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Case Review: Federal Court of Australia upholds finding of contractor relationship – Contract of Employment



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The Fair
Work Ombudsman
(FWO) has failed in its appeal
against a decision of the Federal Circuit and Family Court of
Australia (FCFCOA) that four truck drivers working
for Avert Logistics Pty Ltd (Avert Logistics) were
independent contractors.

The Federal Court of Australia (FCA) in
Fair Work Ombudsman v Avert Logistics Pty Ltd [2022] FCA
841 (‘Avert) recently upheld the
decision of the FCFCOA that the relationship between the truck
drivers and Avert Logistics was comprehensively committed under the
terms of written contracts, of which the terms demonstrated that an
independent contractor relationship existed rather than an
employment relationship.

Summary

Avert Logistics engaged four truck drivers as independent
contractors under written contracts.

The FWO initiated court proceedings in the FCFCOA alleging that
the four truck drivers ought to have been classified as employees
rather than contractors, and therefore were owed employment
entitlements totalling $63,803.26. In these proceedings, the court
found that no employment relationship existed and dismissed the
matter.

The FWO appealed this decision in the FCA based upon several
grounds, but ultimately with a view to answering the question of
whether the truck drivers were employees.

Law

The keys decisions relied upon by the FCA in this appeal are
ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2
(‘Jamsek‘) and Construction,
Forestry, Maritime, Mining and Energy Union v Personnel Contracting
Pty Ltd
[2022] HCA 1 (‘Personnel
Contracting
‘), both in the High Court of
Australia.

In Avert, referring to Jamsek and
Personnel Contracting, the FCA held that the primary test
for determining the nature of the relationship between parties
is:

“where the terms of the relationship are committed
comprehensively to a written contract, the validity of which is not
a challenged as a sham, and where the terms of that contract have
not been varied, waived or the subject of an estoppel, the legal
rights and obligations established by the contract are decisive of
the character of the relationship.”

This means that if there is a comprehensive written contract,
the rights and obligations under that contract must be primarily
assessed by the court. So, if the terms are consistent with that of
a contractor or an employee, this will determine what category of
relationship applies.

In the absence of a comprehensive written contract, the court
will likely apply what is known as the ‘multifactorial
test’, in which the substance of the relationship is assessed
by the court, looking at factors including but not limited to the
following:

  • Ability to subcontract or delegate;

  • Basis of payment;

  • Who provides the equipment, tools or assets;

  • Who has control over the work completed; and

  • Whether the worker operates independently of the principals
    business.

Decision

The FCA in Avert dismissed the appeal, finding that a
relationship of principal and independent contractor existed.

In summary, in applying the test in Jamsek and Personnel
Contracting
the FCA found:

  1. requiring the drivers to comply with a direction or instruction
    of, and report to, Avert Logistics, while akin to employment was
    not solely determinative of the relationship;

  2. requiring the drivers to find replacement drivers was akin to
    an independent contractor relationship;

  3. requiring the drivers to provide GST-compliant invoices was
    akin to an independent contractor relationship;

  4. the right of Avert Logistics to terminate in the circumstances
    of insubordination was akin to an employment relationship;

  5. the right of the truck drivers to contract with other
    businesses freely was akin to an independent contractor
    relationship;

  6. requiring the drivers to indemnify Avert Logistics for
    “all loss or damage to the goods in transit and must have in
    place their own insurance policies as per specified” was akin
    to an independent contractor relationship;

  7. requiring the drivers to be responsible for costs associated
    with training, licence, subscription or accreditations was akin to
    an independent contractor relationship;

  8. Avert Logistics providing the trucks to the drivers initially
    indicated an employment relationship, however, the drivers taking
    the trucks into their own business, registering the vehicles and
    attaining comprehensive insurance and other insurances for the
    vehicle was akin to an independent contractor relationship;
    and

  9. requiring the drivers to attend work in a neat and tidy fashion
    was a neutral factor, being neither in favour of an independent
    contractor or employment relationship.

On consideration of the terms of the written contracts as a
whole, it was held that the relationship was that of principal and
independent contractor.

Consequently, as no employment relationship was established
there were no entitlements owed to the truck drivers.

Key takeaways

It is more important now than ever before for businesses to
ensure that they have a comprehensive written contract for any
worker they intend to engage as an independent contractor.

A failure to have a comprehensive written contract could mean
that the intended relationship is unclear, leaving the courts to
look at characteristics that make up the relationship in
determining if it is one of employment or independent
contractor.

If an employment relationship is found but the worker was
treated as an independent contractor, the business may be exposed
to significant legal liability with respect to the payment of
employment entitlements and penalties.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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