Andrew D H Denton - PDF document

Andrew D H Denton Barrister Owen D
Andrew D H Denton Barrister Owen Dixon Chambers 205 William Street Melbourne Vic 3000 DX 94 Melbourne Vic P: 03 9225 7333 F: 03 9225 7907 denton@vicbar.com.au 23 February 2015 Employee or Contractor? Look beyond the Words. By Andrew D H Denton1 Introduction 1. Employees enjoy certain benefits that independent contractors do not. Employees alone enjoy legislative entitlements such as annual leave, sick leave and superannuation, as well as remedy against harsh treatment through the unfair dismissal regime. Though contractors operate without these comforts there are of course benefits to operating as an independent contractor. These workers enjoy their independence by having the capacity to – among other things – negotiate their own rates, use their own tools, and work to their own schedule. 2. Greater liabilities and obligations are imposed on companies to an employee than to a contractor; it therefore follows that to hire workers on an independent contract basis can carry with it a considerable financial benefit to employers. Unsurprisingly, this has seen an intentional blurring of the lines by organisations labeling as contractors workers that in reality are employees. 3. While the test for determining whether a worker is truly an employee or a contractor is far from black and white, one thing is clear – look beyond the words. As the often cited phrase of Gray J goes͕ “the parties cannot create something which has every 1 Barrister at the Victorian Bar practicing in Industrial and Commercial law PAGE 2 OF 14 ANDREW D H DENTON feature of a rooster, but call it a du

ck and insist that everybody else recogn
ck and insist that everybody else recognise it as a duck͘”2 4. With the notion of the traditional workplace changing with a modernising world, so too has the employment classification test evolved. It is too simplistic to say that the classic “control test” – that is, simply assessing what level of control an employer exercises over its workers3 – is the only consideration for the Courts. 5. For a start, the classic control test is now more difficult to assess. Industries employing couriers, labourers, translators and technicians – essentially, any skilled worker that is able to perform his or her services ‘off-site’ – are examples of how (at first glance) a worker may be easily classified either way. They do not have a boss sitting in the office next to them, capable of assessing their output by glancing over their shoulder. These workers are moving from place to place on their own – often in their own vehicle – and recording their own time. 6. The High Court has provided limited guidance on this issue in recent times. The 2001 case of Hollis v Vabu4, however, did consider the general approach that should be adopted in employment classification – albeit through the guise of vicarious liability. This case concerned an accident caused by a worker in a bicycle courier business and whether the company was vicariously liable for the courier. The company had successfully argued at the appellate level that it hired its couriers as contractors and therefore they were liable for their own actions. 7. The High Court held that the Court of Appeal fell into error by placing too much emphasis on the fact that the couriers owned their own bicycles,

bore the expenses of running them and
bore the expenses of running them and supplied many of their own accessories. The Court held that the employment relationship was to be “viewed as a practical matter”5 and, in practical 2 Re Porter; ex parte TWU (1989) 34 IR 179 at 184. 3 See generally Stevens v Brodribb Sawmilling (1986) 160 CLR 16; Hollis v Vabu Pty Ltd (2001) 207 CLR 21; Abdalla v Viewdaze Pty Ltd (AIRCFB, 14 May 2003, PR927871). 4 (2001) 207 CLR 21 (Hollis v Vabu). 5 Ibid at [47]. PAGE 3 OF 14 ANDREW D H DENTON terms, these couriers were not engaged in conducting their own business6 nor did they demonstrate any true independence. 8. Following this decision, the Federal Court has handed down a number of key decisions that have more precisely identified the indicia that may be taken into account when assessing the true relationship between worker and employer. This paper analyses but a few. Case Law Damevski 9. The Full Court of the Federal Court handed down the decision in Damevski v Giudice and Others7 in 2003. This case was an appeal from the Fair Work Commission concerning whether the Commission had jurisdiction to hear an unfair dismissal claim brought by a worker who, on paper, was an independent contractor. The Full Bench of the Commission had found that it had no jurisdiction to hear the case. 10. The facts of the case broadly related to a cleaner who “resigned” from his employment after his employer gave him the “choice” to resign and enter into a “contract” for his same services͕ or no longer be provided with work.8 At the time of the alleged resignatio

