Director Of the Fair Work Building Industry Inspectorate v Bavco Pty Ltd and Ors (No.2)
[2014] FCCA 2712
•21 November 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE v BAVCO PTY LTD & ORS (No.2) | [2014] FCCA 2712 |
| Catchwords: INDUSTRIAL LAW – Sham contracting – whether employer can prove it did not know and was not reckless in not knowing that workers it employed were employed under contracts of employment rather than under contracts for services – meaning of “not know” as used in s.357(2) of the Fair Work Act 2009 (Act) – meaning of “not reckless” as used in s.357(2) of the Act – whether “reckless” as used in s.357(2) of the Act imports an objective standard – whether “reckless” means careless or incautious – whether “reckless” instead means advertence by the employer of the possibility that the worker is engaged under a contract of employment and the employer being indifferent about or not caring whether or not the worker is engaged under a contract of employment. |
| Legislation: Crimes Act 1900 (NSW), s.61R(1) |
| Banditt v R (2005) 224 CLR 262 Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co. of Australia Ltd (1931) 46 CLR 41 Construction, Forestry, Mining & Energy Union v Nubrick Pty Ltd [2009] FMCA 981 Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd [2013] FCCA 216 Hall (Inspector of Taxes) v Lorimer [1992] 1 WLR 939 J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue [2001] NSWCA 125 Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210 R v Morgan [1976] AC 182 R v Saik [2007] 1 AC 18 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 United States of America v Dynar 1997 CanLII 359 |
| Applicant: | DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE |
| First Respondent: | BAVCO PTY LTD ACN 132 010 201 |
| Second Respondent: | ELIZABETH PESCHLER |
| Third Respondent: | WOLGANG ADOLF PESCHLER |
| File Number: | CAG 24 of 2012 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 20 and 21 March 2014 |
| Date of Last Submission: | 2 October 2014 |
| Delivered at: | Sydney |
| Delivered on: | 21 November 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr E.W. Young |
| Solicitors for the Applicant: | Australian Government Solicitor |
| Solicitors for the Respondents: | Mr D. Dudderidge of Nevile & Co Lawyers |
ORDERS
The application is dismissed.
If any party intends to apply for an order for costs, such party must do so by notifying the Associate to Judge Manousaridis by no later than 5 December 2014.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT CANBERRA |
CAG 24 of 2012
| DIRECTOR OF THE FAIR WORK BUILDING INDUSTRY INSPECTORATE |
Applicant
And
| BAVCO PTY LTD ACN 132 010 201 |
First Respondent
ELIZABETH PESCHLER
Second Respondent
WOLFGANG ADOLF PESCHLER
Third Respondent
REASONS FOR JUDGMENT
Introduction
The applicant (Director) claims the first respondent (Bavco) contravened s.357(1) of the Fair Work Act 2009 (Cth) (Act). That subsection prohibits a person that employs, or proposes to employ an individual, from representing to the individual that the contract of employment under which the individual is, or would be employed by the person is a contract for services under which the individual performs, or would perform, work as an independent contractor.
In the statement of claim, the Director alleges Bavco contravened s.357(1) in relation to five persons (workers); and that Bavco did so in two ways. The first was by Bavco providing a document titled “Recipient Created Tax Invoice” to each worker each time Bavco paid the worker. That document represented that Bavco engaged the worker as an independent contractor, not as an employee. The second way in which the Director alleges Bavco contravened s.357(1) was by Bavco providing to the workers a document titled “Subcontractor Agreement” which represented that the worker was engaged as an independent contractor rather than as an employee.
According to an agreed statement of facts, the workers to whom and the dates on which Bavco made the representations are set out in the following table:
Mr Wright
Weekly from September 2009 to 16 January 2012.[1]
March 2011.[2]
Mr Jaeger
Weekly from 8 February 2010 to 16 December 2010.[3]
Mid 2010.[4]
Mr O’Connor
Weekly during 22 February 2010 and 22 December 2010.[5]
May 2010.[6]
Mr Gazis
Weekly from early 2009 to July 2011.[7]
11 April 2011.[8]
Mr Patterson
Weekly from July 2008 and August 2008 and from March 2009 to 11 February 2011.[9]
4 August 2009[10]
[1] Exhibit A, Agreed Statement of Facts, [17], [18], [20], [22]. Paragraph [6] of the Amended Statement of Claim provides that the representations were made to Mr Wright up to February 2013. Following communications between my Associate and the parties’ legal representatives after the hearing, it has been agreed by all parties that the Agreed Statement of Facts is incorrect in stating the representations were made to Mr Wright up to February 2013. The parties agree that the representations were made up to but not after 16 January 2012.
