• The impact of this case on ATO policy is discussed in Decision Impact Statement: MWWD and Commissioner of Taxation (2020/0839 - 2020/0843).

MWWD v FC of T

Members:
BJ McCabe DP

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2020] AATA 4169

Decision date: 16 October 2020

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BJ McCabe (Deputy President)

1. Courts and regulators have struggled to distinguish between employment relationships and so-called 'independent contractor' arrangements. The distinction matters because employment relationships have been freighted with obligations that do not necessarily apply to independent contractor relationships. Those obligations include the requirement of an employer to make superannuation contributions in respect of the employee. An independent contractor is usually expected to look after his or her own superannuation.

2. The applicant in this case is a company that provides repair and maintenance services to businesses operating a particular type of machinery. The applicant's head office was in Sydney, but it had service technicians operating from depots in different states. Some of the service technicians were employed by the applicant under conventional contracts of employment. Other technicians were described as independent contractors.

3. Andrew Smith (a pseudonym) was one of the applicant's service technicians who was described as an independent contractor. He operated out of the applicant's Melbourne depot in the period 30 September 2013 through to 30 September 2017.

4. The applicant did not make any superannuation contributions with respect to Mr Smith during the period in question. It says it was not obliged to do so because Mr Smith was not an employee during that period. Mr Smith feels short-changed by the arrangement. He thinks he was entitled to superannuation - although he acknowledged the applicant was not obliged to make superannuation contributions if Mr Smith was, in fact, a genuine independent contractor.

5. The Commissioner of Taxation agrees with Mr Smith's take on the relationship. The Commissioner concluded Mr Smith was an 'employee' of the applicant within the meaning of s 12 of the Superannuation Guarantee (Administration) Act 1992 (the Administration Act) notwithstanding the way the parties described themselves. The Commissioner assessed the applicant as being liable to pay a superannuation guarantee charge in respect of the superannuation contributions the applicant should have paid during the period.

6. Section 12(1) of the Administration Act says the expressions 'employer' and 'employee' have their ordinary meaning, although the balance of the section goes on to expand the definition in a variety of ways. Of particular relevance here, s 12(3) provides:

If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

7. I must analyse the relationship between Mr Smith and the applicant during the relevant period and decide whether Mr Smith was an employee in the ordinary sense. If he is not, or if there is any doubt, I must also consider whether he would be regarded as an 'employee' within the meaning of s 12(3) of the Administration Act. If I decide Mr Smith was an employee on either basis, the objection decision must be affirmed.

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THE STRUGGLE TO DISTINGUISH BETWEEN EMPLOYMENT RELATIONSHIPS AND INDEPENDENT CONTRACTS

8. There is no doubt some businesses will (mis)describe workers as independent contractors in an attempt to avoid the costly obligations the law attaches to employment relationships. But economists tell us that - quite apart from those obligations - employment relationships and independent contractor relationships are not perfect substitutes for each other. There are legitimate economic reasons why a well-run business will prefer one form of engagement over the other. Researchers in the field of transaction cost economics and the theory of the firm are able to explain why businesses might integrate some workers into the business using contracts in which the workers agree to act as directed while other workers are treated as third party businesses that supply services. The law has always comprehended the phenomenon economists have observed. As Windeyer J explained in
Marshall v Whittaker's Building Supply Co Ltd [1963] HCA 26; (1963) 109 CLR 210 at 217:

…the distinction between a servant and an independent contractor… is rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own.

9. That conceptualisation of the essential difference between the two relationships was taken up by the High Court in
Hollis v Vabu [2001] HCA 44; (2020) 207 CLR 21. In that case, Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ noted at [40] the distinction was:

"rooted fundamentally in the difference between a person who serves his employer in his, the employer's business, and a person who carries on a trade or business of his own":].

10. McHugh J made essentially the same point in a separate judgment in Vabu, explaining (at [68]) an independent contractor was:

"someone who acts as an independent principal, exercising an independent discretion in carrying out a task for his own business interest and who is retained simply to produce a result".

11. In
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] FCAFC 122, Allsop CJ explained this fundamental conceptual difference must be kept in mind when setting about the task of characterising a particular relationship.