n, the Managing Director of the company
n, the Managing Director of the company told the Applicant that “nothing would change”9 in his working conditions except that he would start to receive wages from a different entity. 11. At all times (before and after the contracting date), the employer provided the Applicant with the following: 6 The general principle of assessing whether a worker is engaged in business of his/her own account or serving someone else was espoused in Marshall v Whittaker’s Building Supply Co (1931) 46 CLR 210 at 217. 7 (2003) 133 FCR 438 (Damevski) 8 Damevski at [12]. 9 Damevski at [14] and [52]. PAGE 4 OF 14 ANDREW D H DENTON 11.1 a van with company livery, which was maintained and fuelled by the company; 11.2 shirts and a hat with company livery; 11.3 two pairs of trousers; 11.4 a mobile phone to enable his supervisors at the company to contact him if they required him to alter his starting times; 11.5 job sheets describing the jobs which the company required him to perform and the starting and finishing time of his shifts; and 11.6 all the necessary equipment required to perform his cleaning duties.10 12. It was clear that after the contracting date, the Applicant continued to work at the direction of his employer, in the same manner in which he had worked prior. He did not trade under a business name and the only work he performed was work for the company. He was directed to worksites͕ called into the company’s head office for further instructions when necessary, and was provided with all attire and equipment to enable him to perform work.11 13. The Court found that the

relationship was one of employment an
relationship was one of employment and that, by concentrating entirely on the documentary evidence and considering it to be conclusive – without reference to the totality of the evidence before it – the Full Bench of the Commission had misdirected itself12 and failed to consider the possibility that a relationship of employment subsisted between the Applicant and the company after the contracting date. 10 Damevski at [22]. 11 Damevski at [25]. 12 Damevski at [116]. PAGE 5 OF 14 ANDREW D H DENTON 14. The company determined where, when and how work was to be performed and how much the Applicant was to be paid for it. Viewed as "a practical matter" the Applicant did not conduct his own business or enterprise, did not have any real scope for bargaining for rates of remuneration, and did not have any independence in the conduct of the cleaning services he provided.13 On Call 15. In 2011, the Federal Court handed down 2 decisions that related to the classification of a whole class of workers. One of these cases, On Call Interpreters and Translators Agency Pty Ltd v Federal Commissioner of Taxation14, concerned the employment position of approximately 2,500 interpreters and translators and the significant subsequent tax obligations that would be imposed on the company as a result. 16. The company argued it hired all relevant workers on a contract basis and sought to adduce evidence through 7 witnesses to prove that each was an independent worker that was running his or her own business. Bromberg J expressed his lack of satisfaction with the evidence being presented in this manner. Many of what his Honour considered

to be the relevant indicators were sim
to be the relevant indicators were simply not addressed in the evidence given by On Call’s witnesses͕ and where those indicators were addressed, the evidence lacked detail and substantiation.15 17. In the end, the Court found that 2 of these 7 were operating as independent contractors (those advertising their business through the Yellow Pages, Internet, business cards for example)16 but declined to accept that this collection of witnesses represented an accurate sample group of all workers. It was noted that it would be unsatisfactory to declare two-sevenths of all workers to be independent contractors on this basis. Other criticisms were laid, including: the highly generalised fashion in 13 Damevski at [172]. 14 (No 3) (2011) 214 FCR 82 (On Call). 15 On Call at [239]. 16 On Call at [233]. PAGE 6 OF 14 ANDREW D H DENTON which the evidence was presented; the lack of detail in the evidence of those witnesses who were called; and, the failure of the interpreter witnesses to link their evidence to their activities in the relevant period let alone to those activities the subject of the Commissioner’s assessments.17 18. In reaching his decision, Bromberg J – noting the approach of Hollis v Vabu – outlined the following two-part test when considering the relationship in accordance with what he phrased the “totality” approach: simply expressed, the question of whether a person is an independent contractor in relation to the performance of particular work, may be posed and answered as follows: Viewed as a “practical matter”: (i) is the person performing the work an entrepreneur wh

o owns and operates a business; and,
o owns and operates a business; and, (ii) in performing the work, is that person working in and for that person’s business as a representative of that business and not of the business receiving the work?18 If the answer to that question is yes, in the performance of that particular work, the person is likely to be an independent contractor. If no, then the person is likely to be an employee. 19. To answer the first limb, his Honour outlined the following factors to be taken into account based on an analysis of a number of previous judgments:19 17 On Call at [225-226]. 18 On Call at [208]. 19 For a full reference to all judgments referred to in the indicia see On Call at [217 – 218]. PAGE 7 OF 14 ANDREW D H DENTON 19.1 Do the economic activities of the putative business involve the taking of risk in the pursuit of profits? 19.2 Does the putative business engage in a repetitive and continuous manner with purchasers of its services? 19.3 Does the putative business employ or engage persons other than the owner/operator to carry out its economic activities? 19.4 Is goodwill (name, brand and reputation) being created by the economic activities of the putative business? 19.5 Is the putative business promoted as a business to the public through advertising or other promotional means? 19.6 Does the putative business have tangible assets such as buildings and equipment which are utilised to support its economic activities? 19.7 Does the putative business have the basic transactional systems that are common of a business of that kind? For instance: invoicing systems; standard rates and terms and condition

