Many private psychology practices have brought on additional staff to meet the growing demand for psychological services, and with this comes decisions about whether to employ or subcontract psychologists to the business. This is often a difficult area and the APS Advisory Service frequently receives calls to clarify specific issues related to employment and contracting arrangements. A number of previous InPsych articles have focused on such questions (see ‘Legal aspects of contracting arrangements’, June 2009; ‘Contracting and employment in private practice settings’, April 2008).
This article extends on earlier information about contracting and employment obligations and was prompted by a recent professional development day on the topic organised by the APS Melbourne Branch. The day featured a presentation by Melbourne-based barrister Miguel Belmar, which generated a great deal of interest. To enable the information on this complex topic to be shared with a wider audience, Miguel was subsequently asked to comment on specific questions that have been received by the APS Advisory Service. The questions and Miguel's responses are presented in this article.
What are the features that distinguish a contractor from an employee?
An employee is a person who works under an employment contract of service. Generally he or she is required to work specific hours, for set pay, under the direction of an employer. The employment entitlements, such as wages, holiday pay, sick leave and superannuation, are the responsibility of the employer. An employee’s taxation is also the responsibility of the employer who is required to deduct tax at each pay period and provide a group certificate at the end conclusion of each financial year.
In contrast, contractors can choose to work their own hours. True contactors generally set their own fees and arrange their own time including work hours and holidays. True contractors work under limited or no supervision.
What specific clauses should a psychologist ensure are part of a contract agreement to distinguish it from an employment arrangement?
Every working relationship in which a contractor/subcontractor arrangement is utilised will be different, so using standard form agreements is not always the answer. Contractor/subcontractor agreements need to be carefully drafted to ensure that a true contractor/subcontractor agreement is being created both in fact and in law. It is not sufficient to have a clause in a contract that states “The parties do not intend to create an employer/employee arrangement”.
I am working as a contracted psychologist in a practice and have been asked to sign an agreement with a ‘restraint of trade’ clause. At the end of my contract the clause seeks to prohibit me from working, not just in any competing private practice, but in ‘‘any other psychological organisation’’ in the regional town in which I live for a period of three years. Is this clause reasonable?
Generally a restraint of trade clause will only be enforceable insofar as it is a ‘reasonable restraint’. For example, a restraint of trade clause preventing a person working anywhere in the world would be unreasonable. Each case will be different depending on its individual facts. A clause that would prevent a person from working in a regional town for a period of 36 months would in most circumstances be considered unreasonable due to the length of time. The period of time that would be reasonable will depend on factors such as the income earned during the contract period, the period of the contract in comparison to the term of the restraint, and the conduct of the contractor during the contract period. As a general rule, courts will look at the conduct of the contractor during the contract period and consider whether the contractor used resources belonging to the practice to establish his or her business.
I am leaving the practice at which I have been employed for the past two years and one of my clients has asked to continue to work with me at my new work location. The principal of the practice has told me that I cannot see the client if the client approaches me at my new practice location and that this was a condition of my employment. Is it ethical to refuse to see the client if he approaches me? Are there any legal implications for me if I continue to see the client at my new practice location?
Psychologists are now registered under a Commonwealth law through the Australian Health Practitioners Regulation Agency, and therefore have obligations under their registration (including ethical obligations) as well as obligations associated with their contracts of employment or contractor/subcontractor agreements. Two matters therefore need to be considered in answering this question: as a general rule only a reasonable restraint of trade will be enforced by a court; and further, as a general rule, no contract can include a clause which would infringe a law. Accordingly, if a psychologist’s ethical obligations are enshrined in law through registration, the contract of employment should be consistent with these obligations. If it is not consistent, the contract of employment is liable to be attacked as being void and unenforceable.
I work at a practice three days a week as a contractor. I am provided with up to six clients per day through the practice and pay a percentage of the fees collected from the client to the principal of the practice. I am concerned with this arrangement as the APS Code of Ethics, which is binding on all psychologists under national registration, states that “Psychologists do not receive any remuneration, or give any remuneration for referring clients to, or accepting clients from, other professionals for professional services” (Section C.6.3). By paying a percentage of the client fee to the principal am I, or is the principal of the practice, violating the Code of Ethics and therefore compromising registration as a psychologist?
