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Employee & Sub-Contractor

Employee & Sub-Contractor

Sub-contractor or Employee?

Frequently, in our practice, we encounter situations where employers have classified certain workers as sub-contractors, and arranged their affairs around this classification. This would include not arranging for workers’ compensation premiums, superannuation, and PAYE tax.

If a worker has signed a document and agreed to be classified as a sub-contractor, does that mean he is a sub-contractor?

The short answer is NO. The courts have repeatedly said that in a dispute as to the classification the totality of the working relationship will be taken into account.

The definitive decision on the question currently is the August 2001 High Court case of Hollis v Vabu. It has been frequently referred to as the Vabu decision. It is interesting in the sense that it deals with the circumstance of the humble urban bicycle courier.

The Vabu case delves into the world of the bike courier when seen by the highest legal minds of the land. Were couriers as independent and free-wheeling as they sometimes seemed to the world at large, or were they mere minions at the beck and call of their dispatchers.

The genesis of the case began when a Mr Hollis, himself a courier albeit not a bicycle courier, was knocked down by bicycle courier one day. The only identification possible of the perpetrator was the somewhat aptly named ‘Crisis Couriers’ emblazoned on the garment of the fleeing cyclist. With a “Sorry mate,” the mystery courier was gone like a flash on his bike.

Not being able to sue the unknown courier personally for his personal injuries, Hollis commenced action against the company Vabu trading as Crisis Couriers.

First Trial Decision: Court held that the courier was an independent contractor.

At the first trial, the Judge ruled that the courier was an independent contractor and that Vabu was not liable for the particular courier’s negligent act. This was despite the Court finding that in all probability, Vabu exercised significant control over the courier and that therefore the courier was more likely to be an employee.

What tipped the case in favour of Vabu was the fact that there was an earlier case involving Vabu and the Federal Commissioner of Taxation, which in effect ruled that the couriers were independent contractors and not employees of Vabu.

The taxation case included findings of fact that the couriers were required to provide their own bicycles; that they had to bear the expense of maintaining the bicycles, and that they had to provide their own equipment, other than radios and uniforms.

On the other side of the argument, the relevant facts were that there was little scope of negotiation for rates of pay between the parties. Vabu assumed all responsibility for the direction, training, discipline and attire of the couriers. Vabu also provided the couriers with numerous items of equipment such as a radio, which remained the property of Vabu. Insurance and deductions were imposed on the couriers, without any opportunity for negotiation.

The taxation decision was itself a vexed one. The initial trial judge had ruled that all of Vabu’s couriers, including light commercial vehicle drivers were employees at common law. Interestingly, no evidence was offered on the part of bicycle couriers. The decision was one ostensibly made in the light of the significant degree of constraint and discretion and flexibility of the courier by the company in undertaking his or her task.

Hollis Appealed to the Court of Appeal: The Court by a majority, maintained that the courier was an independent contractor. The decision of the judges was 3-2 in favour of a finding that the courier was an independent contractor.

Vabu won his appeal, and the appeal Judges found that there was not between Vabu and the couriers a common law relationship of employer and employee. The appeal decision was made on the basis that the old test of the degree of control over the worker – supposedly relied on by the first instance Judge – was ruled to be superseded by a more flexible test. However, one notes that in their enthusiasm for a flexible approach, the appeal Judges seemed to have ironically made a more conservative ruling in favour of Vabu.

APPEAL TO THE HIGH COURT: Court held that the relationship was one of employer-employee. Judges 5-1 in favour.

Not content with having lost at the 1st hearing and at the Court of Appeal, the Hollis camp were granted leave to appeal to the final bastion which is the High Court of Australia.

The grounds of Hollis’ appeal were based on arguments imposing a vicarious duty of care on Vabu, and or in the alternative, a non-delegable duty of care on Vabu. The duties of care sought to be imposed on Vabu are normally associated with strictly employee-employer relationships.

The learned High Court Judges’ written decision went to great lengths to examine the concept of vicarious liability. In effect, the history of the term indicated that the concept was used to impose liability on employers who were more likely to have deep pockets. The second rationale was the deterrence of future harm by the incentive given to employers to reduce accidents, even where there has been no negligence in the legal sense per se.

Five of the six esteemed Judges affirmed on an appraisal of the facts that were borne out at the first hearing that the courier was indeed an employee. They believed that The Court of Appeal made a mistake in making too much of the circumstances that the bicycle couriers owned their own bicycles, bore the expenses of running them, and supplied their own accessories.

In the High Court’s opinion, the couriers were not running their own business or enterprise, nor did they have independence in the conduct of their operations. They were unable to make an independent career as a free-lancer or to generate any good-will as a bicycle courier. Additionally, the couriers had little control over the manner of performing their work, with Vabu producing pay summaries every week for the couriers. Vabu was able to stipulate when annual leave was to be restricted.

The conclusion reached was that the relationship was one of employment, and thus Vabu was vicariously liable for the negligence of it’s employee.

Justice Callinan was the single judge who did not agree with his 5 brother judges. He ruled against Hollis. He held that the couriers were unlike ordinary employees. The system of work was based on the number of collection and deliveries they made. In effect, they were in direct competition with each other and therefore must be independent contractors.

In conclusion, the lesson the concerned reader should take away is that the parties cannot deem the relationship between themselves to be something it is not. This is likely to be the dominant view in employment relations for the foreseeable future.

So how does the case affect us. You must seek legal advice as to whether the person working for you is an independent contractor or an employee. Workers’ compensation and tax issues are some very important matters that need to be considered. Those issues are decided differently between an employee and an independent contractor.

On the lighter side

A lawyer died and arrived at the pearly gates. To his dismay, there were thousands of people ahead of him in line to see St. Peter. To his surprise, St. Peter left his desk at the gate and came down the long line to where the lawyer was, and greeted him warmly. Then St. Peter and one of his assistants took the lawyer by the hands and guided him up to the front of the line, and into a comfortable chair by his desk.

The lawyer said, “I don’t mind all this attention, but what makes me so special?”

St. Peter replied, “Well, I’ve added up all the hours for which you billed your clients, and by my calculation you must be about 193 years old!”

The Pope and a lawyer find themselves together before the Pearly Gates. After a small quantum of time which was spent discussing their respective professions, ol’ St. Peter shows up to usher them to their new Heavenly station. After passing out wings, harps, halos and such, St. Pete decides to show them to their new lodgings. Only a brief flight from the welcome, Pete brings them down on the front lawn of a huge palatial estate with all sorts of lavish trappings. This, Pete announces, is where the lawyer will be spending eternity, (at least until the end of time).

“Hot Dang”, the Pope says to His-self, “If he’s getting a place like this, I can hardly wait to see my digs!”.

They take flight once again, and as Pete leads on, the landscape below begins to appear more and more mundane until they finally land on a street lined with Brownstone houses. Pete indicates the third walk-up on the left as the Popes new domicile and turns to leave, wishing the pontiff all his best.

The Pope, in a mild state of astonishment, cries out, “Hey Pete! What’s the deal here? You put that lawyer in a beautiful estate home and I, spiritual leader of terra-firma, end up with this dive?”

Pete looks at the pontiff amusedly and replies, “Look here old fellow, this street is practically encrusted with spiritual leaders from many times and religions. We’re putting you here with them so you guys can get your dogma together. That other guy gets an estate, because he’s the first lawyer to make it up here!!”