Federal Court has no truck with purported contracting arrangement

Libby Pallot, Walter MacCallum, Anthony Massaro, Ben Tallboys, Abbey Burns, Caitlin Walsh, Meena Iskandar, Natasha Sim, Morgan Smithe & Ellena Kouris

The average reading time for this Alert is 5 minutes.

In a recent decision of the Full Court of the Federal Court, two truck drivers were found to be employees despite having worked under contractor and principal arrangements for over 30 years.

The Applicants, Mr Jamsek and Mr Whitby, commenced employment with ZG Operations in 1977. ZG Operations later proposed to alter their engagement to the effect that they would cease to be employees and would be re-engaged as contractors. The Applicants reported that they were told that if they did not agree, there would be no guarantee of work moving forward. On that basis, both of the Applicants agreed to cease employment and become engaged as contractors, signing a contractor agreement in 1986 which provided that they would be paid on a ‘per carton’ rate. 

As part of the new arrangement, the Applicants were required to purchase the trucks previously owned by ZG Operations for their use in conducting the work. However, the terms of the new contractor arrangement did not differ substantially from the terms of their previous employment arrangements. The Applicants undertook the risk and expense of owning and operating the trucks, but ZG Operations continued to determine their hours of work, duties, remuneration, leave entitlements, and other rights and obligations. 

Ultimately, the Full Court found that the terms used by the parties to describe their relationship were of less significance than the way in which the parties conducted themselves in practice. The Court found that a critical consideration was the long and uninterrupted period during which the Applicants worked for the same business, which gave context to how each of the relevant circumstances should be considered. 

In considering the totality of the working relationship, the Court paid particular attention to the following:

  • the parties’ intentions in entering into the 1986 contractor agreement;
  • the Applicants’ purchase and use of the trucks (which were branded with ZG Operations logos for the majority of the relevant period);
  • the nature and content of the various contracts between the parties over the period of their engagement, and
  • the extent of the control ZG Operations had over the Applicants’ working conditions and capacity to perform work for other businesses. 

ZG Operations issued directions to the Applicants as to minimum daily hours of work, limits on the amount of leave the workers could take, directions to perform work. There was an expectation that they wear company-branded clothing supplied by ZG Operations. The Court found that the use of branded clothing and ZG Operations’ logo on the vehicles would have limited the Applicants’ ability to seek alternative work. Collectively, these factors indicated to the Court that the Applicants were employees and not contractors. 

Employers who engage in sham contracting can face significant penalties, as well as back payments owed to employees in respect of unpaid entitlements including leave. In addition, employers also need to be mindful of their obligations regarding workers compensation and superannuation. This case highlights the need to review the engagement of contractors to ensure that the arrangement is consistent with the practical requirements of a legitimate contractor arrangement, and to ensure compliance with the relevant legislation.

How we can help

If you have any questions regarding anything covered in this Alert please contact Russell Kennedy’s Workplace Relations, Employment and Safety team. Our team has significant experience assisting employers reviewing their contractor and employee arrangements. 

If you would like to stay up-to-date with Alerts and Insights from our expert Workplace Relations, Employment and Safety team, you can subscribe to our mailing list here.

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