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  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.
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.
The keys decisions relied upon by the FCA in this appeal are ZG Operations Australia Pty Ltd v Jamsek  HCA 2 (‘Jamsek’) and Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  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.
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:
- 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;
- requiring the drivers to find replacement drivers was akin to an independent contractor relationship;
- requiring the drivers to provide GST-compliant invoices was akin to an independent contractor relationship;
- the right of Avert Logistics to terminate in the circumstances of insubordination was akin to an employment relationship;
- the right of the truck drivers to contract with other businesses freely was akin to an independent contractor relationship;
- 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;
- requiring the drivers to be responsible for costs associated with training, licence, subscription or accreditations was akin to an independent contractor relationship;
- 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
- 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.
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.
If you would like advice on the above, please do not hesitate to contact us.