12. While that conceptual distinction between the relationships must be kept in mind, the question in a particular case cannot be distilled down to a simple enquiry as to whether the worker is conducting a business on his or her own account. As Perram J explained in the Full Court's decision in
Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119, working in the business of another is not necessarily inconsistent with working in a business of one's own: see also
ACE Insurance Limited v Trifunovski [2013] FCAFC 3; 209 FCR 146 at [128] per Buchanan J; also
Dental Corporation Pty Ltd v Moffett [2020] FCAFC 118. The real issue is (to use the language of Windeyer J in Marshall) whether the worker "served in the employ of another" or - to use more contemporary language - whether the person is an employee, not whether the person is conducting their own business: Jamsek at [7] per Perram J.

13. That issue is resolved using what has become known as a 'multi-factorial' approach to characterisation:
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 35-36 per Wilson and Dawson JJ; see also, Jamsek at [179] per Anderson J. Allsop CJ emphasised in Personnel that such an approach meant having regard to all aspects of the particular relationship. His Honour cautioned against treating the different indicia that may be relevant in a particular case as a check-list with more general application. His Honour explained (at [20]) what was required was an:

…intuitive appreciation and assessment of the whole, rather than a process of mechanically disaggregating and deconstructing different parts of the relationship by tests drawn from other cases.

14. Allsop CJ acknowledged the terms of the contract were certainly an aspect of the

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relationship that should be considered, but those terms were not necessarily definitive: at [21]. His Honour emphasised the challenge was to characterise the relationship, not construe the contract (at [8], [21]) albeit he acknowledged there might be some cases where the text of the contract might carry more weight. In the Personnel case, his Honour noted the contract in question was in a template form that the worker did not carefully examine, whereas there might be cases where the parties have obviously thought carefully about language that accurately describes what is going on: at [31], [35]-[36]. But it is still appropriate to be cautious. There is a risk that an overemphasis on the language in the contract might mislead in circumstances where "emphatic language [was] crafted by lawyers in the interests of the dominant contracting party": at [21]. His Honour pointed out that repeated and emphatic insistence in a contract that a worker was definitely not an employee might invite speculation that the business doth protest too much: at [15]; see also
R v Foster; Ex parte Commonwealth Life (Amalgamated) Assurances Ltd [1952] HCA 10; (1952) 85 CLR 138 at [5] per Dixon, Fullagar and Kitto JJ.

15. The challenge then, is to look to the relationship between the parties whilst keeping in mind the essence of what constitutes an employment relationship as opposed to an independent contractor arrangement. There may be aspects of the relationship which point one way or the other. The assessment is necessarily impressionistic but, like obscenity, an employment relationship should be more or less obvious when one sees it: see Jacobellis v. Ohio 378 US 184 (1964) at 197 per Stewart J .

THE RELATIONSHIP IN THIS CASE

16. The evidence provided by the parties was largely free of controversy. It is found in documents and in the statements provided by the witnesses, all but one of whom appeared at the hearing. (The witness who did not appear was the chief financial officer of the applicant company. His statement exhibited payment records.) I am satisfied all the witnesses did their best to assist the Tribunal. While there was some probing questioning of Mr Smith, I am satisfied he was honest. There were some minor inconsistencies between the individual accounts and some differences in emphasis, but I am not satisfied anything turned on the discrepancies. I did not form the impression either party subjectively intended to 'game the system' at any point - either at the time the relationship was in existence, or subsequently at the hearing - by actively misrepresenting their objectives or the way they conducted the relationship.

17. Before turning to the objective features of that relationship, I thought it would be helpful to begin by observing I am satisfied from the evidence that both parties intended to establish what they individually understood to be an independent contractor relationship. The question I must resolve is whether they succeeded in doing so.

18. I accept subjective intention is not in and of itself determinative of the nature of the relationship. Yet it is worth recounting some of the evidence about the parties' intentions because it sheds some light on their understanding of the distinction between the different concepts.

19. The CEO of the applicant was quite clear on the company's objectives. I specifically asked during cross-examination about why the applicant would seek to engage some of its workers on independent contracts while others were engaged as employees. The exchange suggests on its face the applicant had a clear grasp of the essential difference between the two types of relationship. It was clear the applicant was not simply motivated by a desire to avoid paying superannuation or providing other benefits that might otherwise accrue to an employee. The exchange proceeded as follows:

DEPUTY PRESIDENT: Just before you conclude, could I ask you to step back, you said during the course of your evidence there in answer to questions, well, the output of contractors is very different?---Yes.

