For decades Australian courts have been struggling with the employee/contractor distinction. The control test, entrepreneur test and multi-factor test have all been in fashion at different times. For now the multi-factor tests holds sway, and the Court will conduct "a multi-factorial assessment of the totality of the relationship, as ascertained from the surrounding factual matrix with no one matter being determinative". That approach is perfectly sensible in the abstract, but does not lend itself to certainty from a business perspective.
One area of relative clarity has been road transport. Generally speaking the distinction between an employee driver and contractor was clear: if the driver supplied their own truck they were a contractor; if they didn't, they weren't. There were some other complications in this area (especially NSW owner driver laws) but the employee/contractor issue was fairly clear.
Last week the Federal Court threw that certainty into question.
Employee driver or independent contractor?
In Jamsek v ZG Operations Australia Pty Ltd  FCAFC 119 a Full Court of the Federal Court considered the situation of two drivers, Mr Jamsek and Mr Whitby. For 35 years Jamsek and Whitby were treated as owner drivers. They chose, paid for and maintained their own trucks. They were paid a standing rate and running rate. They each formed a partnership with their wife, split their income, issued invoices, remitted GST and claimed GST input credits. On at least one occasion they organised a replacement driver when they were on leave. Their work agreements described them as contract carriers. The running costs of the business were not disclosed in the judgment but there would have been millions of dollars invested in vehicles and running costs over the years.
Viewed in that way, it would be very difficult to distinguish Mr Jamsek and Mr Whitby from the hundreds or thousands of "tied" owner drivers at work each day. If anything, they had more autonomy than many owner drivers because they supplied a vehicle of their choice without needing the principal's approval and they organised their own runs. The trial judge found without very much hesitation that Jamsek and Whitby were bona fide independent contractors.
The Full Court of the Federal Court disagreed. Each of the three judges on the Full Court held that the drivers were employees and had been throughout the whole 35 years of their work. That was, essentially, because they did not have a sufficient degree of control and autonomy necessary to characterise them as independent contractors. The key factors appeared to be that:
- they worked nine hours a day, five days a week, generally between 6am and 3pm;
- their trucks were at times marked with the company's logo, and they sometimes wore the company's uniform;
- they did not have any real opportunity to work for other clients;
- they were told what to deliver each day (although they decided for themselves who delivered what, and in what order); and
- the drivers become contractors after having been employees and following a kind of mild ultimatum.
The fact that the drivers supplied their own vehicles at a significant cost – previously treated as a critical consider – barely warranted a mention in the three judgments. Also puzzling was the absence of any reference to the laws applying to "contract carriers" in NSW under Chapter 6 of the Industrial Relations Act 1996 (NSW), particularly given the drivers appear to have been parties to a collective contract carrier agreement presumably made under Chapter 6 of that Act.
What does it mean for principal contractors?
As we mentioned in our article on the implications of the case for companies generally, the Court appears to have raised the bar in terms of the level of control and autonomy required for a genuine contracting arrangement. It is important reading for any business which engages contractors; but for businesses which engage owner drivers, the case involves a potential paradigm shift.
There were some slightly unusual features of the case. The two drivers had worked for the business for 35 years. They were originally employed drivers and invited to become owner drivers on an essentially take-it-or-leave-it basis. They bought their first trucks from their former employer at a price set by the former employer. Their work hours were regular.
Even so, Mr Jamsek and Mr Whitby were functionally indistinguishable from many thousands of owner drivers currently at work. Most of the features which persuaded the Court that they were employees are present in any tied owner driver arrangement: regular work; company livery on the truck; a single client; a high degree of economic dependence.
If the Jamsek approach is taken more broadly, a large proportion of owner drivers would be found to be employees.
The risks of getting it wrong are significant. The Court has not made final orders in Jamsek but it is likely that compensation and potentially penalties will be awarded. The compensation will be difficult to assess, but at a minimum it is likely to include 35 years of annual leave and long service leave. One of the interesting question is how the Court will determine the drivers' base rate of pay given they were paid a running and standing rate which presumably incorporated a large component compensating for capital running and finance costs in addition to labour.
A sting in the tail(gate)
Justice Perram (with whom Justice Wigney agreed) emphasised that the drivers' inability to generate goodwill – in the strict sense of business goodwill which is an asset which would be sold – is an important factor. He thought that inability to build up goodwill which could be sold was crucial to the finding that the drivers were employees not contractors.
This is a bitter twist for the many businesses who have worked hard over the years to eliminate the practice of sale of "trucks in work". Although there are good reasons to eliminate that practice, it now seems that successfully stamping out sales of goodwill increases the chances of an owner driver being found to be an employee.
Every business using lorry owner drivers must now reassess its arrangements in light of the decision. It is not an overstatement to say the rules of the game have just changed, and the stakes are high.