Federal court case notes 'control' as crucial in determining employment relationships

How did employer successfully reject alleged worker's 'entitlements'?

Federal court case notes 'control' as crucial in determining employment relationships

A federal court case has once again emphasised the importance of “control” in any contract of employment after an alleged worker’s claim that he was employed by a business.

The employer rejected his position that it owed him any entitlements and argued that he was not its employee. The worker, Antonio Chiodo, is a truck driver, and the company is Silk Contract Logistics, which is involved in the transportation of timber from its yard to its customers.

Worker’s history in transportation

Silk took over its business from another entity, Flincept Pty Ltd, trading as CTC Transport Services (CTC), with which the worker had a relationship.

Initially, CTC was engaged in transporting timber directly from the wharf, a process known as "break bulk," where timber was loaded individually onto trucks and delivering it to customers. However, around the early 2000s, CTC shifted to collecting timber in containers, taken to their yard, and then sorted into individual shipments for delivery.

In February 1999, the worker, previously employed elsewhere, wanted to provide services to CTC. During this period, the worker was the sole director and shareholder of Bayview Transport Services Pty Ltd (Bayview), a company that also provided services to another business.

Between 1999 and June 2008, Bayview invoiced CTC for cartage services provided by the worker, initially based on volume and later at a fixed rate per load. The truck used for these services was owned by Bayview, which also covered expenses like insurance.

The court investigates the nature of the relationship between parties

The federal court noted that “the proper inference from these circumstances is that there was a contract between CTC and Bayview. The contract was partly oral and partly implied. The [worker] was not in any direct contractual relationship with CTC.”

According to records, in May 2008, the worker continued providing services to CTC but started invoicing under the name "Bayview Enterprises Pty Ltd," even though there was no affiliation between the worker and this company.

The invoices used Australian Business Numbers (ABNs) registered in the worker's or their spouse's name. The truck used for these services was owned, maintained, and insured by the worker. CTC continued to accept these services and pay the invoices.

The federal court then inferred that “there was now a contract between the [worker] and CTC (the sole trader CTC contract), which (absent any evidence of a conversation forming it) is to be implied from the conduct of the parties.” Bayview was deregistered in September 2010.

A change in company ownership

In November 2018, CTC underwent a change in ownership when Marrakech Road Pty Ltd acquired its shares, renaming itself as Silk Logistics Holdings Ltd. This change in ownership did not directly affect the sole trader CTC contract.

Around July 2019, during a meeting with CTC managers, the worker was informed that CTC intended to alter two aspects of the sole trader CTC contract: ceasing services by a sole trader and changing the payment structure from a "load rate" to an hourly rate.

It said that if the worker wished to continue with the arrangement, they would need to establish a corporate entity, maintain up-to-date insurance, and accept hourly payments.

The hourly rate offered was reportedly lower than what CTC's employee drivers received, resulting in a significant reduction in the worker's earnings.

The worker’s incorporation of a new company

The worker accepted, and in July 2019, Stilo Enterprises Pty Ltd was incorporated, with the worker as its sole director and shareholder. Starting from late August 2019, Stilo invoiced CTC for cartage services, and CTC duly paid these invoices. The payment structure involved an hourly rate, and Stilo provided the necessary equipment and insurance.

The court once again said that “there was a contract between Stilo and CTC which was partly oral and partly implied from the parties’ conduct.”

From November 2019, Stilo changed the recipient of its invoices to the respondent (still based on an hourly rate) while services continued uninterrupted.

Unexpected contract termination

The Stilo Silk contract ended abruptly in March 2021 when the alleged employer terminated it. This occurred after the worker informed a “Mr. Johnstone,” the former’s transport supervisor, that they would no longer be available for work. Subsequently, Johnstone ceased offering work to the worker.

Around July 2020, the worker’s representative claimed that the worker was an employee and claimed underpayments.

Meanwhile, the alleged employer rejected this claim. Following the contract's termination, the worker sent a letter to “resign” from his employment.

The employer’s lack of ‘control’

In its decision, the essential factor that the federal court determined was the aspect of the alleged employer’s “control” over the worker’s conduct.

It said that the company’s witnesses said that the worker “to a large extent, worked the hours that he chose to work. Analysis of billing records and running sheets showed that he did not work for CTC or the [company] every day and often finished early on Fridays.”

The witnesses also said that the worker “usually went home each day after finishing his last run (leaving his prime mover parked at CTC’s or the respondent’s premises), while drivers retained on ordinary employment contracts were required to stay until the close of business even if they had no more deliveries to do.”

“There was also evidence that [he] preferred to do certain kinds of deliveries and declined to take jobs that were not attractive to him, including those which involved going to the wharf,” it said.

Features of the contract

“Aside from the limited extent of his commitment to working for CTC and later [for Silk], several features of the successive contracts suggest that the [worker] was carrying on his own business and not working as part of CTC’s or the employer’s business,” the court said.

“For much of the period in question (and the whole of the period for which he actually worked for Silk), the [latter] made use of a corporate entity controlled by him that contracted with the putative employer.”

“That entity paid him a salary and obtained workers’ compensation insurance, which was tax deductible.”

“While conducting himself as a sole trader, [he] claimed significant tax deductions for business expenses, and his accountant framed his tax returns on the basis that he was conducting a business. Deductions were also claimed by Bayview and later Stilo,” it added.

“What is more relevant is that the contracts were structured in a way that allowed the applicant to obtain financial benefits from incorporation and from receiving income in the form of payments on invoices, and he took advantage of those opportunities,” the court added.

Thus, for all the said reasons, the court found that the worker “was not at any relevant time an employee of, or a worker employed by, the alleged employer,” and consequently, it did not owe him any of the entitlements that he claimed.

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