Just talk me through what you meant by that?---So, the work completed by contractors is a greater volume and way more efficiently.

Efficiently in what sense, just talk me through that?---Well, there's less time wastage, there's idle chitchat, and they organise themselves in such a way that they maximise their billable hours

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during the day. They give a lot of thought to where they'll (indistinct) their job at the end of the day and how they'll group all those together. Whereas an employee just rolls up and gets directed to go to this place or that place. So, the principle difference there is that there is a lot more planning required but the reward for both the business and the contractor is greater.

When you say there's a lot more planning required, planning on whose behalf the contractor or the employee, the company?---Planning for the contractor to do.

So, it's suggested that you shift the burden on to them of working out how to run their day more effectively?---That's one way of looking at it, Deputy President, the other way is that their incentivised to maximise every bit they can get from being highly efficient and highly organised during that day.

• Well, in those circumstances if that's such an attractive model, why don't you put all of your staff, why have any employees, why not have them all working as independent contractors, what's the dividing line?---Some of our staff are not suitable candidates to be contractors, they don't process work as quickly or as efficiently, and they don't organise themselves to the same extent. That doesn't mean they're any less important to us but they're - not everyone's cut out to be an effective contractor.

20. I am satisfied the applicant embarked on the relationship with the intention of treating Mr Smith as a principal of his own business. What of Mr Smith?

21. Mr Smith is (and was at all material times) a qualified mechanic. He commenced his apprenticeship with the applicant before the events in question but concluded the apprenticeship with another firm. He then returned to the applicant's employ as a casual worker before he enquired about undertaking full-time work in 2013. He had an exchange with one of the managers, Mr Crane, about the alternative of becoming an independent contractor. The email exchange containing figures was referred to in exhibit 2 The email is dated 11 July 2017. Mr Smith said in his evidence he was attracted to the idea of earning more money than he could as an employee. He said at the hearing that he was keen to maximise his income because he wanted to buy a home. But Mr Smith said he also had reservations about the arrangement because he was not sure whether the terms were generous enough. He asked his accountant for advice about the draft contract which outlined the deal. The accountant told Mr Smith in an email dated 26 June 2013 that the written agreement as drafted read like an employment contract and should have provided for superannuation. The accountant said Mr Smith needed to consider whether he should press for superannuation contributions, but the accountant noted, in effect, that it was up to Mr Smith whether he wanted to press for those benefits. Mr Smith, for his part, made clear in his evidence that he did not regard superannuation as an indispensable part of the agreement. He was focused on what he might get out of the arrangement, and his concerns about superannuation would have been assuaged if he was paid at a higher rate.

22. I mean no disrespect to Mr Smith when I say he was not an especially experienced business-person who was attuned to the finer points of the contract, but he had the good sense to consult his accountant and he clearly went into the relationship with his eyes open. Not surprisingly, his principal focus was on whether the arrangement would deliver a satisfactory return. He said he had friends who were independent contractors and noted they made good money and enjoyed more freedom. I had the impression from his evidence that he was indifferent to the formal terms of the agreement: he was hungry to do well for himself. I note the CEO pointed out in his evidence that Mr Smith's hunger was one of the factors that marked him out as a suitable candidate for this sort of agreement

23. I now turn to the objective features of the relationship which are relevant to the characterisation process.

THE TERMS OF THE CONTRACT

24. Mr Smith signed the written contract in July 2013. A copy of the written agreement was reproduced in exhibit one at pp 291-302. The document is described as a "contractors' agreement". Clause [9] expressly provided:

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Relationship of parties

The Contractor's relationship with the Company will be that of independent contractor. Neither the Contractor nor the Company will have (and will not represent that it has) any power, right or authority to bind the other, or to assume or create any obligation or responsibility, express or implied, on behalf of the other or in the other's name. Nothing stated in this Agreement will be construed as constituting the Company and the Contractor as partners, or as creating a relationship of employer and employee or principal and agent.

