The decision of the Federal Circuit and Family Court of Australia in Fair Work Ombudsman v Avert Logistics Pty Ltd1 is the most recent addition to an ever-evolving body of case law dealing with the murky distinction between employment and independent contracting relationships.
In this case, Avert Logistics, a national transport and distribution services provider, engaged four drivers through the drivers’ respective corporate entities, to courier packages for its customers such as Toll Priority, Startrack, and UPS.
After receiving complaints from the drivers regarding the underpayment of their entitlements, the Fair Work Ombudsman (FWO) investigated and commenced legal proceedings against Avert Logistics. It was alleged that Avert Logistics had underpaid the drivers a total of $63,803.26 as a result of incorrectly classifying them as independent contractors.
Assessment
In determining whether the drivers were employees or independent contractors, his Honour Judge Jarrett applied the well-established “totality approach”. This requires the decision-maker to assess the particular relationship against various indicia of employment and independent contracting relationships, with an overarching objective to focus on the substance or practical reality of the relationship, rather than its mere legal form.
Summarised below are the key indicators considered by Judge Jarrett with respect to Avert Logistics’ engagement of the drivers.
Indicators of an Employment Relationship
- Presentation and Equipment: The four drivers were each provided with a vehicle by Avert Logistics which advertised its business. The drivers were also required to wear Avert Logistics’ uniform, and although Avert Logistics contended that the wearing of uniforms was optional, his Honour found that this was not genuine as the costs of the uniform were deducted from the drivers’ pay.
- Goodwill: His Honour recognised that a clause in the contracts between the drivers and Avert Logistics stipulated that the drivers could not assign their rights and obligations to any other party, and as such, the drivers could not generate goodwill in their own business.
- Leave: The contracts also required the drivers to have any time off first approved by Avert Logistics.
Indicators of an Independent Contracting Relationship
- Obligation to Work: Each of the four drivers were sent text messages from Avert Logistics regarding their allocation of work, and each driver had the right to refuse to undertake their allocated work by simply responding to the text message accordingly.
- Risk: The drivers were responsible for taking out various insurances on their own behalf.
- Payment: Each of the drivers were paid on the basis of invoices submitted to Avert Logistics on a weekly basis. Further, Avert Logistics did not withhold income tax from the payments to the drivers, nor were superannuation payments made on the drivers’ behalf. Each driver was responsible for the income tax and GST obligations associated with the payments received from Avert Logistics.
Concerning the element of control, although Avert Logistics’ customers determined the hours of work and deliveries that were to be made, it was Avert Logistics’ role to allocate drivers to specific customers. Separately, Avert Logistics had informed the drivers that failure to comply with a direction or instruction given by Avert Logistics may result in their “instant dismissal”. His Honour recognised that although this level of control was typically indicative of employment relationships, it was also reflective of a business which set high standards for its workers. For these reasons, Judge Jarrett was ambivalent as to whether this degree of control favoured a finding that the drivers were employees or contractors.
Conclusion
As illustrated above, the practical relationship between Avert Logistics and the drivers embodied both employment and independent contracting characteristics.
His Honour, relying on the recent decision in CFMEU v Personnel Contracting Pty Ltd2, held that when this situation occurs, the “express terms of the agreement between the parties seeking to characterise the relationship [i]s the “tie-break” factor”. That said, the terms of the written contracts between the drivers and Avert Logistics expressly stated that the drivers were to be engaged as contractors and not employees.
Importantly, there was also no suggestion that the contracts were a sham, as his Honour accepted Avert Logistics’ evidence that each driver wanted to work as an independent contractor and not an employee. In addition, Judge Jarrett found that each driver knew the difference between an employee and contractor, and this was reflected in the fact that each of the drivers had been engaged through their corporate entities and not personally, and these entities existed prior to their engagement with Avert Logistics.
Each of these factors supported the terms of the written contracts and as such, his Honour concluded that the four drivers were contractors of Avert Logistics and not employees.
This decision serves as a friendly reminder that although the question as to whether a worker is an employee or contractor is to be determined by reference to the totality of the practical realities of that relationship, the terms of the underlying written contract can certainly influence how the final image of that relationship appears in the eye of the decision-maker.
1 [2021] FedCFamC2G 153.
2 [2020] FCAFC 122.