The Full Bench of the Federal Court find that two truck drivers were employees for over 40 years

The recent decision of the Full Bench of the Federal Court of Australia (the Full Bench) in the case of Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119 held that two truck drivers with 40 years of tenure were employees and not independent contractors. The well-established case law principles and indicia that form the basis between an employee and an independent contractor demonstrates that each situation needs to be dealt with on a case by case basis.

Facts

Mr Martin Jamsek and Mr Robert Whitby (collectively the Applicants) were engaged as delivery truck drivers on a full-time basis from 1977 – 2017. At the time of the proceedings, the Applicants’ employer was ZG Operations Australia Pty Ltd (the Company). During their engagement, the Applicants did not perform work for any other business or entity aside from the Company. It is noted that during the claim period between 1977 – 2017, the ownership of the Company changed numerous times.

As part of their duties, the Applicants would attend the Company’s warehouse where Company employees would ‘pick and pack’ orders for delivery. The Applicants would then arrange the orders appropriately and the Company’s employees would then move the orders (in that way the Applicants had arranged) into the Applicants’ trucks.

In late 1975, the Company moved its premises to another location. As the new location was further away, the Applicants requested a pay rise to compensate them for the additional travel time. The Company rejected this request and instead, offered an ultimatum for the Applicants to agree to become contractors or there would not be a job moving forward. The proposal required the Applicants to buy their own trucks (and cover all truck maintenance expenses) and be paid ‘carton rates’ with a minimum of $120 per day or $620 per week (for a five (5) day week).

In 1986, the Applicants set up individual partnerships with their respective wives (collectively the Partnerships). The Applicants then accepted the Company’s offer to become contractors and entered a written contract between the Company and the Partnerships. In 1993, the Applicant’s entered a new contract with the Company which prescribed a minimum nine (9) hour day and an allowance for annual leave, public holidays and sick days. The Company also provided the Applicant’s with uniforms that bore the Company’s logo. From 1993 - 2009, the Company installed tarpaulins on the Applicant’s trucks which the Company logo (as updated from time to time) was affixed to.

The Applicants provided the Company with tax invoices and charged GST in relation to the services they supplied. The Applicants were required to fill-out and provide the Company with ‘run-sheets’ which recorded the Applicants’ arrival at the warehouse in the morning and the time the Applicants completed the deliveries for the day.

During his engagement with the Company, Mr Jamsek took leave at various points however during the periods he was on leave, he arranged for either friends or other drivers to cover his shifts. During their engagement, the Applicants were also required to assist in cleaning of the warehouse when the Company underwent stocktakes.

On 14 November 2016, the Company wrote to the Applicants stating that their engagement had been terminated due to financial conditions and the need to reduce costs. The Applicants filed a claim against the Company, claiming that they were engaged as employees, and therefore at law, were underpaid leave entitlements and superannuation accrued during their employment with the Company. The Company submitted that the Applicants were independent contractors and not employees.

Primary Judge’s Decision

The Primary Judge, accessing the totality of the relationship between the Applicants and the Company, held that the Applicants were not employees.

The Primary Judge held that the choice of the Applicants to enter the Partnership and then contract with the Company through the Partnership went against the argument that there was an employment relationship – having regard to the taxation implications of the Partnership.

The Primary Judge held that the terms of the contract were clear in identifying each Partnership as a party. The Primary Judge also noted that the contract between the Partnership and the Company indicated a “mutual intention that significant aspects of the existing relationship would come to an end, and that arrangements would change”. Finally, the Primary Judge held that the use of their own trucks indicated that the Company did not have control over the Applicants’ activities and there were no barriers why the Applicants could not serve other customers.

Full Bench Decision

The Full Bench referred to well-established case law in making its determination whether the Applicants were employees or independent contractors. In particular, the Full Bench applied the findings of Stevens v Brodribb and the High Court decision of Hollis v Vabu applying the ‘multi-factor’ test and noting that “the totality of the relationship between the parties’ is relevant” and that the Court “should focus on the substance and reality of the relationship, rather than its mere legal form”.

The Full Bench held that the relationship between the Company and the Partnership was unusual, but did not preclude the existence of an employment relationship as the Applicants’ spouses had limited contribution to the work undertaken by the Applicants. The Full Bench held that the Applicants did not have the ability to negotiate the terms of the contract with the Company, in that, “… the company wanted the change, and the applicants had to accept the change or leave.”

The Full Bench held that notwithstanding that the Applicants owned their trucks, the Applicants did not have the required degree of control over those trucks as they were compelled to purchase them by the Company and the Company’s logo was affixed on the trucks from time to time.

The Full Bench acknowledged that the Applicants did possess a degree of freedom over the operation of their day-to-day activities. However, the Full Bench found that the Company ostensibly required the Applicants to comply with their directions by requiring them to work nine (9) hour days Monday to Friday, having their trucks display the Company’s logos, and requiring them to wear clothing with the Company’s logo. The Full Bench held that “the effect of this conduct was to encourage stakeholders to identify the applicants as part of the company’s staff” which indicated an employment relationship.

Further, the Full Bench held that while the Applicants may have been able to work for other clients, in practice, the hours imposed by the Company left minimal time for the Applicants to service others. As such, the Full Bench held that the Applicants worked exclusively for the Company and there was no opportunity for the Applicants to generate ‘goodwill’ or to sell over and above their trucks.

The Full bench held that while there were factors supporting the characterisation of the Applicants operating independent businesses, those factors were “… outweighed by an appreciation of how the relationship operated in substance”.

As such, the Full Bench unanimously held that the Applicants were, in reality, employees for the Company and remitted the decision back to the Primary Judge to decide what orders to issue.

Take Home Messages

The Full Bench’s decision has applied some long-standing case law, this case will have flow-on effects on organisations who engage truck drivers as independent contractors. The decision will undoubtedly require principals engaging truck drivers to evaluate and possibly re-structure their contractor engagements. This case serves as a timely reminder that the surrounding circumstances and practice of a relationship will determine whether the relationship is one of employee and employer or contractor or principal

The Full Bench’s decision highlights that the totality of the relationship between the employees and the employer must be taken into account notwithstanding the contractual framework agreed to. Employers should be careful not to haphazardly label a relationship with a contractor without paying attention to how the relationship functions in reality.

For more specific information on any of the material contained in this article please contact Lincoln Smith on +61 8 8210 1203 or lsmith@normans.com.au, Ganesh Krishnan on +61 8 8217 1395 or gkrishnan@normans.com.au or Thomas Tagirara on +61 8 8217 1337 or ttagirara@normans.com.au.