Article by Andrew Tobin, Partner
7. 'Failing to plan': The decision in Ripley v Ingles Marketing
Numerous cases illustrate the consequences of failing to plan or properly implement a plan for undertaking a contracting arrangement. Various examples are mentioned throughout this paper.
I have chosen to highlight the decision in the Queensland Industrial Relations Commission in Ripley v Ingles Marketing Pty Ltd36, for a few reasons, not the least of which is that I had some background involvement in the proceedings. The case is typically illustrative of the way in which disputes about the status of workers might unfold and how, in the litigious environment, such a dispute is resolved.
The case concerned a claim by Mr and Mrs Ripley, both of whom were real estate agents, for unpaid award wages and other employment-based entitlements from Ingles Marketing. They claimed to have been engaged as employees, to staff display homes constructed by Ingles Marketing in the course of land and house selling activity undertaken by Ingles Marketing. Their claims were for sums said to be outstanding on account of wages, sales commissions, annual leave entitlements and payments in lieu of notice upon 'termination', and they also maintained a claim for unpaid superannuation contributions under the Superannuation Guarantee Scheme.
For its part, Ingles disputed the claims on the basis that Mr and Mrs Ripley had never been employees but were engaged as independent contractors, so none of the claims were valid.
Ultimately, the Commission dismissed the claims, finding that Mr and Mrs Ripley had in fact been engaged as contractors rather than employees, although that determination was by no means a straightforward one. The relevant factors identified by the Commission as being indicative of an independent contractor relationship were these:
- Prior to any dispute occurring between the parties, all of the documentation passing between Ingles Marketing and its own solicitors, relating to the type of engagement that Ingles Marketing had in mind, spoke primarily of an independent contractor engagement. Ingles had actually engaged solicitors to prepare a formal contract setting out the terms of the proposed arrangement, although the contract they prepared was never put by Ingles to Mr and Mrs Ripley on the basis that Ingles' promoters thought that the document their solicitors had drafted was 'too complicated'. In any event, the Commission thought it relevant that the correspondence between Ingles Marketing and its solicitors, including the draft but never finalised agreement, was indicative of Ingles' intention to establish a contracting arrangement rather than to engage Mr and Mrs Ripley as employees, which went some way toward a determination of the issue.
- If Mr and Mrs Ripley had been clear about the terms and conditions under which they sought to work for Ingles, it was unusual that Ingles would have pursued a different type of arrangement.
- No taxation arrangements were made between the parties and Mr and Mrs Ripley had made no complaint about that subject.
- While there was a dispute between the parties about the elements of the agreed remuneration, for example whether it included GST or not, ultimately the elements were found to have included a component for GST (Ingles treated part of all payments as GST). The payment of GST was inconsistent with an employer/employee arrangement.
- Payments by Ingles Marketing were made to Mr and Mrs Ripley though a company controlled by them called Ripley Enterprises Pty Ltd. Again, while that mode of payment was the subject of a dispute between the parties, the manner of payment was not indicative of a normal employment arrangement.
- No mention was ever made between the parties about payment by Ingles Marketing of superannuation contributions, without any complaint by Mr and Mrs Ripley.
- Mr and Mrs Ripley undertook their work as licensed real estate agents under Ripley Enterprises Pty Ltd, itself a licensed real estate sales company. They were required to maintain this licensing structure by Ingles Marketing. The Commission noted that these arrangements would not have been necessary had Mr and Mrs Ripley been employees of Ingles Marketing.
- Mr and Mrs Ripley were both free to employ others to fill in for them when they were unavailable to work and had done so on occasion.
- Mr and Mrs Ripley exercised control over the primary focus of their engagement (ie selling real estate).
In contrast, other features of the parties' circumstances tended to indicate an employer/employee relationship existed. These included:
- Ingles exercised some degree of control over various aspects of the work undertaken by Mr and Mrs Ripley. For example, control was exercised over where they worked and their hours and days of work.
- Ingles supplied Mr and Mrs Ripley with various materials and support relating to their engagement.
- When terminating the arrangement, Ingles referred to termination of 'employment', although this was attributed to inadvertence rather than any indication of the true nature of the relationship between the parties.
- Mr and Mrs Ripley had never been required to issue tax invoices to account for GST.
- During a period of illness, Mrs Ripley had forwarded a medical certificate to Ingles to account for her inability to work.
