the practice to work for the practice. This is a contract “of service” where the practitioner serves the employer’s business and its best interests.

Remuneration, tax arrangements and legal liabilities differ between each arrangement.

Difficulties can arise where there is no clear understanding of the distinction between these types of contracting arrangements. Medical practices might be of the view that they have a service arrangement or independent contractor arrangement in place, but might, be treating and presenting their practitioners as employees of the practice.

Why does it matter?

If the appropriate arrangements are not in place it can increase the likelihood that practitioners may be held to be employees, and consequently, be eligible for legal entitlements as such. These can include:

• Leave entitlements;
• Superannuation entitlements;
• Workers’ compensation payments; and
• Protection from unfair dismissal.

Employers also have a number of additional responsibilities. These include:

• Income tax;
• WorkCover insurance premiums;
• Vicarious liability (as a general rule, employers are vicariously liable for the negligent acts of their employees); and
• Penalties if engaging in sham contracting.

Employment indicators

Determining what type of contractual arrangement is in place involves looking at the true nature of the relationship rather than the label used by the practice. There is no single factor or set of factors in determining whether someone is an employee. Rather, the courts apply a “multi-factor” approach.

A number of cases have considered whether a medical practice or health service was, at law, engaging their practitioners as employees, notwithstanding the practice had labelled the practitioners as contractors.  These cases show that the following factors, amongst others, can be indicators of employment:

• The practitioner being forbidden from providing services to other medical practices;
• The practice exercising a high degree of control over how the practitioner performs their work;
• The practitioner not being permitted to retain patient records (this is relevant to goodwill);
• The practitioner not being permitted to arrange a locum to substitute for them;
• The practitioner being placed on a fixed roster; and
• The practice paying superannuation to the practitioner.

These factors show that arrangements where the practice has a high degree of control over the practitioner are at risk of being considered an employment relationship.

Having a well-drafted contract will be of assistance in clarifying the relationship. But a well-drafted contract will not be enough if your practice’s customs and procedures suggest the existence of an employment relationship.

Case study: Aufgang v Kozminksy Nominees                                             

In Aufgang v Kozminsky Nominees Pty Ltd