25. The contract was determinable on 14 days' notice by either party. At clause [2], the contract provided the contractor "must provide the services at such place or places within [Victoria] which the Company may from time to time direct in writing" and "must at all times give absolute priority to the Company's requirements in relation to the provision of the services." While the agreement did not prevent Mr Smith from working on his own account - and he did so in some cases - the requirement that he give 'absolute priority' to the applicant's needs is redolent of the sort of exclusivity one expects to see in an employment relationship. Clause [2] also obliged Mr Smith to comply with the 'standards and requirements' of the applicant which were set out in Schedule 4 to the agreement. Clause [6(a)] provided "the services must be provided by the Contractor in a proper, workmanlike conscientious and expeditious manner and in compliance with the reasonable directions of the Company". The reference to standards and requirements of the applicant and the power to direct is consistent with the existence of an employment relationship which typically involves the exercise (at least notionally) of control over the work of the worker; that is potentially significant. As Wilson and Dawson JJ pointed out in Stevens, the so-called control test is still an important indicator, even if it is not necessarily determinative in the way it was once thought to be: at 36. (I will have more to say about the extent of actual or potential control below.)

26. The agreement also provided at clause [6(b)] that Mr Smith would indemnify the applicant against loss or damage that arose out of his supply of the services. In clause [6(c)], Mr Smith agreed he would take out insurance cover. These two provisions are, on their face, more consistent with Mr Smith behaving as a principal who assumed direct responsibility for his work. I will discuss the lived experience of this term below.

27. Clause [4] contemplated Mr Smith having employees of his own, or perhaps an apprentice, or using sub-contractors. That clause, without more, is suggestive of an independent contractor who can delegate the work rather than be personally responsible for the discharge of the work like an employee. The balance of the clause complicates the issue somewhat: it provides the employee or sub-contractor must not have access to "any document or thing related to the services unless approved by the Company in writing". It follows the applicant retained some practical ability to restrict the delegation of work. That clause is potentially significant because the ability to delegate (as opposed to being required to discharge obligations under the contract personally) is a good indicator of an independent contracting relationship: see
ACE Insurance v Trifunovski [2013] FCAFC 3 at [37] per Buchanan J (Lander and Robertson JJ agreeing). I should add that one assumes the applicant would not be permitted to withhold the necessary approval unreasonably, so it would be unable to exercise a veto in way that defeated the practical effect of the clause.

28. The agreement also contained extensive provisions dealing with intellectual property. Clause [7] provided:

Inventions and copyright works

• Subject to Clause 7(d), the Contractor must disclose and hereby assigns to the Company:
  • (i) all inventions, discoveries and novel designs whether or not registrable as designs or patents including any invention of or development or improvements to equipment, technology, methods or techniques made by the Contractor solely or jointly with others ("the inventions"); and

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  • (ii) the entire copyright throughout the world in all writing, art works and other copyright works ("the copyright works") created by the Contractor or any subcontractor or employee of the Contractor during and pursuant to this agreement (whether or not in normal business hours or using the Company's premises or equipment).
• (b) In addition to disclosing and assigning the inventions or the copyright works the Contractor must disclose and, if required by the Company, assign to the Company any other inventions, discoveries, designs or copyright works authored or created by the Contractor whilst engaged by the Company and which relate to or may touch upon the present or future business or products of the Company and its related companies.
• (c) The Contractor must both during and after the period of this Agreement do all such acts and things and sign all such documents as the Company or its attorneys may reasonably request to secure the Company's ownership or rights in the inventions and the copyright works.
• (d) The Contractor acknowledges that in the event that he makes a design as defined in the Designs Act 1906 during and/or arising out of his service to the Company the designs will be owned absolutely by the Company.
• (e) The assignment of the Contractor's copyright in the copyright works pursuant to Clause 7(a) will not restrict the Contractor's right to utilise the general expertise and knowledge accumulated by the Contractor in the performance of his duties for the Company and the Contractor will be entitled to use routine procedures developed by him in the performance of his duties for the Company however the Contractor must not make any reproduction or substantial reproduction of any of the copyright works without the written licence of the Company.

29. I am puzzled why the applicant saw fit to include such detailed provisions regarding intellectual property in a contract with a mechanic. Mr Smith was not engaged to generate innovations or create copyrighted works. He was a repairman. The applicant's insistence on boiler-plate clauses of this kind - there is no reason to suppose Mr Smith thought they were necessary - raises questions about the extent to which the written agreement accurately describes what was going on between the parties. To the extent the written agreement is a reliable guide, the terms dealing with intellectual property are certainly consistent with an employment arrangement where the intellectual property created by the employee in the course of work is, in most occupations, deemed to be the property of the employer.

