The Case

Royans Wagga Pty Limited (Royans), a truck repair company, engaged Mr and Mrs Putland as independent contractors to perform clerical work. The couple worked largely from their home and exclusively for Royans. The arrangement commenced in 2005 initially involving Mrs Putland who monitored the 24-hour accident reporting service. Mr Putland undertook the same work from 2008. In 2015, Royans outsourced the service to an independent call centre.

The Putlands commenced proceedings against Royans in the Federal Court claiming underpayment of wages, annual and long service leave, superannuation and overtime.

The Verdict

Justice Bromwich of the Federal Court held that Royans’ arrangement with the Putlands bore the hallmarks of sham contracting, stating that:

• “any sense in which the applicants were entrepreneurs and running their own business was illusory”;
• “the reality is that the impact of technology, and in particular communications technology, has greatly facilitated working from home where the substance of work is no different from that which was done in the workplace in the past”; and
• “they were not truly working in and for their own business and as representatives of that business but, rather, were performing work as representatives of Royans Wagga”.

The indicia of the employment relationship were:

• the control exercised by Royans, through its managing director of the work;
• the work was done exclusively for Royans;
• Royans’ payment for phone lines and bills at the Putland’s home;
• deferential emails to Royans’ managing director;
• supply of scanners and telephone systems of Royans;
• the lack of true autonomy “besides the carrying out of mechanical tasks”; and
• the Putlands were not operating their own business.

Justice Bromwich stated that the only “indicators in favour of an independent contractor relationship”, such as the Putland’s possession of ABNs, the issuing of tax invoices in lump sum amounts (with no deduction for tax), income splitting and not wearing uniforms, was “largely reflective of the [Putland’s] subjective understanding of the position they were in, according to the wishes of Royans … rather than supporting an objective assessment of the true nature of the relationship.”

Justice Bromwich found that the Putlands were employed by Royans under the Private Clerks Award 2010 as full-time call centre principal customer contact specialists.

The matter has been adjourned to October to determine the compensation and penalties payable by Royans for non-payment of employment entitlements, penalties for sham contracting and failing to supply payslips.

Lessons for You

It is important to ensure your workers are correctly characterised. Simply requiring independent contractors to have ABNs, render tax invoices and calling them contractors in a written agreement do not necessarily make them contractors. As this case shows, the relationship is examined as a whole to determine the true nature of the relationship.

For example, whether the contractor is operating their own business and what control is exercised over the contractor in the performance of the work. Care should be taken in properly setting up and administering independent contracting arrangements so your company and you (under the accessory liability provisions of the Fair Work Act 2009 (Cth)) don’t become liable for sham contracting.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.