[2] Exhibit A, Agreed Statement of Facts, [21]
[3] Exhibit A, Agreed Statement of Facts, [23], [29], [30], [33]
[4] Exhibit A, Agreed Statement of Facts, [32], [33]
[5] Exhibit A, Agreed Statement of Facts, [34], [40], [41], [44]
[6] Exhibit A, Agreed Statement of Facts, [43], [44]
[7] Exhibit A, Agreed Statement of Facts, [45], [52], [53], [57]
[8] Exhibit A, Agreed Statement of Facts, [55], [56], [57]
[9] Exhibit A, Agreed Statement of Facts, [58], [65], [66], [69]
[10] Exhibit A, Agreed Statement of Facts, [68], [69]
The Director further alleges that, at the time each of the two classes of documents was presented to each worker, and hence each time Bavco made a representation to the effect prohibited by s.357(1) of the Act, the worker was an employee of Bavco. The Director also alleges that Mrs Peschler and the third respondent, Mr Peschler, were each “involved” in Bavco’s contravention within the meaning of s.550 of the Act and, for that reason, are each taken to have also contravened s.357(1) of the Act.
Bavco, and Mr and Mrs Peschler, accept that the workers to whom Bavco provided the “Recipient Created Tax Invoices” and the “Subcontractor Agreements” were employees of Bavco. They also accept that, by providing to each worker a “Recipient Created Tax Invoice” and a “Subcontractor Agreement”, Bavco represented to the worker that he was engaged under a contract for services. Bavco and Mr and Mrs Peschler say, however, that they did not contravene s.357(1) because they can prove the matters identified in s.357(2) of the Act. That is, they say that they “did not know” that each of the contracts they represented to be a contract for services “was a contract of employment rather than a contract for services”, and they were “not reckless as to whether” each contract “was a contract of employment rather than a contract for services”.
The principal questions I must decide in these proceedings, therefore, are whether Bavco can prove, on the balance of probabilities, that it did not know that the contracts between Bavco and the five workers were contracts of employment rather than contracts for services, and, if Bavco did not know, whether Bavco was not reckless in not knowing whether such contracts were contracts of employment.
To determine these questions, I will proceed as follows. First, I will set out the relevant factual background, most of which is not in dispute. Second, I will consider a number of issues of construction of s.357(2) of the Act. Third, I will identify the evidence that is specifically relevant to whether Bavco did not know, or was not reckless as to whether the contracts it represented to be contracts for services were contracts of employment, and make findings on those questions on the basis of that evidence.
Background
Since around 2008 Bavco has been conducting the business of floor repairing. Mr Peschler is and has been the sole director of the company. Mrs Peschler is and has been the manager of the business. Mrs Peschler was principally responsible for the administration of Bavco’s business. That included preparing written quotes and other business documents, paying wages and suppliers, and attending to administrative arrangements relating to the employment of labour.
Before Bavco commenced its business, Mr and Mrs Peschler conducted the same business through another company (Previous Company). Although the evidence is not clear, what evidence there is suggests that at least some of the persons whom the Previous Company engaged were engaged as subcontractors and some as employees. These arrangements continued for a short time after Bavco took over the Previous Company’s business.
During the course of its business, Mr and Mrs Peschler had discussions with their accountant, Mr Brading, about Bavco’s business practices.[11] These included discussions about whether or not there was a need to engage workers, and the appropriate way to engage and remunerate workers.[12] In the course of those discussions, Mr Brading advised Mr and Mrs Peschler that any employee must be paid the award rate as a minimum, and any subcontractors should be paid a rate that was above the award rate, taking into account all entitlements and allowances.[13]
[11] Brading affidavit 11.4.2013, [6]
[12] Brading affidavit 11.4.2013, [6]
[13] Brading affidavit 11.4.2013, [6]
Under cross-examination, Mr Brading said he had discussions with Mr and Mrs Peschler about the implications of employing subcontractors.[14] Mr Brading said “we were concerned about the level of pay” the subcontractors were getting “and that they would not be disadvantaged”.[15] Mr Brading also said:[16]
It appeared to me that the workers were the ones who wanted to be engaged as subcontractors. It wasn’t the company that was asking them to do it.