s of trade; insurance coverage; payment
s of trade; insurance coverage; payment and debt collection systems; appropriate financial records; budgeting or forecasting systems; business based arrangements with a bank or other financial institution. 19.8 Do the services provided by the putative business involve the provision of labour of sufficient skill to be suggestive of the pursuance of a profession or trade through a business? 19.9 Are the regulatory requirements of a business (including business name registration, taxation, GST and ABN registration and compliance) being met by the putative business? PAGE 8 OF 14 ANDREW D H DENTON 20. To answer the second limb, his Honour outlined the following indicia for consideration:20 20.1 Does the provision of the economic activity provide an opportunity for profit and involve the risk of loss, or is the payment made largely consistent with the remuneration that an employee would have received for providing the activity? a) In that respect and in relation to profit: - to what extent is the reward for the provision of the activity negotiable and negotiated commercially? - to what extent does the putative owner/entrepreneur have the capacity to manage the activity so as to maximise the potential for profit? b) In that respect and in relation to risk: - to what extent is the agreed payment contingent upon the person providing a satisfactory result (i.e. are there financial consequences for poor performance)? - who bears the risks associated with providing any equipment or assets required for the performance of the economic activity? 20.2 Does the putative business or the putative employer’s business control and direct or have the capacity to control and direct the manner in which

the economic activity is carried out?
the economic activity is carried out? 20.3 Is the economic activity represented or portrayed as the activity of the putative business or that of the putative employer’s business? 20 Ibid. PAGE 9 OF 14 ANDREW D H DENTON 20.4 To what extent is the person providing the economic activity integrated with the business receiving the activity? 20.5 To what extent is the person providing the economic activity financially self-reliant from, as opposed to, economically dependent upon or organisationally tied to, the business receiving the activity? Exclusivity is suggestive of an employment relationship. However, it does not follow that a person who provides casual or part-time work to multiple purchasers is not an employee. 20.6 Is the person providing the economic activity free to employ his or her own means (employees or contracted agents) to produce the activity or must that person personally perform the work? 20.7 To whose business does any goodwill created by the economic activity enure? 20.8 In contracting to provide the economic activity has the person agreed to provide an outcome or result? 20.9 To what extent is the person providing the economic activity doing so with his or her own tools and equipment? 20.10 If the person is providing their own equipment, to what extent can the person be directed in the management and control of that equipment? 20.11 Have the parties involved characterised the economic activity as that of the owner/entrepreneur being performed in and for that person’s business͕ or alternatively as part of the receiving business, and to what extent does that characterisation reflect the reali

ty? PAGE 10 OF 14 ANDREW D H
ty? PAGE 10 OF 14 ANDREW D H DENTON 21. It should be noted that representation of the business to the world at large was regarded as being of particular importance21 in this case given the emphasis placed upon emanation by the majority in Hollis v Vabu. Trifunovski 22. The second decision of 2011 was the decision of Perram J in ACE Insurance Ltd v Trifunovski and Others22 that was subject to a subsequent appeal. The case concerned the employment classification of 5 traveling door-to-door insurance salesman who were hired to sell/renew insurance policies to people living in regional areas. Once again, the company argued that these workers were contractors that conducted their own businesses independently of the company. 23. At first instance, Perram J focused on the common law test of employment regarding vicarious liability, as espoused in Hollis v Vabu23, and said that the basal question was said to be: in whose business was the putative employee toiling?24 24. Usefully, in order to assist how the classification of employment is to be considered, his Honour outlined the following: 24.1 The distinction between an employee and an independent contractor is ‘rooted fundamentally in the difference between a person who serves his employer in his͕ the employer’s͕ business͕ and a person who carries on a trade or business of his own’͖ 24.2 The answers to that question are to be determined by reference to the ‘totality’ of the relationship͖ and 21 On Call at [270]. 22 (2011) 200 FCR 532 (Trifunovski). 23 The relevant passage from Hollis v Vabu at [25]: The common law’s interest

