Don’t Avert your eyes from the contract – employee or independent contractor?
The independent contractor versus employee question remains a hot topic, with the Federal Court of Australia (FCA) in the case of Fair Work Ombudsman v Avert Logistics Pty Ltd [2022] FCA 841 confirming the importance of contractual terms when deciding whether a person is an employee or an independent contractor.
The Facts
Fair Work Ombudsman v Avert Logistics Pty Ltd [2022] FCA 841 (Avert Logistics) involved an appeal by the Fair Work Ombudsman (FWO) alleging that drivers paid as independent contractors were in fact employees covered by a modern award and therefore underpaid, claiming combined underpayments totalling $63,803.26.
The Decision
Applying the reasoning provided by the High Court of Australia (HCA) in the recent decisions of ZG Operations Australia Pty Ltd v Jamsek (Jamsek) and CFMMEU v Personnel Contracting Pty Ltd (Personnel Contracting), Justice Logan confirmed that each case must be considered on its own facts, with an analysis of the contractual terms between the parties, but observed that the Avert Logistics matter was “a much harder one”.
To recap, in Jamsek and Personnel Contracting, the HCA established that “where the terms of a party’s relationship have been committed comprehensively to a written contract, the validity of which is not 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 that contract are decisive of the character of the relationship”, in essence meaning that courts are to analyse written contractual terms.
In dismissing the FWO’s appeal, Justice Logan reached the conclusion that the terms of the contract between the drivers and Avert Logistics, “on the whole”, created a principal and independent contractor relationship, despite finding that several terms supported an employment relationship, including a requirement that the contractor comply with directions or instructions from the principal.
Although Justice Logan acknowledged control is considered a hallmark of employment, His Honour considered the term requiring the contractor to “undertake carriage ‘as reasonably directed’ was not” necessarily decisive of an employment relationship.
Justice Logan was persuaded that the principal and independent contractor relationship was confirmed by contractual terms that provided the contractors:
were responsible to provide replacement drivers (meaning no particular individual was required to provide the services);
had to maintain full comprehensive insurance and registration of the vehicles at all times;
were responsible for costs associated with training, licence, and accreditations;
were free to contract to render services to others, with permission;
indemnify the principal; and
could incorporate and services could be rendered by an incorporated body.
His Honour also referred to the decisive emphasis the HCA placed on the question “in whose business is the service rendered?”. He decided that by stepping back and looking at the terms of the contract, the four individuals concerned were rendering driving services and on the totality of the terms of the contract, reached the conclusion that the relationship created was that of principal and independent contractor.
Key takeaways
It is necessary to consider in detail the terms of the relevant contract to determine whether an employment relationship exists.
However a mere statement purporting to specify the nature of the relationship as being that of principal and contractor, and not of a partnership or employment in nature may not be decisive, and it is necessary to consider “exactly the import of the terms of the contract”.
Without a comprehensive written agreement, a court will look at the totality of the relationship to determine whether a person was an employee without being assisted by the written intention of the parties in express terms.
Therefore where it is intended that an independent contractor relationship is to exist, it is vital that the principal contractor ensures a comprehensive written agreement, with clearly indicative terms prepared and used.