[14] 20.3.14, T46.30
[15] 20.3.14, T46.35-T46.40
[16] 20.3.14, T47.1-T47.5
In or about early November 2008 Mrs Peschler submitted to the Department of Education, Employment and Workplace Relations (DEEWR) a summary of the manner in which Bavco engaged workers.[17] There are two items of evidence that are relevant to the reason why Mrs Peschler provided this information to DEEWR. The first is evidence given by Mrs Peschler in cross-examination that she submitted this information because a representative of a company (Bovis Lend Lease) to whom Bavco was then contracted to perform work informed Mrs Peschler that the company was going to be audited for compliance with the National Code of Practice for the Construction Industry (Code).[18] The second item of evidence is that given by Mr Brading that in or about late October 2008 he advised Mr and Mrs Peschler to contact DEEWR “to get advice on whether Bavco’s workplace arrangements comply”.[19]
[17] Mrs Peschler affidavit 11.4.2013, [11]
[18] 20.3.14, T74.15-T74.40
[19] Brading affidavit 11.4.2013, [8]
These two pieces of evidence are not consistent. At any rate, in the summary she submitted to DEEWR, Mrs Peschler stated “there was no direct labour employed”.[20] DEEWR responded to Mrs Peschler’s summary by letter dated 6 November 2008.[21] DEEWR stated that on “the basis that you have advised that no direct labour will be employed by Bavco Pty Ltd, I consider your arrangements satisfy the requirements of the Code and Guidelines”. Given that DEEWR’s response specifically addressed the Code, it is more likely Mrs Peschler provided the information to DEEWR for the reasons she gave in cross-examination.
[20] Mrs Peschler affidavit 11.4.2013, [11]
[21] Mrs Peschler affidavit 11.4.2013, [12], Annexure “A”
On 17 November 2008 Mrs Peschler received an email from Mr Littlejohn who was an officer employed by the Australian Building and Construction Commission (ABCC).[22] Mr Littlejohn said that he and another officer of the ABCC, Christyanne Nilsen, “are conducting an audit for compliance with the National Code of Practice for the Construction Industry” in relation to a building project undertaken by Bovis Lend Lease at 3-5 National Circuit, Canberra. He further noted that “[p]art of this process includes interviews with a selection of Subcontractors performing work on the” Bovis Lend Lease project. After noting that the audit would be conducted by way of an interview that was anticipated to last one hour, and after giving the details of the time and place of the interview, Mr Littlejohn identified the documents Mrs Peschler should make available to the ABCC auditors at the beginning of the interview.
[22] Mrs Peschler affidavit 11.4.2013, [13], Annexure “B”
According to Mrs Peschler, on 27 November 2008 officers from the ABCC attended Bavco’s office and “conducted an audit . . . during which I fully complied with the ABCC auditors and all requests, including making available the documents requested in the email dated 17 November 2008”.[23] Mrs Peschler informed the auditors that Bavco had no employees, in response to which one or both of the ABCC officers said that Bavco was “required to include a statement on all documentation for sub-contractors and suppliers regarding compliance with the National Code of Practice”.[24]
[23] Mrs Peschler affidavit 11.4.2013, [14]
[24] Mrs Peschler affidavit 11.4.2013, [14]
In her affidavit, Mrs Peschler says that in or about early December 2008 she prepared subcontractor agreements, and letters to suppliers “in accordance with the advice from DEEWR and the ABCC”.[25] The agreement Mrs Peschler prepared was titled “Subcontractor Agreement”, which provided as follows:[26]
[25] Mrs Peschler affidavit 11.4.2013, [15]
[26] Mrs Peschler affidavit 11.4.2013, [15], Annexure “C”
BAVCO PTY LTD is engaging you as a subcontractor to perform work on various building sites in Canberra and surrounding area. We can not guarantee you ongoing contracts but will provide you with work when possible on a mutually agreed basis terms. You will be required to provide your own tools.
You hereby understand and agree that you are not employed by BAVCO PTY LTD as an employee and therefore are not entitled to holiday pay, leave loading, sick pay, superannuation, or any other employee benefits.
We understand and agree that you may be engaged as a sole trader, partnership or company.
You must provide BAVCO with a valid Australian Business Number prior to commencing work. [F]ailure to do so may result in tax being withheld at the relevant penalty rate prescribed by the Australian Tax Office.
If you are registered for GST you need to notify us prior to commencing work.
You may be required from time to time to undertake work on Government Projects therefore it is a requirement that not only BAVCO but also all its Subcontractors be compliant with the National Code of Practice for the Construction Industry.
