Independent contractor or employee? Recent Federal Court
decision grants sales representatives employee entitlements
Justice Perram of the Federal Court1 recently found
that five insurance sales representatives (agents) engaged as
independent contractors were actually employees by law.
The agents worked for an insurer over an extended period of
time, with one agent being engaged for over 24 years. After
termination of their engagement, the agents claimed for payment of
their leave entitlements by the insurer.
The contractual provisions covering the agents had several
factors indicating that they were independent contractors including
the agents understood themselves to be contractors
the agents were paid by commission
the agents used their own vehicles and some employed their own
the agents were permitted to carry on other businesses
some agents had incorporated themselves.
Despite these indicators, Justice Perram ruled against the
insurer after considering the following factors that indicate a
relationship of employment:
the insurer was able to exercise some control over how the
agents did their work
as the insurer required long hours of work the agents were
unable to realistically carry on other businesses
the agents were able to use their vehicles for personal and
most importantly, the agents were not conducting their own
business but were instead enhancing the goodwill of the
It was also found that clauses in the contracts requiring the
agents to indemnify the insurer for the claim were invalid as they
were against public policy.
A key reason given by the Justice Perram for the decision was
the degree of organisational control that the insurer exerted over
the agents, by way of organising them into hierarchical teams,
developing and maintaining all training and development programs
for them and introducing incentives for advancement through the
organisation. The Court found that the agents were not conducting
their own business but were clearly part of the insurer's
What does this decision mean for businesses?
This decision adds to a growing trend of decisions where
independent contractors have been found instead to be employees. As
in this case, past cases have emphasised that one of the
fundamental questions in determining this point is whether the
contractors are carrying on their own business or whether they are
generating goodwill for their employer?
If independent contractors are found to be employees then
businesses can be liable for employee benefits, tax and
superannuation obligations, as well as being exposed to unfair
dismissal claims. Businesses may also face civil penalties of up to
A$33,000 under the "sham contracting" provisions of the
Fair Work Act 2009 (Cth).
Businesses should be aware of this growing trend where
independent contractors with a sole principal are deemed employees
despite strong contrary indicators and should consider any impact
it may have on their own workforce.
1 ACE Insurance Ltd v Trifunovski  FCA
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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