10 January 2002, updated August 2010
Court rulings from which the sub tests in ‘The Swinging Pendulum’ have been collated and test case commentary
A recent decision from Fair Work Australia found that a training contractor was in fact an employee even though the contractor had an ABN, issued invoices with GST and could work his own hours. FWA went through a standard process of looking at about 16 of the standard subtests for common law employment/contracting and found that on the ‘balance of evidence’ the contractor was in fact an employee. The case is short and readable and gives a good understanding of how courts will look at all indicators before making a decision.
- John Barrett v Create (Geelong) Inc T/A Create
- Here’s our one-page checklist for common law indicators.
- And our longer common law ‘swinging pendulum’ test.
Court Rulings
- Stevens v Brodribb Sawmilling (1985-86) 169 CLR 16 (ref DA)
- Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 33 ATR 537
- World Book (Aust) Pty Ltd v Federal Commissioner of Tax (1992) ATC 4327
- Odco P/L v Building Workers’ Union of Aus (1989) No VG 151of 1988 (ref DD)
- Jackson & Wilson v Monadelphous Engineering (1997) No SI 1507,1561,1030 of 1995
- Konrad v Victoria Police (1999) FCA 988
- Vizcaino v Microsoft Corp (1999) USA 173 F.3d713 9th Cir.
- T Sammartino v Mayne Nickless Express (2000) AIRC Print S6212
- Deutz Australia Pty Ltd v Skilled Engineering Ltd (2001) VSC 194
- Commissioners of Inland Revenue v Professional Contractors Group Ltd High Court of Justice London Case No CO/2302/00
- Hollis v Vabu Pty Ltd (2001) HCA 44. Available as a PDF file
Test Case Commentary
10 January 2002
A selection of important test cases defining the common-law definition of independent contracting
The selection of test cases commented on here is taken from a large number of available Australian cases that considered the evidence of specific situations and on which rulings were made. The comments should give readers a ‘feel’ for how a common-law test case has to balance the weight of the evidence.
Stevens v. Brodribb (1985-86)
This is the primary test case of recent times in Australia, and is frequently used as the source of indicators against which other cases should consider their evidence. Of particular importance is the fact that the High Court of Australia stated that the common-law status of employment depended on finding the ‘right’ of the employer to control the employee. The High Court said ‘…the importance of control lies not so much in its actual exercise, although that is clearly relevant, as in the right of the employer to exercise it’. The case drew a distinction between actual control and ‘right to control’. It also made clear that any decision had to be made on the balance of all the evidence.
Stevens v. Brodribb is the frequently quoted benchmark case for all Australian common-law tests of employment or independent contracting.
Sammartino v. Mayne Nickless Express (2000)
This case is of interest because it demonstrated how necessary it is for written and stated intent to match behaviour. It is not sufficient just to say that someone is an independent contractor. It is behaviour that proves status.
In this case, Mr Sammartino worked for Mayne Nickless as a contract carrier from 1986 to 1998. Mayne Nickless was a large, Australia-wide transport company. In 1998, Mayne Nickless stopped using Mr Sammartino, who then sought to take an unfair dismissal action. Unfair dismissal applications can only be made under industrial relations legislation which only has application to relationships between common-law employees and employers. Mayne Nickless said that Mr Sammartino was not an employee, while Mr Sammartino claimed that he was. The Industrial Relations Commission had to determine Mr Sammartino’s legal work status before it could consider the unfair dismissal application.
The Commission heard evidence from Mr Sammartino and from managers of Mayne Nickless, and also studied business documents. They compared the evidence of behaviour against nine of the common-law indicia. In coming to their conclusion, the Commission stated that
- The degree of control exercised over Mr Sammartino heavily indicated employment.
- The mode of remuneration, the nature of the obligation to work, the requirement of Mayne Nickless for Mr Sammartino to work exclusively for them and the arrangements on the hours of work and holiday leave strongly indicated employment.
- The arrangements for tax, superannuation and workers’ compensation were inconclusive.
- The wording of the contract and the fact that Mr Sammartino provided and maintained his own vehicle pointed to independent contracting.
Taking all this into account, the Commission found Mr Sammartino to be an employee.
