Independent contractor or employee? Recent Federal Court decision grants sales representatives employee entitlements
Justice Perram of the Federal Court1 recently found that five insurance sales representatives (agents) engaged as independent contractors were actually employees by law.
The agents worked for an insurer over an extended period of time, with one agent being engaged for over 24 years. After termination of their engagement, the agents claimed for payment of their leave entitlements by the insurer.
The contractual provisions covering the agents had several factors indicating that they were independent contractors including the following:
- the agents understood themselves to be contractors
- the agents were paid by commission
- the agents used their own vehicles and some employed their own administrative staff
- the agents were permitted to carry on other businesses
- some agents had incorporated themselves.
Despite these indicators, Justice Perram ruled against the insurer after considering the following factors that indicate a relationship of employment:
- the insurer was able to exercise some control over how the agents did their work
- as the insurer required long hours of work the agents were unable to realistically carry on other businesses
- the agents were able to use their vehicles for personal and business purposes
- most importantly, the agents were not conducting their own business but were instead enhancing the goodwill of the insurer.
It was also found that clauses in the contracts requiring the agents to indemnify the insurer for the claim were invalid as they were against public policy.
A key reason given by the Justice Perram for the decision was the degree of organisational control that the insurer exerted over the agents, by way of organising them into hierarchical teams, developing and maintaining all training and development programs for them and introducing incentives for advancement through the organisation. The Court found that the agents were not conducting their own business but were clearly part of the insurer's business.
What does this decision mean for businesses?
This decision adds to a growing trend of decisions where independent contractors have been found instead to be employees. As in this case, past cases have emphasised that one of the fundamental questions in determining this point is whether the contractors are carrying on their own business or whether they are generating goodwill for their employer?
If independent contractors are found to be employees then businesses can be liable for employee benefits, tax and superannuation obligations, as well as being exposed to unfair dismissal claims. Businesses may also face civil penalties of up to A$33,000 under the "sham contracting" provisions of the Fair Work Act 2009 (Cth).
Businesses should be aware of this growing trend where independent contractors with a sole principal are deemed employees despite strong contrary indicators and should consider any impact it may have on their own workforce.
1 ACE Insurance Ltd v Trifunovski  FCA 1204
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.