Working from home: Beware the employee dressed as a contractor

In the recent case of Putland v Royans Wagga Pty Ltd the Federal Court applied the indicators for determining whether services delivered from a private home over many years were provided by an employee or a contractor.¹

Background

A husband and wife (the Putlands) provided services for 10 years to a truck company, Royans Wagga Pty Ltd (Royans Wagga).  They operated as a call centre, monitored accidents and provided a 24/7 accident report service.  This required them to answer phone calls from various sources, monitor radios and scanners to detect reports or communications about accidents, and deal with Royans Wagga’s sales representatives.  No face-to-face time contact was required with anyone at Royans Wagga, nor any customers or clients.  The Putlands generally provided these services from their home.

In May 2015, Royans Wagga elected to outsource the service provided by the Putlands to an independent call centre and terminated its relationship with the Putlands in a fashion that treated them as contractors.  The Putlands argued that there was an employment contract between Royans Wagga and the Putlands which was “partly oral and partly in writing” from about 2007.  The Putlands said that their employment was as permanent, full-time employees and that could be inferred from conduct.  They commenced proceedings in the Federal Court of Australia seeking back pay according to the Clerks – Private Sector Award 2010 and civil penalties under the Fair Work Act 2009 (the Act).  In response, Royans Wagga argued that the Putlands had at all times been independent contractors, conducted their operations as such, and had never been employed by Royans Wagga.

Decision

The Federal Court held that the Putlands were employees of Royans Wagga.  In coming to this decision, the Court relied on the primary test for determining whether a relationship is one of employer and employee or one of principal and independent contractor, namely: what is the degree of control which the person who engages another to perform work can exercise over the person so engaged (control test).²

Applying the control test, the Court determined that the managing director of Royans Wagga had authority to control the Putlands, especially through his manner and demeanour but also through giving approvals for suggestions, and would exercise that control when needed, putting them in a subordinate position even when he did not get his own way.

The Court recognised that the control test is not intended to provide a conclusive answer on its own as to the nature of the legal relationship.  It is applied at the first instance because it remains the surest guide as to whether a person is contracting independently or serving as an employee.³    Combined with a multi-factorial test, which has progressively developed through the Australian court system,⁴ courts can rely on these assessments to determine the nature of the employment relationship.

Applying the secondary, multi-factorial test, the Court held that the indicators in favour of an independent contractor relationship were:

1. the Putlands had obtained ABNs and operated under these at all times;
2. Royans Wagga had issued tax invoices in lump-sum amounts;
3. Royans Wagga had not deducted income tax;
4. the option of income-splitting was available to the Putlands;
5. Royans Wagga paid others to do radio base work as well;
6. the Putlands did not wear any Royans Wagga uniform; and
7. the Putlands worked from home.⁵

On the other hand, the indicators of there being an employment contract relationship between the Putlands and Royans Wagga were as follows:

1. the Putlands only performed radio base or call centre work for Royans Wagga;
2. Royans Wagga paid for the installation and transfer of ownership of telephone lines at the Putlands’ home;
3. Royans Wagga paid for the monthly telephone and internet accounts at the Putlands’ home;
4. the Putlands produced emails and documents reflecting involvement in the overall running of Royans Wagga, including deference to the managing director;
5. Royans Wagga supplied scanners and other equipment, including the commander telephone system and a computer, to the Putlands;
6. the Putlands did not make any profit and were paid by hourly rates, although lump-sum rates were present for weekend work;
7. the Putlands did not advertise that they were running a business;
8. the Putlands did not supply, purchase or maintain any tangible assets for the ostensible use of running their own business;
9. the Putlands did not accrue any goodwill from the work being performed; and
10. the Putlands lacked any true autonomy in performing their duties for Royans Wagga and had home visits by the managing director.⁶

Balancing all of these factors, the Court determined that the Putlands were employees of Royans Wagga, and that Royans Wagga had therefore:

1. contravened a term of a modern award, prohibited by s 45 of the Act;
2. made a representation that the Putlands were independent contractors in contravention of s 357 of the Act; and
3. had failed to provide pay slips in contravention of s 356 of the Act.

Lavan comment

This case turned on its facts with application of established law.  However, given the 10 year period over which the relationship had remained ‘undetected’ so to speak, the facts highlight circumstances in which a liability can continue to grow because the fundamentals of the relationship were not planned at the outset.

If you or your company hire external service providers, it is never too early to objectively reassess their working relationship, particularly longstanding ones.  If you require assistance in determining the nature of any working relationships or suspect that difficulties may arise, contact Lavan’s Employment, Safety & Education team.