30. The balance of the provisions in the agreement, including the clauses relating to confidentiality and restraint of trade, are unremarkable.

31. The terms of the agreement remained substantially the same when the agreement was renewed in July 2017 albeit the rates of payment increased and additional obligations were included in Schedule 4. The revised agreement is reproduced in exhibit one at pp 486-497.

32. In summary, the text of the written agreement(s) points in both directions. The language is clear enough: Mr Smith is referred to as 'the contractor', and the agreement expressly provides that he is not an employee. However, the formal nature of the document and the extent of some of the terms raises questions about how much weight should be given to the descriptors. The requirement that Mr Smith obtain his own insurance and indemnify the applicant is consistent with the independent contractor paradigm. Yet the contract plainly gives the applicant some formal control over where, when and how the worker provides the services. The control over the intellectual property created by the worker is a loose indicator of an employment relationship, while the right to delegate which is subject to some practical limits points towards Mr Smith being an independent contractor.

EXERCISING CONTROL

33. The potential for the putative employer to exercise control over the worker is still an important consideration. I have already pointed out the contract suggests the applicant may have had more (formal) control than one would expect if Mr Smith were an independent

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contractor, but the evidence from the witnesses about the lived experience of the relationship offers more nuance. To begin with, Mr Smith's evidence made clear he was able to determine his start and finish time each day. He was also able to take time off as he saw fit although it was understood he would give sufficient notice to the applicant and the other technician who worked alongside him at the depot. Mr Smith said he did not take a lot of time off in any event (although he did take a longer period of leave when he was married). He was not paid if he did not work, and he was concerned he might be replaced by other contractors if he took too many liberties. If he was ill and unable to work, he said he simply called the other technician to make sure the work was covered.

34. Mr Smith clearly had a lot of control over his working day. Mr Smith and his workmate - who was apparently engaged on a similar arrangement - would be provided with a list of customers who required service each month. The two servicemen would then decide between themselves how the work would be allocated, in what order it would be carried out, and precisely when it was done (although the timing of the work was dictated to some extent by the customers). This flexibility helped them to manage the work more efficiently, which is exactly what the applicant intended according to the CEO's evidence. The relative freedom of Mr Smith and his fellow technician to manage their work stands in contrast to the more prescriptive arrangements that applied to employees like Mr Mitchell, a labourer who was employed in the yard. Mr Mitchell remarked in cross-examination that he did not have the luxury of deciding his own hours. The technicians' relative freedom was not unlimited. Mr Smith acknowledged that, in the event of a customer experiencing a breakdown, both technicians might have to drop everything and deal with the problem given the undertaking in the contract that they prioritise the applicant's work.

35. Mr Smith and Mr Mitchell both described working together on tasks around the workshop, such as cleaning, that were not formally part of Mr Smith's duties if he were a contractor. I am not satisfied that pattern of work necessarily suggests Mr Smith acted like an employee who was available to perform a range of tasks as directed. The assistance provided to Mr Mitchell appeared to be an exercise in goodwill and a recognition that Mr Smith occasionally required Mr Mitchell's assistance in the performance of Mr Smith's duties.

36. All the witnesses made clear managers left the technicians without day-to-day supervision or direct control. Neither the CEO nor Mr Crane resided in Victoria. Mr Crane was principally responsible for soliciting work from customers. He did most of that work remotely. He prepared quotes which might require some input from the technicians to ensure the quotes were reasonable and achievable. The CEO occasionally visited Victoria and met with workers and customers, but Mr Smith acknowledged he and the other technician went about their work without regular or detailed direction. They were not required to attend regular internal meetings. They did not have to account for their whereabouts on an hourly basis. They invoiced the applicant for the work when it was completed.

37. I should pause to discuss the standards and requirements referred to in Schedule 4 of the agreement. The 2013 agreement included the following:

The Contractor must:-

• • conduct his business in a professional manner and comply with all policies and standards of the Company in relation to repair and preventative maintenance work;
• • at all times while carrying out work for the Company be of clean and neat appearance and wear such clothing (including any sort of uniform) as the Company may reasonably specify;
• • comply with all reasonable standards and requirements of the Company which are communicated from time to time to the Contractor; …
• • promote the Company at all reasonable times; and
• • do all things reasonably necessary to encourage persons to become customers of the Company…

38. The 2017 iteration of the agreement included several additional obligations in

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Schedule 4, including requirements that the contractor:

• • Promote the company with vehicle signage as accepted by the Service Manager;
• • Promote the company at all reasonable times;
• • Do all things reasonably necessary to encourage persons to become customers of the company.

