Tony Ince, Mostyn Consulting

Contractor or chimera?

Bona fide contract agreement or chimera?

A recent decision in the Full Federal Court is the latest to add to the growing list of employee/contractor decisions. It raises issues for a lot of working arrangements, including those in the gig economy.

In Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119, the court held that the truck drivers who supplied their own trucks were employees for the purposes of the Fair Work Act 2009 and Superannuation Guarantee (Administration) Act 1992 and were workers for the purposes of the Long Service Leave Act 1955.

This is unusual because traditionally the courts have treated the supply of significant equipment as a prime factor in contracting arrangements.

As a result of the decision, for the three drivers ZG Operations is currently up for:

• four weeks of paid annual leave for each year of their (alleged) employment since 1986.
• loading of 17.5% of the minimum rate they were paid.
• leave accrued and not taken in the period 1 January 1986 to 20 January 2017.
• 10 days of personal leave per year for each year of service.
• paid designated public holidays each year.
• overtime for all hours worked outside of ordinary working hours.
• 12 weeks of redundancy compensation.
• superannuation contributions.
• long service leave.

Ka-ching!

The employer, ZG Operations Australia Pty Ltd, was granted special leave on limited grounds to appeal to the High Court, so watch this space.

Chimera??

Perram J in his decision said:

“It may have been strictly correct to say, as the primary judge did, that after 1986 the men “in principle” could have used their trucks to “serve others”.  Yet that was no more than a chimera.” 

A chimera; what’s that?

In Greek mythology, it is a fire-breathing female monster with a lion’s head, a goat’s body, and a serpent’s tail.

More relevantly to whether the arrangement in question was actually a contractual arrangement, it is a thing “which is hoped for but is illusory or impossible to achieve”.

Important Take Out from the Decision.

It was a unanimous decision of the three judges. Unsurprisingly there were numerous case references; this area is littered with cases. But perhaps the main point I took out of the decision was the emphasis the three judges put on the inequality between the parties when it came to negotiating the contract.

Even though there was a written agreement with the drivers (at least for much of the time), the court noted that there were three main reasons why the agreements could be disregarded or read down. They referred to the plurality judgment in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] FCAFC 37, where North and Bromberg JJ described various avenues in which a court might reconcile a disparity between the face of a contract and the reality of the relationship the subject of that contract. 

1. The first is that the contract may be a sham—a product not intended by the parties to have substantive effect but rather to deliberately deceive third parties.
2. The second is that the contracting parties, by their conduct subsequent to the execution of the contract, impliedly varied their contract.
3. The third is that the relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all the circumstances of the case, of which the written agreement is only a part.

Significantly for this case and in a lot of arrangements, particularly in the gig economy, the court concluded:

“The pertinent point for present purposes is that, where the court must determine whether a relationship subject to a contract is one of employment, the relevance and weight of the parties’ intentions in entering into that contract must be characterised in light of the reality of the respective bargaining positions of each party. 

Although the entry into that contract indicates that the parties’ possessed a common intention to enter into those terms, the reality is that there was little, or no, room for negotiation in respect of the formation of the terms of the contract.”

Employers will have to be very careful when entering into agreements with workers that the agreement is not seen as a chimera – “a thing which is hoped for but is illusory or impossible to achieve”. If there is not some bargaining power by both parties, the courts may decide that the worker is an “employee”.