In a case that demonstrates the pitfalls of misclassifying employees as independent contractors, the Full Federal Court has upheld an appeal by two truck drivers pursuing unpaid leave and superannuation entitlements after working exclusively for a company for almost 40 years.
Originally, the trial judge held in 2018 that the two men were contractors and not employees of the company, applying the multi-factorial test on employment relationships.
Full Federal Court Decision
The Full Federal Court overturned this decision and made reference to the fact that an employment relationship could not be characterised solely “by reference to the terms of a written contract”.
“An evaluation of the totality of the relationship between the parties in the present case requires the court to assess what the parties in fact did over the nearly 40 years of their relationship,” Justice Anderson said.
In doing so, His Honour found that the business was the sole source of income for these workers, whereby they worked more or less regular hours (for labouring) with a constant set of duties and working arrangements. These factors led Justice Anderson to determine that the mere fact the contracts did not expressly forbid the workers driving their trucks for additional customers on weekends was of minor significance.
Regarding the multi-factorial employment test, Justice Anderson acknowledged that the drivers “possess[ed] a degree of freedom over the operation of their day-to-day activities”.
However, that needed to be balanced against the drivers having to work for the company from 6am to “at least” 3pm each day – leaving little opportunity to work for anyone else – and carrying the company’s logo on their trucks and clothing uniform for most of the relationship.
Employment Relationship more indicative than Employment Contract?
Justice Anderson emphasised that the key differentiating factor was that his approach is based on prioritising the substance of the working relationship as a whole rather than certain contractual obligations and legal structures through which the drivers were engaged.
“To my mind, [the Trial Judge] concluded as he did by giving primacy and excessive weight to contractual labels and theoretical possibilities and insufficient weight to the reality and totality of the working relationship between the parties, as demonstrated by the way they actually conducted themselves over many years.
The contract was held to be indicative of independent contractors, who in turn contracted with the company through their partnerships, which supplied the vehicle for their work.
However, these factors were outweighed by an analysis of the actual employment relationship that the Full Federal Court held existed between the parties. The relevant factors were that: the drivers had worked full-time for nearly 40 years, the work was labour and the sole source of income for the entire period and that they did not drive or deliver goods for any other entity/business. Therefore, Justice Anderson concluded that the drivers could not be characterised as engaging in entrepreneurial or profit motivated activity, which is indicative of an independent contractor relationship.
“The evidence of the totality of the relationship compelled the conclusion that [the drivers] were employees of the business at all relevant times.”
The Full Federal Court remitted the case to the trial judge to determine compensation and whether the employer was guilty of any breaches that would attract penalties.
The takeaway for employers
This case demonstrates that misclassification of employees as independent contractors can prove costly for employers. The company were ordered to pay out all entitlements for both employees for more than a 20-year period as well as fines for any potential further breaches.
The Full Federal Court has also emphasised the primacy of the employment relationship over the contractual relationship of the parties. This means that it is not simply good enough for companies to have well drafted policies and procedures, but they must make sure their engagement of workers accurately reflects their employment classification.