Contractors or employees? A question of ‘in principle’ vs reality

In Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119, the Full Court upheld an appeal that two delivery drivers were employees, not contractors. The Full Court held that, while a contractor relationship may exist in principle, it is the totality and reality of the relationship that will determine whether a person is a contractor or an employee.

This decision outlines the dangers faced by businesses who retain regular service providers and the arrangement is such that the service provider cannot realistically provide work for any other business. Assessing how the relationship is likely to progress based on the parameters of the contracting agreement is vitally important to preventing future claims from contractors for employee entitlements.

Facts

Mr Jamsek and Mr Whitby started full time employment with the ZG Operations in 1977. From 1980 they worked as truck drivers delivering goods. In 1986, the company advised a number of its employees, including Mr Jamsek and Mr Whitby, that their employment was likely coming to an end and that they could buy the delivery trucks from the company and become independent contractors instead. The men were not given any opportunity to negotiate.

The value of the trucks was determined by the company. Mr Jamsek and Mr Whitby, in partnership with their wives, took over the risk and expense of owning and operating the delivery trucks. While the men had some flexibility in how they carried out their day to day operations, the company dictated the key aspects of the relationship, including:

• that they be available for work from 6.00 am to 3.00 pm, Monday to Friday
• that they wear clothing emblazed with the company’s logo
• that they complete company records after each shift
• that the tarpaulins covering the trucks bear the company logo
• when they could take annual leave
• the remuneration the men would receive.

Between 1986 to 2017, Mr Jamsek and Mr Whitby and the company were parties to several written and oral contracts. The company changed hands a number of times during this period, however Mr Jamsek and Mr Whitby continued to perform the same work in substantially the same way. In 2017, the company terminated the purported contractual relationship due to financial constraints.

Following the termination, Mr Jamsek and Mr Whitby brought a claim seeking declarations that they were employees, and compensation for unpaid statutory entitlements including annual leave, sick leave and long service leave.

At trial, it was held that the men were contractors, with a significant aspect of the determination turning on the fact that, in principle, they could perform work for other companies and generate goodwill in their respective partnerships.

Appeal

On appeal Anderson J confirmed that a review of the totality of the relationship must be considered using the multifactor test set out in Ace Insurance Ltd v Trifunovski to determine the true nature of the engagement.

Broadly, the key question to be considered was whether the men were employed under a contract of service and served the employer’s business or were engaged under a contract for services and conducted trade or business of their own.

The Full Court found that the men were employees entitled to statutory benefits. In reaching its conclusion, the Full Court stated that the primary judge had placed too much weight on the fact that the men ‘could’ in principle work for other businesses and generate goodwill. The Full Court held that in reality they could not have worked for any other business or generated goodwill with any other business when they were contracted to work for the company nine hours a day, five days a week.

In support of their finding, the Full Court also considered that the men had little control over when they would work, their clothes and trucks were adorned with the company’s livery and the men represented the company to the company’s clients.

The Full Court accepted that the purchase and upkeep of the vehicles and the partnership agreement lent in favour of the men being contractors. However, when considering the totality of the relationship, these factors were outweighed by the employment relationship factors.

The case was remitted to the trial judge to determine penalties and compensation.

Conclusion

When making the deciding judgement, Anderson J stated:

The determination of whether parties are in an employment relationship will often be a matter of impression. In close cases reasonable minds may differ.

The current state of the law is still murky and will often turn on the weight given to certain facts in each case. This case serves as a reminder to businesses to review any subcontractor agreements and reduce factors of the relationship that may lead to liability for the payment of employee benefits and penalties.