Employ­ee or Contractor?

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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.

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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.