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21 Jun 2006

"Employee" definition: relevance to Work Choices legislation and beyond

by Joe Catanzariti

The Work Choices legislation, operative 27 March 2006, is underpinned by the common law definition of "employee". The High Court has recently ruled yet again on the meaning of "employee", as compared to independent contractor.

Whether a worker is an "employee" and "independent contractor" frequently gives rise to litigation in a variety of contexts. Many consequences flow from identifying a worker as an employee or contractor. Is the employer liable for sick pay, or to provide annual leave or carers' leave to its workers? Must the employer make superannuation contributions? Is the worker able to claim unfair dismissal under the Workplace Relations Act 1996 (Cth)? Is the employer liable for negligent acts of its workers? The answer to these questions depends on categorising the worker as employee or contractor.

On 16 May 2006 in Sweeney v Boylan Nominees Pty Limited [2006] HCA 19, the High Court ruled on the employee/contractor distinction in an appeal from a decision of the New South Wales Court of Appeal in the context of the vicarious liability of a mechanic serviceman for negligently inflicted personal injury.

Legal issue

While the appellant was at a convenience store of a BP service station, she was injured by a falling refrigerator door which had recently been serviced by a mechanic engaged by Boylan. The judge at first instance found that the servicing of the refrigerator was negligent and that Boylan was vicariously liable for that negligence. Boylan appealed to the New South Wales Court of Appeal which upheld the appeal on the ground that the worker was an independent contractor, not an employee.

The injured person appealed to the High Court. A main legal issue was whether the refrigerator serviceman was an employee or a contractor.

The facts

The facts relevant to the relationship between Boylan and the mechanic serviceman which emerged in the Court of Appeal decision were:

  • there was "a close working relationship" between Boylan and the serviceman
  • there was no formal or general contract between Boylan and the serviceman- the latter would undertake work for a customer upon Boylan's request
  • the serviceman, although engaged as a "contractor" by Boylan, neither worked nor was based at the Boylan plant (where the service department was staffed by six employees who worked within that plant)
  • Boylan treated its field service employees and "contractors" differently
  • the serviceman was director of Cool Runnings Refrigeration and Air Conditioning Pty Ltd and operated under this corporate identity
  • the equipment or tools used were supplied by the serviceman himself
  • the serviceman was responsible for his own workers compensation insurance and public liability insurance
  • Boylan did not make superannuation contributions nor did it pay the mechanic a salary but rather paid on the invoice for hours worked
  • the serviceman purchased spare parts from another supplier (a refrigerator equipment manufacturer), not Boylan
  • Boylan left it to the judgment of the serviceman about what work should be done and how, and did not exercise control
  • the serviceman did not work for others; and
  • there was no mutuality of obligation between Boylan (to provide work for a period) and the serviceman (to do work for a period).

Court of Appeal NSW: contractor

The Court of Appeal decided that the serviceman was an independent contractor on the basis that there was no control of his work by Boylan; no mutuality of obligations; and other indications, such as working under the serviceman's own business name and providing his own tools and equipment, which established that the serviceman carried on his own business. Consequently, there was no vicarious liability of Boylan for the serviceman's negligence.

High Court: employee or contractor?

The appellant's argument that the serviceman was an employee was rejected unanimously by the High Court.

The joint judgment (Chief Justice Gleeson, and Justices Gummow, Hayne, Heydon and Crennan) stated that:

  • The serviceman mechanic "was not an employee of the respondent. He conducted his own business"
  • "That the mechanic was engaged in a business other than that of [Boylan] was demonstrated by a number of circumstances but chief among them were his invoicing [Boylan] for each job he did and [Boylan's] concern to verify that the mechanic had proper workers' compensation and public liability insurance"; and
  • "The interposition of the mechanic's company would, of course, give further support to the conclusion that he was engaged in a business other than that of the respondent."

The joint judgment also distinguished the well known High Court decision in the case of Hollis v Vabu Pty Ltd in 2001 – which decided that a bicycle courier was an employee, not a contractor – and stated that:

"Unlike the principal in Hollis, [Boylan] did not control the way in which the mechanic worked. The mechanic supplied his own tools and equipment, as well as bringing his skills to bear upon the work that was to be done. And unlike the case in Hollis, the mechanic was not presented to the public as an emanation of [Boylan]."

Vicarious liability

The joint judgment concluded that Boylan was not vicariously liable for the negligent act of the serviceman mechanic. Justice Kirby, although he took the view that the mechanic was a contractor, ruled on the law and as a matter of policy that Boylan was liable vicariously because the acts "were done by the contractor as its authorised representative".

Implications of the decision

The decision has applied accepted criteria for determining the category of worker as either employee or contractor. The Court regarded as very important the fact that the worker was running his own business; that there was no control of the serviceman by Boylan; and that there was no portrayal of the serviceman as an emanation of Boylan's business. While the criteria for determining employee or contractor may be generally accepted, it is often difficult to decide in particular instances whether the worker is an employee.

The concept of employee continues to be significant and underpins the labour law reforms in the recent Work Choices legislation – for example, employees may enter into workplace agreements, either Australian Workplace Agreements or collective agreements; and the 100 staff cut-off for excluding small and medium businesses from unfair dismissal obligations is based on the total number of employees engaged by the employer. Decisions such as this recent High Court case and Hollis v Vabu remain important for determining whether a worker is an employee.

Thanks to Marilyn Pittard for her help in writing this article.

This article was written when Joe was a partner at Clayton Utz and does not necessarily reflect his views as Vice-President of the Fair Work Commission.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.