in the question of employment is limit
in the question of employment is limited. In modern times it is largely confined to the question of whether one person should be vicariously liable for the torts of another. 24 Trifunovski at [34 – 35]. PAGE 11 OF 14 ANDREW D H DENTON 24.3 A number of indicia have accreted over time in the authorities which are thought to throw light to varying degrees on the outcome without being determinative: the terms of the contract; the intention of the parties; whether tax is deducted; whether sub-contracting is permitted; whether uniforms are worn; whether tools are supplied; whether holidays permitted; the extent of control of, or the right to control, the putative employee whether actual or de jure; whether wages are paid or instead whether there exists a commission structure; what is disclosed in the tax returns; whether one party ‘represents’ the other͖ for the benefit of whom does the goodwill in the business inure͖ how ‘business-like’ is the alleged business of the putative employee – are there systems, manuals and invoices; and so on – the list is neither exhaustive nor short.25 25. In this case, his Honour found that, though it was contractually possible for the workers to decline work assigned to them from the company – practically it was not. The company had a strict hierarchy of control and would not suffer workers operating outside its model.26 Further, though it was contractually possible for each worker to operate through an incorporated entity, the corporate vehicle would merely allow the commissions to be received and expenses incurred by these entities – things that would otherwise have been by the worker personally.27 26. It was found that –

in fact – there was only one bus
in fact – there was only one business being conducted and that was business of the company. It was not possible for the worker to represent or generate goodwill of his or her own alleged business because there was no product to sell.28 27. These findings were upheld on appeal in 201329 with Buchanan J (Lander and Robertson JJ agreeing) holding that, while the right of control remains an important 25 Trifunovski at [29]. 26 Trifunovski at [113]. 27 See Roy Morgan Research Pty Ltd v Commissioner of Taxation (2010) 184 FCR 448 at 464. 28 Trifunovski at [83 - 84]. 29 ACE Insurance Ltd v Trifunovski and Others (2013) 209 FCR 146 (Trifunovski Appeal). PAGE 12 OF 14 ANDREW D H DENTON consideration30 in many cases, the critical factor in this case was that the selling of insurance was an activity which was required to be carried out through the personal efforts of individual agents and by them only.31 They were the personal authorised representatives of the company and their personal service was required to discharge the obligations under the contract. The workers had no business of their own and were in reality working only in the business of the company.32 28. The Court held that the arguments in favour of a contractor position – i.e. claims by workers for business expenses, provision of motor cars by the agents to themselves, preparation of financial statements as contractors, income tax deductions, GST, payroll tax, superannuation contributions and the like – were all factors that followed the assumption that the arrangement was one of contractor, rather than dictated it as a conclusion.33

In other words, had the original servi
In other words, had the original service contract stated that each worker was an employee; none of these factors would exist. The workers simply organised their affairs in a manner they thought was consistent with the contract offered by their employer, rather than consistent with fact. Accordingly, the Court gave these ‘flow-on factors’ little weight͘ 29. Fittingly, Buchanan J stated that it is trite to say that there is no single or unifying test to determine whether an employment relationship exists.34 Observations 30. It may be said that – given the wide range of indicia and differing levels of weight given to each depending on the case – there is no concrete test to be applied. However, from the few cases discussed above, there are a few things of which we can be certain. 30 Trifunovski Appeal at [103]. 31 Trifunovski Appeal at [120]; [151] and [154]. 32 Trifunovski Appeal at [129]. 33 Trifunovski Appeal at [122] and [130]. 34 Trifunovski Appeal at [120]. PAGE 13 OF 14 ANDREW D H DENTON 31. First, there is no one-size-fits-all approach to the classification of employment status. When this question arises it is unavoidable to get your hands dirty with the facts of the relationship. Second, whenever assessing an employment relationship it must always be viewed as a “practical matter” – care should be taken to avoid the egg/basket approach and placing too high an emphasis on a single factor that points one way or the other. The Court will take a totality approach and have shown great hesitation in placing one factor higher than all others. That being said, the ratio of the above

cases has shown that particular import
cases has shown that particular importance has been applied to the following factors: 31.1 The level of control of when/where/how work is performed; 31.2 The ability of the worker to negotiate own rates; 31.3 The ability of the worker to generate any goodwill in putative business; 31.4 Whether the worker was paid on a result or time basis; and 31.5 Whether the worker is the emanation of the head company to the world at large. 32. It has been said that the strongest indicator of a truly separate business is the nominal power of incorporation,35 though in the above cases where a contract has been between the employer and an incorporated entity, the true intention has been found to be to retain the services of the individual worker rather than his or her ‘company’͘ =f these entities are incorporated merely to carry on the look of a contractor, the Court will likely have little hesitation in piercing the corporate veil. 33. For a contractor to be considered independent, it has become a central consideration whether a worker is providing a service to his or her own business or for the 35 Trijunovksi Appeal per Buchanan J at [134]. PAGE 14 OF 14 ANDREW D H DENTON employing company. To do so, it is important to define what the “business” actually is, to identify whether it is even possible for the worker to be providing services through his or her own business. 34. There are clear benefits for companies to engage workers on a contractor-basis. However, care must be taken to ensure that the documents truly reflect the reality. ANDREW D H DENTON Aickin Chambers 23 Febr