In the illustration of technical issues provided by the Ripley decision and the way in which the various 'indicators' interacted to produce a particular outcome, the existence of the draft formal agreement which Ingles had had prepared at the outset of the engagement added an interesting twist. Despite the assessment by Ingles very early on in the engagement to the effect that the draft agreement prepared was 'too complicated', it is interesting that the terms of the agreement were trundled out and referred to at the hearing of Mr and Mrs Ripley's wages' claims. I suspect that Ingles will not again so casually dismiss the utility of a formal agreement designed to clearly set out the nature of the parties' intended relationship and the various feature of the relationship which go to its characterisation.
As an adviser working in this area, I would almost always advocate the use of a formal agreement to achieve these ends.
8. Drafting an independent contracting agreement: Terms and conditions
Schedule 3 contains a checklist of relevant considerations and issues, including those that fall out of the discussion above.
Schedule 1: Other cases referring to the 'control test'
Humberstone v Northern Timber Mills (1949) 79 CKR 389
The High Court in this case held that a lorry driver was an independent contractor. In reaching this decision it exemplified the application of the 'control test' in such a case as being:
Whether ultimate authority over the man in the performance of his work resided in the employer and not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision.
Federal Commissioner of Taxation v J Walter Thompson (Australia) Pty Ltd (1944) 69 CLR 227
This case dealt with the distinction between authority to control and the actual exercise of control, especially in relation to skilled workers. Latham CJ stated:
The fact that the artists are skilled does not make it impossible for them to be in the relation of servants to an employer. If they are subject to detailed control in the manner in which they do their work, they must be servants... The real character of the relationship must be determined.
Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561
This case also concerned a highly skilled worker. The judgment made it clear that even though the work to be done involves the exercise of a particular skill or individual judgment or action, this does not mean the other party cannot in fact control or interfere in its performance:
Those engaged to perform the functions may nevertheless work under a contract of service. The fact that the performance of a task depends on a natural gift or on some laboriously acquired accomplishment does not necessarily mean that the performer cannot be a servant. It is only in the most mechanical operations that anyone can dictate absolutely the mode of performance.
Roy Morgan Research Centre Pty Ltd v Commission for State Taxation [2003] SASC 342
In this case, the South Australian Supreme Court held that interviewers who were engaged by Roy Morgan Research Centre were independent contractors for the purpose of payroll tax. Justice Perry found that interviewers:
- contracted with RMRC on the basis that they were independent contractors;
- could refuse assignments from RMRC;
- were not entitled to be paid until each assignment was completed;
- had to provide their own motor vehicle and telephone; and
- did not receive sick leave or annual leave.
Justice Perry stressed that it is the totality of the relationship between the parties to which attention must be paid. In doing so, his Honour effectively accorded less weight to the element of control itself. On the facts, Justice Perry found that RMRC had no practical ability to control the performance of the interviewers' work. If there was scope for control it was only in respect of incidental matters and should be accorded less weight.
Finally, His Honour stated that the fact that the parties contracted on the basis that the interviewers were independent contractors 'is not a matter which can lightly be put aside'.
Schedule 2: Checklist: Employee or independent contractor?
Schedule 3: Checklist: Drafting a contracting agreement
- Who is the principal?
- Who is the contractor/consultant?
- Corporate contractor with nominated person(s)
- Individual contractor
- What is the commencement date?
- Is the contract on-going/fixed term?
- To whom does the independent contractor or contractor's representative report?
- What are the independent contractor's services?
- What is the independent contractor's fee and any extras?
- Is the fee inclusive of GST or is GST imposed on top?
- Are there required hours for provision of the services?
- From what place are the services provided?
- How much notice of termination is required?
- Are the termination provisions fair (eg will termination without adequate notice cause significant financial loss to the contractor)?
- In what circumstances can a party terminate the contract immediately?
- Do 'on costs' apply? Who pays?
- Superannuation
- PAYG withholding
- Payroll tax
- Workers' compensation
- Is the contractor required to provide insurance and/or an indemnity?
- Intellectual property:
- Who will own any intellectual property produced in the services?
- Have the contractor's 'moral rights' in copyright works been considered and dealt with?
- Should the principal's confidential information/intellectual property be protected?
- Principal's business goodwill:
- Should the principal be protected from the contractor poaching business, customers or staff from the principal after the contract ends?
- How will those obligations be imposed on third parties engaged by the contractor in the performance of the services?
- Have the tax implications of the arrangement been properly considered by the contractor?
- To what extent, if at all, is the contractor required to comply
with the principal's HR and other organisational policies?
- Equal opportunity
- Workplace harassment/bullying
- Occupational health and safety
- Privacy
- Others?
36. (2002) 171 QGIC 256.
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