A Full Court of the Federal Court has recently upheld a decision
to order a company to pay unpaid leave entitlements and penalties
after it was found to have wrongfully engaged five former insurance
sales agents as independent contractors rather than as
The agents worked for an insurer (the Company) over an extended
period of time, with one agent being engaged for over 24 years.
After termination of the arrangements with the agents, the five
agents claimed for payment of unpaid leave entitlements.
In August 2012, the Company was ordered by Justice Nye Perram to
pay more than AUD490,000 in unpaid entitlements and AUD10,000 in
penalties following His Honour's 2011 decision that the agents
were employees and not independent contractors. On appeal, Justice
Buchanan, with whom Justices Lander and Robertson agreed, upheld
the decision and found that the agents were properly characterised
After providing a useful summary of the case law on the
distinction between independent contractors and employees, Justice
Buchanan held that the five agents were employees for the following
the Company exercised some control over how the agents
performed their work
in practice the agents could not carry on other businesses due
to the hours worked for the Company
the agents were not conducting their own business but were
instead enhancing the goodwill of the company
the high degree of organisational control exerted by the
Company over the agents (for example, the agents were organised
into hierarchical teams, were subject to training and development
programs developed by the Company and had incentives for
advancement through the organisation).
The Court held that these factors demonstrated that the agents
were part of the company's business and were not running their
own businesses, even in circumstances where the agents:
considered themselves to be contractors
were paid a commission and not salary
used their own vehicles
employed their own administrative staff (not all agents)
were permitted to carry on other business
had incorporated themselves (not all agents).
Contractor or employee?
This decision further reinforces that regardless of whether a
person is considered an independent contractor or employee, a court
will look beyond this characterisation to the true nature of the
relationship. If the decision to characterise an arrangement is not
made correctly at the outset, a company may expose itself to
The decision acts as an important reminder that all companies
should regularly review arrangements in place in relation to
purported independent contractors. If you have any arrangements
similar to the situation in this case, or of a similar nature in
other contexts, it would be timely to have them reviewed to ensure
your company is not exposed to significant liability for the
back-payment of leave entitlements.
Companies are also exposed to the payment of penalties under the
'sham contracting' provisions of the Fair Work Act
2009 (Cth). These provisions make it unlawful for a company to
claim a person is an independent contractor when they are in fact
an employee. The maximum penalty for a breach of these provisions
is AUD33,000 (per breach).
1ACE Insurance Limited v Trifunovski
 FCAFC 3.
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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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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