Ever used a contractor? You could be liable for leave entitlements.

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In recent times we have seen the Federal Court make decisions allowing casual employees to claim leave entitlements. Now, in a significant ruling on the standing of independent contractors, a full Federal Court has upheld an appeal by two truck drivers pursuing unpaid leave and superannuation entitlements after working exclusively for a multinational company for almost 40 years.

After considering the circumstances of the case and the authorities, in the original decision Justice Tom Thawley applied the multifactorial test on employment relationships to find in 2018 that the two men were not employees of the company or the Austrian-headquartered parent company.

Explaining his reasons for yesterday finding otherwise, Justice Stewart Anderson in his leading judgment said that, "most fundamentally", an employment relationship could not be characterised solely "by reference to the terms of a written contract".

"An evaluation of the totality of the relationship between the parties in the present case requires the court to assess what the parties in fact did over the nearly 40 years of their relationship," the judge said.

"During that period, the business operated by the company was the [drivers'] sole source of income. Throughout that period, the [drivers] worked more or less regular hours with a constant set of duties and working arrangements. In these circumstances, the fact that the contracts did not prevent [them] driving their trucks after working hours and on the weekends for additional customers is, in my view, of limited significance."

The two men worked at the lighting company from 1977 until 2017, when their services were terminated as part of a cost-cutting exercise. Justice Anderson observed that the working relationship changed in 1986 when they both entered into an arrangement as contractors as a consequence of "an effective ultimatum: redundancy or agreement to a restructured contract".

"They decided to sign on," the judge said. "As a result, [they] were required to buy the trucks they had previously been using at a price specified by the company without negotiation. These circumstances diminish any suggestion that there was a clear mutual intention to alter the nature and structure of the relationship between the parties."

Regarding the multifactorial employment test, the judge acknowledged that the drivers "possess[ed] a degree of freedom over the operation of their day-to-day activities". However, that needed to be balanced against the drivers having to work for the company from 6am to "at least" 3pm each day – leaving little opportunity to work for anyone else – and carrying the Thorn logo on their trucks and clothes for most of the relationship.

"The heart of this conclusion is a preference for the substance of the relationship between the [drivers] and the company over certain aspects of the contractual obligations governing the relationship, and the legal structures through which the [drivers] contracted," said Justice Anderson.

"As recognised by [Justice Thawley], the essence of the legal framework between the parties involved the [drivers], for large part through their partnerships, contracting with the company, with the partnerships supplying the vehicles for [their] work. These are, on their face, indications that the [drivers] were operating an independent business. But, in my view, they are outweighed by the particular, and perhaps peculiar, attributes of the long relationship between the parties.”

"For nearly 40 years, they worked full-time as truck drivers in the business. That work was their sole source of income during that long period. [They] did not drive, or deliver goods, for any other entity or business. The [drivers] thus cannot be characterised as engaging in entrepreneurial or profit motivated activity, which is a hallmark of an independent business."

In his supporting judgment, Justice Nye Perram, observed that "the question of whether someone is working in their own business may have a tendency to cause confusion in an area which is already replete with traps for the unwary". To his mind, he said, the most important element of the appeal was the question of goodwill, which it was not reasonably possible for the drivers to generate in their businesses.

In his supporting judgment, Justice Micheal Wigney observed that despite in 1986 signing contracts that described them as contractors, "the reality was that, aside from the fact that the men took over the risk and expense of owning and operating the delivery trucks, little else changed".

"The men certainly had no real independence," he said. "The business effectively continued to dictate the hours during which the men were to be available for work, what they were to do, the remuneration that they were to receive, the annual leave that they could take, the paperwork they had to complete and other key rights and obligations."

It was, the judge said, "no more than a chimera" to suggest the drivers could have used their trucks to work for others.

"There was no real scope for them to do so given that they were required to be at the disposal of the business for nine hours a day, five days a week, and their trucks were, for the most part, adorned with the business's livery. When and for whom and in what circumstances could they realistically have done deliveries for others? Of course, the evidence showed that they never could and they never did."

It was also "illusory", he said, to suggest that the men could have included goodwill in any sale of their businesses. "They had no customers of their own and had always driven their trucks in circumstances which required them, for all intents and purposes, to appear to be representatives of the business," said Justice Wigney.

"To my mind, [Justice Thawley] concluded as he did by giving primacy and excessive weight to contractual labels and theoretical possibilities and insufficient weight to the reality and totality of the working relationship between the parties, as demonstrated by the way they actually conducted themselves over many years. The evidence of the totality of the relationship compelled the conclusion that [the drivers] were employees of the business at all relevant times. [Justice Thawley] erred in concluding otherwise."

The Workplace Relations team will be continuing to work closely with the other motor trade organisations and other employer organisations to ensure that the interests of employers are protected in current Industrial Relations reform. If you have any questions or concerns about your current arrangements with either casuals or contractors, contact the WR team on (08) 8291 2000 or at wr@mtasant.com.au.