Australia: Independent contractor or employee: the court's assessment of the costs when an organisation gets it wrong

Last Updated: 23 August 2012
Article by Kristen Lopes

In brief - Insurance agents awarded accrued annual leave and long service leave

In a decision of released on 25 October 2011, which we highlighted in November 2011, Justice Perram of the Federal Court decided the issue of whether five insurance agents were independent contractors or employees over a time period from 1981 to 2006.

In a further decision released on 31 July 2012, Justice Perram awarded the insurance agents just shy of half a million dollars in accrued annual leave and long service leave as a result of his determination last year that the agents were employees, not independent contractors of an insurance company, Combined Insurance ("Combined").

In addition, Justice Perram imposed a civil penalty of $5,000 against Combined for its failure to pay annual leave and a further $5,000 for its failure to pay long service leave to the insurance agents. The civil penalties were awarded to the five insurance agents, resulting in a total award of in excess of half a million dollars.


Combined was acquired by ACE Insurance Ltd ("ACE") and was integrated into ACE's business in 2010. Combined has subsequently ceased trading.

Prior to this, Combined provided income protection policies to Australian customers located primarily in non urban areas since 1959. The policies had been sold by travelling insurance sales agents. All sales agents had been retained as independent contractors under detailed written contracts.

Based on the evidence adduced at trial, His Honour found that the sales agents only sold Combined's policies and were trained by Combined on business systems developed by and maintained by it. Sales agents earned commission on new policies placed by them and earned commission on any premiums collected in relation to existing policies placed by them.

Sales agents used their own vehicles, did not have income tax deducted from earnings and issued tax invoices to Combined for services provided. That said, His Honour noted that the tax invoices were generated by Combined, the sales agents accrued no goodwill in their own businesses and were, in practical terms, unable to work for any other insurer

Claims lodged

Five sales agents lodged claims for payment of accrued annual leave and long service leave.

In response, Combined claimed that some of the claims for annual leave and long service leave were time barred.

In addition Combined asserted that the agents were estopped from asserting that they were employees by way of their own conduct in executing contracts under which they had represented that they would provide services to the company as independent contractors.

Further, in a separate proceeding, Combined alleged that it suffered loss by reason of misleading and deceptive conduct engaged in by the agents consisting of their execution of the written contracts under which they agreed that they were independent contractors. The damages sought by the company was the quantum of whatever liability was assessed in the claims brought by the agents for annual leave and long service leave.

25 October 2011 decision

The Federal Court concluded that the five agents were employees after considering the "totality" of the relationship between the insurance agents and Combined. In doing so the Court outlined a number of indicia which it considered to be relevant in determining the outcome (without any particular indicia being determinative), including:

  1. the terms of the contract
  2. the intention of the parties
  3. whether tax is deducted
  4. whether subcontracting is permitted
  5. whether uniforms are worn
  6. whether tools are supplied
  7. whether holidays are permitted
  8. the extent of control or the right to control
  9. whether wages are paid or whether there exists a commission structure
  10. what is disclosed in tax returns
  11. what one party represents to the other
  12. for the benefit of whom does goodwill in the business enure, and
  13. how businesslike is the alleged business of the worker, etc.

The Federal Court found that on the issue of control, appearance and goodwill all factors favoured the conclusion that the sales agents were employees despite the fact that they drove their own vehicle, were required to remit their own income tax and despite the written terms of the contract executed by each sales agent or that they actually considered themselves to be independent contractors whilst they were engaged with Combined.

The contracts signed by the sales agents required them to incur their own business expenses, provided them with the ability to incorporate, provided them with the ability to engage other staff and stated that compensation was by way of commission. Each contract further contained an appointment clause which provided that the agent would operate as an independent contractor and that nothing would create the relationship of employer and employee. That said, it was found that these contractual terms were not indicative of an employment relationship being discounted.

What appears critical to the Federal Court's finding was the fact that the sales representatives were organised into teams under a territory representative. This, the Federal Court found, demonstrated the company's organisational control over the sales agents. The Federal Court also found that this control was further emphasised through Combined's control of all training within the organisation, placing little weight on Combined's argument that as an insurance company and an Australian Financial Services Licencee, it needed to exercise a high degree of control from a quality perspective.

31 July 2012 decision

Subsequent to the decision released on 25 October 2011, the parties sought clarification on the assessment of the entitlements of each insurance agent to annual leave and long service leave, in addition to the determination of an appropriate civil penalty arising from the company's failure to pay these entitlements.

One of the insurance agents was awarded $325,671.38 in accrued annual leave and $7,459.87 in long service leave. This is an odd outcome, as the agent himself only claimed an entitlement to annual leave of just over $60,000. As at the date of this article, we understand that this error has been brought to the judge's attention and we may hear further on this.

The other four insurance agents were awarded $53,656.85, $56,092.91, 14,759.21 and $11,416.43 in accrued annual leave and two were awarded $8,771.49 and $12,564.59 in long service leave.

After assessing the entitlements of the five insurance agents, in determining the appropriate civil penalty, the Court noted that Combined had not paid out the relevant entitlements based on legal advice, which although correct at the time, has been overtaken by later High Court authority. On that basis the Federal Court found that the company's conduct did not amount to a disregard for the law and as such did not assess the civil penalty at the high end of the range, being $33,000 for each breach. Although the Court highlighted that the company behaved reasonably by obtaining legal advice, it noted that the company did not keep itself abreast of significant developments in the law, noteably the Hollis v Vabu decision of the High Court of Australia.

In terms of claims other Combined agents might make, it is interesting to note His Honour found that on the question of long service leave entitlement, former agents have no ability to make a claim for such entitlements. His Honour found that the applicants should fail entirely in their claim for long service leave payments due to the fact that they had no "actual rate of pay" as required by the long service leave provisions. It was only a lack of notice of that possibility in these proceedings that resulted in the agents being made an award for long service leave.

On the question of annual leave entitlement, based on changes to the legislation, former agents would be limited in any claim they make to the period prior to 26 March 2006.

It is further noted that Combined incurred approximately $1.656 million in defending against the claims. Combined has ceased trading as a company in Australia, with ACE having taken over the business. As a result of the Federal Court's determination that the insurance agents were employees of Combined, if ACE has not changed the business model since acquisition, it will need to reconsider its business model going forward. We understand that both the liability and quantum judgments will be the subject of an appeal.

Kristen Lopes
Workplace relations
Colin Biggers & Paisley

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

Click to Login as an existing user or Register so you can print this article.

Kristen Lopes
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”

Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions