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In another recent Federal Court decision concerning the vexed
question of employment status of workers, the court has held that
independent contractors were in fact employees (Ace Insurance
Ltd v Trifunovski [2011] FCA 1204).
What does this mean for employers?
This case, which follows a line of recent Federal Court
decisions in this area, means that it is becoming increasingly
difficult to sustain a genuine independent contractor relationship,
particularly with workers who do not contract through a corporate
entity and who have worked full time for the principal over
extended periods.
For a worker to be characterised as an independent contractor,
they must be 'carrying on a trade or business of their
own'. The answer to this question is found by applying a number
of indicia to the facts of the relationship, regardless of the
label put on it by the parties.
Any business that engages contractors should consider these
issues now, rather than waiting for a claim for unpaid entitlements
by a worker or an investigation being conducted by a regulator,
which can result in significant penalties and orders for back
pay.
The case in brief
Ace Insurance engaged workers as independent contractors to sell
income protection policies, principally to rural customers.
Five agents, some of whom had been working for Ace Insurance for
almost 30 years, brought a claim against Ace Insurance for unpaid
long service and annual leave. They argued that they had
incorrectly been treated as independent contractors, when they were
in fact employees.
Despite strong indications of a contractor relationship
including:
a contract describing them as 'independent
contractors';
payment according to number of policies sold;
use of their own vehicles; and
a few being incorporated and engaging other employees (their
wives) as administrative assistants.
The court found that the agents were in fact employees of Ace
Insurance. The court was persuaded in particular by the following
factors:
the agents did not generate goodwill for their own business but
rather for Ace Insurance's business;
the agents were not in practice able to work for other
principals because they were required to work very long hours;
Ace Insurance provided training, including scripts for use with
customers, so exercised control over the agents; and
the agents were encouraged to hold themselves out as
representatives of Ace Insurance.
By way of defence, Ace Insurance argued (amongst other things)
that the agents had engaged in misleading and deceptive conduct
contrary to the trade practices legislation by signing contracts
which described them as 'independent contractors'. The
court rejected that argument and said that at best the
representation was simply that the agent understood himself or
herself to be an 'independent contractor' at that time
which was not misleading and deceptive.
Accordingly, the workers were entitled to annual leave and long
service leave entitlements for the period that they had been
engaged by Ace Insurance, which included in one case, an
entitlement which dated back to 1981.
Tips for employers
In addition to potential claims for back pay and penalties for
non payment of tax and superannuation, sham contracting is unlawful
under the Fair Work Act 2009 (Cth). The maximum penalties for a
contravention of these provisions of the Fair Work Act are $6,600
for an individual and $33,000 for a company.
Employers should audit their contracting arrangements to
determine the risk of an employee relationship being found to
exist, particularly with individual contractors. If in doubt, seek
legal advice.
Employers should ensure their contractual arrangements as far
as possible reflect the reality of the relationship, bearing in
mind however that the contract itself is not determinative.
In particular, where a risk is identified, employers should
consider offering long serving contractors casual or permanent
employment instead of contractor agreements.
Employers should also ensure they are aware of the deemed
employee provisions under superannuation legislation and the
potential application of applicable workers' compensation
legislation to their contracts.
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.
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A court has determined that an employee had a workplace right under the Fair Work Act 2009 to make a complaint entitling the employee to proceed with her general protections claim.
