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19 March 2013 Employee or Contractor?

By Warwick Ryan, Partner & Laura Sowden, Solicitor


In Brief

A recent decision of the Full Court of the Federal Court of Australia takes us further in the murky world of law concerning whether an individual is an employee or a contractor. This article explores the messages to be learnt from this case if you want to ensure that a relationship is found to be one of principal/subcontractor.


ACE Insurance Limited v Trifunovski [2013] FCAFC 3

A recent decision of the Full Court of the Federal Court of Australia takes us further in the murky world of law concerning whether an individual is an employee or a contractor. The case involved five insurance sales representatives who sold insurance for the Combined Insurance Company of Australia. Significantly, their services were contracted via a detailed contract that stated explicitly that they were independent contractors. Two of the contracts were with a company, rather than the individual sales representatives.

The sales representatives generally worked in a particular geographical area. They reported to a Regional Manager who was an employee of the company and they were rewarded exclusively on commission.

In line with long established law the Court found the key element in determining that these workers were employees was the right of the company to control the organisation of their work and the deployment of the various agents in their team. Combined Insurance also had an ongoing and quite intensive training program the sales representatives had to partake in. Importantly, the sales representatives were not entitled to engage anyone else to sell Combined Insurance's insurance on their behalf.

Therefore, the Court found, their duties were "…to be carried out through the personal effort of the individual agent and only by them."i

It was determinative that the sales representatives were unable to delegate their work and the company was significantly involved in the day-to-day activities of the sales representatives.

The court ultimately found that they had "…no real independence of action or true independence of organisation."

The fact that two of the representatives were contracted through a company did not change the reality that the relationship was one of employment. It was not "...and obstacle to finding that each Mr Trifunovski and Mr Peries were employed by Combined."ii

It is significant the Court warned against convenient contract arrangements which are in fact hiding an employment relationship. Justice Buchanan stated, parties must act "in accordance with a correct appreciation of the nature of their relationship, not just as it may suit them (or one of them)."iii

The result of this finding was that the company became responsible for the retrospective payment of annual leave, sick leave and long service leave. These entitlements amounted in the realms of $500,000.

If you want to ensure that the relationship is found to be one of principal/subcontractor (i.e. not employment), the simple messages to be learnt from this case are:

  • even where there are written contracts that state that the relationship is not one of employment – that will not determine the issue;
  • the work referred to in the subcontract should be able to be carried by a third party engaged by the sub-contractor (albeit with your approval of the particular individual);
  • you are entitled to control what work is to be done and the time limits and cost involved, but not as to how the work is to be carried out;
  • preferably, the worker will be required to provide their own plant or equipment; and/or
  • the worker will be paid on the result and not merely for the time spent working.

Ultimately, when engaging contractors it remains a complex issue and we recommend that careful advice be sought.

 


iACE Insurance Limited v Trifunovski [2013] FCAFC 3 at 120 per Buchanan J.

iiACE Insurance Limited v Trifunovski [2013] FCAFC 3 at 140 per Buchanan J. 

iiiACE Insurance Limited v Trifunovski [2013] FCAFC 3 at 32 per Buchanan J.
 


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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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