Court finding sheds light on employee vs contractor equation

A recent decision of the Federal Court of Australia is important for employers looking for case law around the murky world of law concerning whether an individual is an employee or a contractor.

A recent decision Federal Court decision is an important one for employers looking for case law around the murky world of law concerning whether an individual is an employee or a contractor.

In the case of ACE Insurance Limited v Trifunovski [2013] FCAFC 3, there were five insurance sales representatives who sold insurance for the Combined Insurance Company of Australia. In case commentary by Warwick Ryan, Partner and Laura Sowden, Solicitor at Swaab Attorneys, the legal experts state that the fact that their services were contracted via a detailed contract that stated explicitly that they were “independent contractors” was significant. Additionally, two of the contracts were with a company, rather than the individual sales representatives.

The day-to-day of their roles stipulated that the sales representatives worked in a particular geographical area, and reported to a Regional Manager who was an employee of the company and they were rewarded exclusively on commission.

According to Ryan and Sowden, alongside the established law, the court identified the key element in determining that these workers were employees as the right of the company to control the organisation of their work and the deployment of the various agents in their team. “Combined Insurance also had an ongoing and quite intensive training program the sales representatives had to partake in. Importantly, the sales representatives were not entitled to engage anyone else to sell Combined Insurance's insurance on their behalf,” they wrote.

As a result the court found that their duties were "…to be carried out through the personal effort of the individual agent and only by them”. Significantly, the sales representatives were unable to delegate their work and the company was significantly involved in the day-to-day activities of the sales representatives.

The court ultimately found that they had "…no real independence of action or true independence of organisation".

The Court warned against convenient contract arrangements which are in fact hiding an employment relationship. Justice Buchanan stated employers must act "in accordance with a correct appreciation of the nature of their relationship, not just as it may suit them (or one of them)".

The result of this finding was that the company became responsible for the retrospective payment of annual leave, sick leave and long service leave. These entitlements amounted to some $500,000.

Swaab Attorneys noted that the simple messages to be learnt from this case are:

  • Even where there are written contracts that state that the relationship is not one of employment – that will not determine the issue;

  • The work referred to in the subcontract should be able to be carried by a third party engaged by the sub-contractor (albeit with your approval of the particular individual);

  • You are entitled to control what work is to be done and the time limits and cost involved, but not as to how the work is to be carried out;

  • Preferably, the worker will be required to provide their own plant or equipment; and/or

  • The worker will be paid on the result and not merely for the time spent working.

  • Engaging contractors is a complex issue and advice should be sought.

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