39. As it happens, the evidence of the way the parties interacted over the life of the relationship suggests the inclusion of the additional requirements did not make a practical change to the way the parties behaved. To put it differently: while the agreement was varied in some minor respects in 2017, the underlying relationship did not appear to substantially change. Mr Smith continued to wear company-branded clothes throughout the relevant period. It was apparent everyone working for the applicant dressed in clothes wearing the company's logo. (I note the CEO and Mr Crane both wore shirts wearing the company logo when they gave evidence.) Mr Smith also drove a vehicle adorned with the applicant's signage from the early days of the engagement. Mr Smith owned that vehicle, a Mazda utility, and a Ford Ranger which replaced it. Mr Smith explained he was reluctant to apply the decals to the Ranger at first because it was difficult for him to obtain private work when potential customers saw him in what they took to be a company vehicle. It looked as if he was moonlighting, he explained at the hearing. He agreed he relented under pressure from the applicant's marketing officer to add the signage. The Ranger was subsequently adorned with the applicant's corporate logo. The signage was added at the company's expense. Mr Smith said he did not participate or conduct any promotional activities on behalf of the company, although his photograph was included on the applicant's website where he was identified as one of the company's technicians without disclosing he was a contractor.

40. In practice, Mr Smith suggested the applicant's managers did not really exercise the power to make standards or impose requirements under Schedule 4 - apart, that is, from the pressure that was applied to adorn his private vehicle with company signage. It follows that the extent of actual control was limited, but there was at least some potential for exercising control - although the control was mainly over Mr Smith's presentation and comportment rather than the detail of how he carried out the core of his work as a technician. That is not without some significance: it suggests the parties to the relationship assumed Mr Smith should make every effort to increase the goodwill attaching to the applicant's business. He did not create any goodwill for his own business, such as it was.

41. It follows the applicant was able to exercise some control over Mr Smith, but it did not do so in most respects. He was permitted to get on with his work without active supervision or direction. The so-called 'control test' - to the extent that it is still a thing - does not point decisively in one direction

INTEGRATION INTO THE ORGANISATION OF THE BUSINESS

42. Another of the indicia that may be important is the level of integration into the organisation of the business. (In the past, the level of integration was taken to be the central question; nowadays, it is regarded as relevant but not determinative.) The enquiry is directed to the fundamental question over whether the worker has been engaged to serve, or to provide services.

43. On the one hand, the technicians delivered the repair and maintenance services which the applicant was in business to provide. In that sense, the work of the technicians was central to the applicant's business. They were the face of the applicant and were held out on the website as company representatives who were expected to promote the business to customers. Those matters might be suggestive of an employment arrangement - although it is unclear whether businesspeople interacting with Mr Smith and the applicant would inevitably draw inferences about the arrangements between the company and its technicians. On the other hand, Mr Smith made clear - and the other witnesses did not dispute - that he did not supervise any of the applicant's employees, and he was not actively supervised himself. While he worked collaboratively with the other technician in particular, and

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also with Mr Mitchell, the labourer, Mr Smith was clearly not part of an organic team, nor did he inhabit a place in the company's hierarchy. Mr Smith said the other technician was the more senior of the two but there was no formal relationship between them. They just got on and did the work in a cooperative way. Most of that work was done by each individual operating alone at the premises of corporate customers, although some of the work was done at the applicant's premises which included a workshop and some items of equipment that were necessary for heavy work. Mr Smith was theoretically free to perform the work he undertook anywhere. He could have taken the machinery he was repairing to his own premises, although he pointed out he never did that and was not equipped to do so in any event.

44. I accept Mr Smith enjoyed a good deal of autonomy in the relationship. That level of autonomy may be indicative of an independent contractor relationship, but it is not necessarily inconsistent with an employment relationship. The work being undertaken is that of a skilled tradesman who would ordinarily work with a degree of independence regardless of the nature of the engagement.

