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The Federal Court has handed down its decision1 on
compensation and penalty following its findings outlined in our
previous
eAlert, where the company was found to have wrongfully engaged
five former insurance sales representatives as independent
contractors rather than as employees.
The company has been ordered pay significant compensation to
former insurance sales representatives for accrued leave
entitlements and interest.
The Court also imposed a penalty of A$10,000 on the company,
even though the Court found the company relied on the advice of
Queen's Counsel that the insurance sales representatives were
not employees.
Compensation
Last year, the Federal Court found that the five former
insurance sales representatives were employees governed by the
Insurance Industry Award 1998. While any claim for employee
entitlements is usually limited to six years, the issue of payment
of accrued leave entitlements arises at the termination of
employment and usually at the "actual salary rate the employee
was receiving immediately prior to termination". Accordingly,
a long serving sales representatives of seven years and on a salary
deemed to be A$127,683 based on commission earnings in his last
financial year of service was awarded A$325,671. The Court
recognised accrued leave entitlements for his entire period of
service.
The Court also awarded interest on the compensation calculated
from when each sales representative ceased working for the
company.
Penalty
The Court found the company had sought advice about whether
their sales representatives should be classified as independent
contractors or as employees. The company then relied on advice
prepared by a prominent Queen's Counsel for another insurance
company with a similar operational structure.
Even though the company did not "unreasonably rely" on
that advice, the advice was no longer accurate after the High Court
case of Hollis and Vabu in 2001. Accordingly, as a matter
of general, rather than specific, deterrence the Court imposed a
civil penalty of A$5,000 for each breach by the company.
The lesson to be learned from the case for all companies that
engage independent contractors is that not only should proper
contracting arrangements be implemented at the initial engagement
stage, but any arrangement should be regularly reviewed, as a risk
mitigation strategy, to reduce the likelihood a Court or a
regulatory body such as the Fair Work Building & Construction
or a Court determines such an arrangement to be employment and
therefore, sham contracting.
Companies should also be aware that compensation awarded to
persons wrongfully engaged as independent contractors can be
significant.
Footnote
1ACE Insurance Ltd v
Trifunovski(No 2) [2012] FCA 793
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.
Middletons has been awarded a 2012 EOWA Employer of Choice for
Women citation acknowledging our commitment to workplace
diversity.
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