They said, ‘On our view of the balance of those indicia, in perspective of the arrangements and the relationship under which Mr Sammartino worked, we determine that he was an employee…’
Odco P/L v. BWIU (1989)
This case showed that independent contractors could work through labour hire arrangements. Until this case, people who worked through labour hire were usually taken to be common-law employees of the labour hire company. The case involved an attempt by a building union to force workers to join the union and to work under union rules. If the workers were employees, the union had grounds under the Industrial Relations Act to force them into union membership. These ‘Odco’ arrangements were twice tested through to the High Court—ending in 1991 with confirmation of the correctness of the 1989 decision.
In coming to their conclusion, the courts found strong evidence of independent contracting which included:
- The workers considered themselves, and wanted to be, independent contractors.
- The workers exercised real freedom to choose and had no obligation to work.
- The workers were paid high rates to compensate for no leave entitlements, and wanted it this way.
- The way their work was directed did not indicate ‘control’.
- The written documents were consistent with the behaviour.
Some payments were based on hourly rates and this pointed to employment, but were greatly outranked by the other indicators of independent contracting. On the balance of the evidence, the courts found that the workers were independent contractors.
This system of independent contracting has expanded rapidly since 1991, has had its contract principles reaffirmed in further major test cases, and is the model of labour hire described in the ATO, PAYG system. Most labour hire companies do not comply with the operational practices of the Odco judgments, and continue to supply people who are their employees.
Hollis v. Vabu (Crisis Couriers) Pty Ltd (2001)
This is perhaps the most interesting and critical common-law test case because, on the surface, it appears to overturn a previous, near-identical test case.
What is demonstrated, however, is that:
- Every case is individual and specific to the circumstances.
- The criteria for assessment which the courts use are consistent.
- The interpretation of the criteria can vary significantly and considerable debate can occur between the judges (and others) on interpretation.
Hollis v. Vabu was a High Court case that followed an earlier 1996 case of Vabu v. Federal Commissioner of Taxation. On the surface, the two cases involving the same company and same procedures produced opposite results. The detail reveals more.
The original (1996) Vabu superannuation case involved an application from the Australian Taxation Office that Vabu owed superannuation on the payments it made to its courier drivers. Vabu used bicycle, motor bike, car and van couriers under the name Crisis Couriers. The Superannuation Guarantee Act requires an ’employer’ to make superannuation contributions for ’employees’. Vabu argued that the courier drivers were not common-law employees and no superannuation was payable. The court took evidence mainly from car and van drivers and, on the basis of the way the company operated, found that the drivers were independent contractors, and thus no superannuation was payable. The key to the decision was the fact that the driver couriers provided and maintained their own vehicles. This was considered a decisive factor shifting the balance of evidence to independent contracting.
The Vabu (Hollis) case (2001) involved the same company but different circumstances. A bicycle courier wearing a ‘Crisis Couriers’ jacket had knocked over a pedestrian and had ridden off without giving personal identification. The pedestrian was suing Vabu for damages on the basis that the unidentified bicycle rider was an employee of Vabu and consequently Vabu was ‘vicariously’ liable for the ’employee’s’ actions.
The High Court conducted a similar investigation to the 1996 case and, on looking at near-identical operational procedures, found that the bicycle rider was an employee of Vabu. This seemed to overturn the previous case. But:
- The court limited the finding of employment specifically to the bicycle courier who knocked over the pedestrian. They did not seek to make comment on other Vabu couriers.
- The court found that there was a big difference between a courier providing and maintaining a motor vehicle in comparison to a bicycle. On the balance of evidence, the importance of providing a bicycle was much less than providing a car as a pointer to independent contracting.
The decision was controversial.
- Only 3 of the 5 judges found that employment existed.
- One judge found that no employment existed, but that the bicycle courier was an ‘agent’ of Vabu and that Vabu was still liable.
- One judge totally disagreed and found that there was no substantial difference between the way the couriers operated—that is, whether they were car couriers or bicycle couriers—and found that the bicycle courier was an independent contractor.
It is because of cases like Vabu that some commentators claim that there are no clear guidelines distinguishing employees from independent contractors. This is false. The sub tests used are clear but the interpretations brought to each specific case vary.
The Vabu cases are particularly important because they highlight the point that to ensure that independent contractor status is solid, it is essential that daily operational procedures and the behaviour of parties consistently conform to independent contractor criteria.
The full text of the case is included in this Website as a PDF file (130 K). Please click here: HollisvVabu