EXCLUSIVITY

45. Mr Smith was formally permitted to undertake private work notwithstanding the restraint of clause in the contract that prevented him from working for the company's competitors. He printed business cards and began to use a business name while still engaged by the applicant. As it turns out, he had limited success in attracting his own clients. Mr Smith said the vast bulk of his work came from the applicant, and he did few outside jobs- (He was cross-examined about whether he might have had more success than he reported in his tax returns, but he denied there were additional cash jobs that were not recorded.) He said there were a variety of reasons for that. The fact he was required to give the applicant's work priority was one limiting factor; another limiting factor was the requirement that he adorn his vehicle with the applicant's corporate livery. He said it was awkward turning up to the premises of a prospective client if he was in what the client would assume was a vehicle belonging to another company. Mr Smith said the corporate branding made it look as if he was moonlighting when he sought his own clients. There were also some practical obstacles to him delegating the work given the contract provided the applicant's consent was required before an employee or sub-contractor could "have access to any document or thing related to the service": at [4].

46. Whatever Mr Smith was theoretically permitted to do under the contract, the fact is he provided the services personally and worked substantially for the applicant. He did not engage employees or sub-contractors of his own. I accept he made some attempts to establish a business that dealt with other clients; he registered a business name and printed business cards. (I note he ceased using his own name and began using a business name he had registered in the invoices provided to the applicant during the relevant period.) I accept he made some attempts to promote his nascent business to others, but it does not appear he was especially active. While the formal terms of the agreement and the conduct of Mr Smith were, in limited respects, consistent with Mr Smith treating the applicant as if it were just another client, this indicator was ultimately inconclusive.

TOOLS AND EQUIPMENT

47. A relationship is less likely to be characterised as an employment relationship if the worker is expected to provide his or her own specialist tools and equipment as part of a package that is supplied to the company. In such a case, the company is not so much seeking a contract of service as it is contracting for a bundle services including access to the individual's labour, skills and equipment.

48. The contract is mostly silent with respect to the provision of equipment. It does not expressly state Mr Smith would provide some or all of the tools of his trade, although clause [2(f)] does say:

Where the Contractor is required to provide or utilise equipment in the provision of the services, the equipment must be suitable for the work involved and must be maintained by the Contractor in good working condition.

49. I note clause [11] of the contract also provided that Mr Smith would return any of the

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company's property (including tools in his possession) upon termination of the agreement. That clause plainly anticipates the company would provide some tools and equipment.

50. The evidence suggests Mr Smith provided many of his own tools, and he certainly provided his own vehicle that he operated at his own expense. But the evidence also established the applicant maintained a workshop which included equipment used by the technicians. The applicant also appeared to supply most of the parts and at least some of the consumables used by the technicians.

51. It is not unusual for a skilled tradesman to select and purchase his own tools, but there is a limit to which an employee may ordinarily be expected to supply the tools required for him or her to do the job they have been employed to do. The fact Mr Smith was required to provide and maintain his own vehicle and at least some of his tools points towards an independent contractor relationship.

52. On balance, I think this factor points to an independent contracting relationship - but not decisively so.

REMUNERATION AND TAX ARRANGEMENTS

53. Mr Smith was not paid a regular wage, and he did not get paid for time off. He provided invoices to the applicant which were paid in respect of work that was completed. (I was told there were a few instances where work might be invoiced at the end of the month before it was completed, but that was not the norm.) The work was charged at rates calculated by reference to Schedule 1 in the contract which set out amounts payable for particular tasks and a flat hourly rate for other identified tasks. The applicant did not withhold any amounts in respect of income tax, and it did not make any superannuation contributions. Mr Smith included the GST in his invoices and claimed deductions against his income tax for expenses.

54. Some aspects of these arrangements must be treated with caution. If the parties self-consciously describe their relationship as that of an independent contractor, it stands to reason they will arrange their remuneration and taxation affairs accordingly. Their behaviour in this regard is of a piece with the use of language in the contract: it may be nothing more than a nod to the form of the relationship without necessarily telling us anything about the substance. And yet the fact the larger part of Mr Smith's remuneration is calculated with reference to the items in Schedule 1 to the contract is significant. Mr Smith was, for the most part, being paid to complete discrete tasks. He also had the opportunity to earn additional amounts for completing other defined tasks, albeit he would also be paid an hourly rate to complete some other work. These arrangements point to an independent contractor relationship because they sound less like a contract of service than a contract for the provision of defined services.