As set out in the response to the previous question, a contract between two parties must always be compliant with the law and any clause in a contract that does not comply could be void and unenforceable. Whether or not a psychologist has breached the Code of Ethics in this situation and the implications for continuing registration will be judged by the registering authority.
I am considering joining a practice working three days per week at set times. I have been told that under such an arrangement, should I leave the practice I am not to accept referrals from 10 GP clinics identified in the contract. Is this a legitimate clause to include in a contract? What if the GP believes that I would be the most suitable person to provide services to a particular client and contacts me directly?
As discussed above, as long as a restraint of trade clause is reasonable it may be enforceable in the courts. In circumstances where a restraint of trade clause is considered reasonable and therefore is enforceable, if the psychologist accepted a referral from a GP who is identified in such a clause, he or she may be in breach of the contract. Please note that reasonable restraint clauses can be lawfully included in both employment agreements and contractor/subcontractor agreements.
My contract specifies that the fees paid to the principal of the practice for clients seen at the practice include GST regardless of whether the service provided attracts GST. Is this reasonable given that a contractor earning above $75,000 per annum is required to pay GST on earnings anyway and will recoup these monies?
Matters surrounding taxation and GST are complex and it is vital that contracted psychologists fully understand these issues to ensure that they are not in breach of taxation requirements. A discussion of these matters is beyond the scope of this article and psychologists in this situation are strongly advised to obtain expert advice from accountants with experience in working with health professionals.
As a contracted psychologist, do I have responsibility for the client files or is the principal of the practice required to manage the client files? Does this change when I leave the practice?
If a psychologist is employed in a true employer/employee relationship the management of the practice files will be the responsibility of the practice. In circumstances where a psychologist is working as a true subcontractor, the matter of the responsibilities for files will be governed by the subcontractor agreement. If the subcontractor agreement is silent on the question, it is likely that at the commencement of the contractor arrangement the parties intended to follow industry custom and practice. For psychology, in accordance with the APS Code of Ethics, psychologists are responsible for ensuring appropriate management of their client files.
As a subcontractor in a practice I have been told that I must use the letterhead of the clinic in all correspondence. I was surprised at this request given that I am an independent contractor. Is this a legitimate expectation for a sub-contracting arrangement?
There are numerous indicators as to whether a person is an employee or a true subcontractor. One of these indicators is whether the person is held out to be a representative of a larger organisation or is practising as an individual. The more restrictions that are placed on a subcontractor to require them to hold themselves out as part of a larger organisation, the greater the likelihood that the person is not involved in a true contractor or subcontractor arrangement but is in fact and in law, an employee.
I have been working under a contractor arrangement but as of eight months ago my contract expired and has not been renewed. I am considering leaving the practice. Must I still abide with clauses in the contract given that I have been working without a contract for the past eight months?
If the written contract is not specifically renewed but the parties continue the arrangement, the law will assume that the contract terms were ‘rolled over’ into the continuing relationship. Therefore, a psychologist who continues to work beyond the eight months is not working without a contract but is in fact still likely to be bound by the terms of the original eight month engagement. To ensure clarity and avoid any problems in these situations, it is best to put things in writing before the end of the original period of the engagement.
Is the practice liable should a client take legal action against a contracted psychologist (e.g., for inappropriate behaviour)?
It is possible in a true contractor/subcontractor arrangement that the principal of the practice can be held liable for the activities of the contractor. It will all depend on the circumstances of each case. As a general rule the concept of vicarious liability means that a principal can be responsible for the actions of an agent.
Disclaimer: The purpose of this article is to provide an overview of topics that can arise in practice. This is not legal advice and is not intended to be legal advice. This article should be used as a general guide only. Members are advised to obtain specific advice from a legal practitioner if they have queries similar to those in this article.