Are your independent contractors actually employees?

14 December 2020

The road transport industry is rife with independent contracting arrangements. A number of Court decisions this year have emphasised the need to look carefully at the “totality of the relationship” when classifying workers as employers or independent contractors.

This year, the Full Court of the Federal Court of Australia delivered a significant decision in Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119 (Jamsek), which found that two truck drivers, who had worked for the same company for over 30 years, were in fact employees, not independent contractors.

As a consequence, the company is now facing civil penalties, as well as liability to the drivers for employment entitlements. Those issues have not yet been determined by the Court, however any compensation awarded to the drivers may take into account many years of missed annual leave, superannuation and long service leave entitlements. The company’s liability is likely to be significant.

When considering whether a worker is an employee, there is no checklist of factors, or single factor, that can be used to determine whether an employment relationship exists1. Also, the parties characterisation of their relationship may not reflect the true nature of their relationship.

Equally, it is important not to focus on the question of whether or not a person is conducting their own business. The appropriate question which must be asked and answered is whether the person is an employee.2

A key issue in Jamsek was the question of goodwill. While it did not determine the matter, the Court found it was a matter which threw real light on whether the drivers were in fact employed3. In practical terms, the drivers had no goodwill and no possibility of acquiring it. They drove trucks for the company for effectively nine hours a day, five days a week, on conditions and at pay rates set by the company. Their trucks were, for the most part, adorned with the company’s livery. There was no realistic prospect of them doing deliveries for others.

In our experience, such arrangements are not unique. Truck drivers working as contractors often have little opportunity to work for others, frequently adorn their vehicles with company livery, and earn their sole income from that arrangement, at rates set by the company.

The decision in Jamsek does not stand alone. The Courts have repeatedly emphasised the need to take into account all aspects of a particular relationship when assessing whether a worker is properly an employee or independent contractor.

The Federal Court recently cautioned against attempting to create a check list based on other cases before the Courts. It said “[t]he question is one of characterisation of the status or relationship of parties as independent contractor or employee in the infinite variety of factual circumstances that the provision of labour for reward may take place in society4.

What is required is an “…intuitive appreciation and assessment of the whole, rather than a process of mechanically disaggregating and deconstructing different parts of the relationship by tests drawn from other cases. This role of intuitive appreciation of the whole can also, to an important degree, be seen in Hollis v Vabu…”5

In Hollis v Vabu, the Court viewed as “a practical matter” the bicycle couriers were not independent contractors (at 41–2 [47]); the notion that the couriers were somehow running their own enterprise as “intuitively unsound” (at 42 [48]); and that it would be “unrealistic” to describe those persons as other than employees (at 44–5 [57]).6

The Administrative Appeals Tribunal recently described the assessment as “necessarily impressionistic but, like obscenity, an employment relationship should be more or less obvious when one sees it7.

It is therefore important for independent contracting arrangements to be carefully scrutinised, having regard to the totality of the arrangements. In light of the decision in Jamsek, in the case of truck drivers, it is important to carefully consider the question of goodwill. While the magnitude of penalties and compensation in the Jamsek case are yet to be seen, it is clear that the potential consequences of getting the characterisation wrong may be significant.

This article was written by Joe Hurley, Partner and Kristin Hibbard, Senior Associate.

1 ACE Insurance Ltd v Trifunovski [2013] FCAFC 3.
2 Jamsek at [8]; Tattsbet Limited v Morrow [2015] FCAFC 62.
3 Jamsek at [11].
4 CFMMEU v Personnel Contracting Pty Ltd [2020] FCAFC 122 at [8].
5 CFMMEU v Personnel Contracting Pty Ltd [2020] FCAFC 122 at [20].
6 CFMMEU v Personnel Contracting Pty Ltd [2020] FCAFC 122 at [90].
7 MWWD and Commissioner of Taxation (Taxation) [2020] AATA 4169 at [15] referencing Jacobellis v Ohio 378 US 184 (1964) at 197 per Stewart J.

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