INSURANCE ARRANGEMENTS AND RISK

55. I have already noted clause [6] of the contract included warranties and indemnities which effectively required Mr Smith to bear the liability for any negligent or substandard work he carried out if such work resulted in loss or damage to the applicant. Under clause [6(c)], Mr Smith agreed to maintain his own insurance. As it happened, he did not do that but nor was he asked to ever provide proof of having done so. Mr Crane confirmed the arrangement with the company's insurance underwriters was that the insurer would look to Mr Smith in any event if the company was held liable to pay damages to a client in respect of work that Mr Smith had undertaken. Happily, the question of liability was never put to the test. However, I was told there were a handful of instances where Mr Smith had to go back to a client to re-do work that had not been completed successfully; he did not ordinarily bill for that work.

56. The evidence points to Mr Smith assuming the risk in the relationship, albeit he may not have fully appreciated the extent of his exposure. That evidence is more consistent with the existence of an independent contractor relationship.

CONCLUSION WITH RESPECT TO THE EXISTENCE OF AN EMPLOYMENT RELATIONSHIP AT COMMON LAW

57. I explained at the commencement of my analysis that I was satisfied the parties each intended to negotiate an independent contracting relationship, and I said the question

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ATC 9016

I needed to answer was whether they had succeeded in doing so.

The relationship the parties actually established is a hybrid that exhibits some of the features of an employment arrangement and some of the features of an independent contracting relationship. When I assess the relationship as a whole, I am satisfied the applicant and Mr Smith were dealing with each other as principals. Mr Smith was not engaged to serve at the direction of the applicant. The terms of the contract and the lived experience of the relationship make clear Mr Smith was free to complete (and had the ability to arrange for delegates to complete) the contracted tasks within broad parameters. He did so at his own risk: the fact the parties plainly intended Mr Smith would assume liability for any loss or damage arising out of his work reflects the allocation of responsibilities.

58. While I accept the characterisation process is necessarily impressionistic, I am confident the parties are not in an employment relationship when I weigh all of the factors I have discussed above.

THE OPERATION OF S 12(3) OF THE ADMINISTRATION ACT

59. I have already explained s 12 of the Administration Act extends the definition of the concepts of employer and employee in various respects. Of particular relevance, s 12(3) provides:

If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

60. The Commissioner argues the contract in this case is principally for Mr Smith's labour. I accept Mr Smith performed all of the work himself, and the contract did not place much emphasis on Mr Smith providing tools or equipment of his own or supplying other services. But that is not the end of the matter.

61. I have already noted Mr Smith did not delegate or engage sub-contractors. Yet the contract makes clear he had the right to do so and there is no reason on the evidence to suppose the company would have (or, for that matter, could have) unreasonably prevented the applicant from taking on an apprentice, hiring an employee or engaging a sub-contractor if he saw fit. If the work was delegable, there is a question over whether the contract was "wholly or principally for the labour of the person…".

62. Mr Thomas, for the applicant, pointed out the form of words used in the Administration Act mirrors those used in the definition of salary and wages in s 221A(1) of the Income Tax Assessment Act 1936.

63. The operation of that provision was considered by the High Court in
Neale v Atlas Products (Vic) Pty Ltd [1955] HCA 18; (1955) 94 CLR 419. The Court (Dixon CJ, McTiernan, Webb, Kitto and Taylor JJ) said the contract could not be an employment contract if it permitted the worker to delegate performance of the work. The Court explained (at [3]):

…if the contract leaves the contractor free to do the work himself or to employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a given result and it becomes payable when, and only when, the contractual conditions have been fulfilled. Moreover, the nature of the payment is not affected by the circumstance that the contractor has himself performed the bulk of the work under the contract or that it was the expectation of the parties that he would do so if, in truth, the contract did not create the relationship of master and servant.

64. The reasoning in Neale appears to be directly on point, and it does not appear to have been superseded by more recent authorities. On that analysis, Mr Smith would not qualify as an employee within the meaning of s 12(3) of the Administration Act.

CONCLUSION

65. The objection decision is set aside. The Tribunal decides in substitution that the party contracting with the applicant was not an employee in the period under review.