The Federal Court recently had to consider whether door-to-door
insurance salesmen engaged by Combined Insurance were actually
employees, despite contracts which asserted (strongly and
repeatedly!) that they were contractors. Some of the engagements in
question went back almost 20 years.
In what is becoming something of a trend, Justice Perram found
that the various factual matters which have to be weighed up to
decide this question could be pretty much summed up as
"Were they really working in their own businesses? Or were
they actually working in the business of the insurance
He decided, emphatically, that they worked in the business of
the insurance company and that it was a sham to regard to them as
conducting their own businesses, even where they formally
contracted to Combined through companies. Those companies were
merely a way to receive payment, but it was the individuals who
were actually engaged, as employees. As a result the insurance
company owed substantial amounts of annual leave and long service
As a picturesque detail, the weekly reporting meetings included
warm-up exercises in the form of rhythmic chants ("1 2 3
4, let's go selling door to door"), and motivational
songs ("Owned by AON we might be, but Combined will be at
the top of the tree.").The judge felt that this showed
the salesmen were being required to 'dance to the insurer's
tune', rather than acting independently.
More substantively, the salesmen did not accumulate any goodwill
because the insurer had the customer contacts, the legal
relationships were all between the insurer and the customer, and
the turnover of policies and salesmen were such that the chance of
future business rested entirely with the insurance company: the
salesmen generated nothing that they could sell as an ongoing
business. The insurer regulated every level of operation by
detailed contracts, rigorously controlled the way they went about
their work, and held the power to dismiss the salesmen.
The salesmen were also encouraged to represent themselves as
being from the insurer, even though they wore no uniform. While
their contracts theoretically allowed the salesmen to engage in
business other than Combined, in actual fact this was not
practically possible. Combined Insurance also provided scripts that
the reps should use when dealing with customers, and disciplined
salesmen who departed from those scripts.
These points overrode the factors going strongly the other way,
such the salesmen paying some of their own expenses, and employing
administrative staff (their wives). The insurer deducted no tax,
and the salesmen looked after their own tax affairs – but
this didn't count for much when the insurer issued tax invoices
to itself on behalf of the salesmen.
What lessons can be drawn from this case?
This case reiterates that whatever the parties involved call
their relationship will not inhibit a court from finding
that the substance of the relationship is employment.
It also emphasises that whether someone is a contractor or not
is as much a question of how the relationship is managed, day to
day, as it is about the contractual structure around it.
A lot actually hangs on this: it is not only about possible
liability for employment entitlements. It is often overlooked that
even if the person is a contractor, the principal may still bear
liability for on costs (such as workers compensation,
superannuation and pay roll tax).
These risks mean that it is important to be clear about the
If your particular contractor is, in fact, a contractor
– what will you be liable for anyway? What is the real
cost to your business of engaging this person?
If you are to avoid the contractor being classed as an
employee, what do you need to do to manage that risk, both
contractually and in managing that person over time?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Treasurer Scott Morrison recently announced changes to a number of 2016 Budget superannuation contribution measures.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).