We can assist in ensuring that you are Code Compliant. Please contact us if you need help.
We also recommend that you have your own worker’s compensation and public liability insurance.
Counsel for the Director challenged this aspect of Mrs Peschler’s evidence[27]. It was put to Mrs Peschler that she did not prepare the “Subcontractor Agreement” on the basis of anything the ABCC said to her. The basis of the challenge was that most of the contents of the “Subcontractor Agreement” had nothing to do with the Code; and Mrs Peschler’s evidence is inconsistent with answers Mrs Peschler gave during an interview on 16 August 2011 with two officers from the ABCC. One of the questions Mrs Peschler was asked during that interview was why the “Subcontractor Agreement” was created.[28] Mrs Peschler answered:
Probably as a result of the first audit that we had and someone just said, “Look, maybe you should be doing it this way.” I mean our invoices also indicate that we have to put a certain amount of information down that we expect them to be compliant with, stuff. I can’t remember what it is exactly on our invoices that we given them [sic], the tax recipient invoices. I mean you’ve probably got one there. So, yeah, it was basically we don’t have a contract, but this is, you know, something that we just wrote up and it was given to them and if they didn’t want to sign it or didn’t agree that wasn’t an issue either. So quite a few did. Quite a few did, I think, from memory. I mean it’s a while back now, but some of them aren’t working with us any more.
[27] 20.3.14, T84.15-T87.35
[28] Walker affidavit, annexure “CW1”, page 6
In response to a question about whether Mrs Peschler had mentioned that someone had given her advice, Mrs Peschler said:[29]
Oh, yeah, there was a guy that – he had a tree company and – years ago, a tree felling company, a few years ago and he said, “Look, it’s probably better if you write something up,” because at the time, or prior to this, we had absolutely nothing. It was just all verbals. So we wrote this up . . . .
[29] Walker affidavit, annexure “CW1”, page 6
In evidence given in cross-examination in these proceedings, Mrs Peschler said that what she said in the interview on 16 August 2011 was not entirely right. Mrs Peschler said:[30]
I had conversations with other people that had other companies, but this particular agreement, it was probably a combination of discussions I had had with other people that had companies and being prompted, I suppose, to put certain things in writing for the subcontractors. That’s what prompted it or got it going.
[30] 20.3.14, T87.5
I do not accept Mrs Peschler’s evidence that she prepared the “Subcontractor Agreement” in accordance with advice given to her by DEEWR or the ABCC. I find that Mrs Peschler prepared and arranged for Bavco’s workers to sign a “Subcontractor Agreement” after she had discussions with other people. I do not find, however, that Mrs Peschler did this because she believed or suspected that Bavco’s workers were employees, or because she intended the “Subcontractor Agreement” to hide that fact.
According to Mr Brading, whose evidence on this point I accept, in or about December 2008 he advised Mr and Mrs Peschler that “to help maintain complete and accurate records Bavco can issue Recipient Created Tax Invoices to the sub-contractors under the GST Act, that way you can be sure taxation liabilities are being met, and the sub-contractors do not have the obligation to lodge BAS returns”.[31] As a result of that advice, in or about the middle of December 2008 Mrs Peschler prepared a template for recipient created tax invoices.[32] The template included the following words:[33]
Bavco Pty Ltd is engaging you as a subcontractor to perform work on various building sites in Canberra and surrounding areas.
We cannot guarantee you ongoing contracts, but will provide you with work when possible on a mutually agreed basis.
You will be required to provide your own tools, if applicable. [Y]ou hereby understand that you are not employed by Bavco Pty Ltd.
[31] Brading affidavit 11.4.2013, [9]
[32] Mrs Peschler affidavit 11.4.2013, [17]
[33] Exhibit F
In late January 2009 Bavco received a letter dated 28 January 2009 from the ABCC stating that it “has found your records satisfactory”.[34] The letter noted, however, that “subcontractors were not passing on the requirements of the National Code through the contractual chain”, and advised that when “working on a National Code project, you must ensure that any purchases made, or sub-contractors engaged, are also contractually bound to the principles of the National Code”. The letter also stated the following:
Please note that the ABCC does not assess workplace arrangements for compliance with the National Code. If you have not already done so, the ABCC would strongly suggest having any applicable workplace arrangements assessed by the Department of Employment and Workplace Relations, Industry Compliance Team . . . . Workplace arrangements which are not compliant with the National Code may result in your company being unable to tender for jobs where the National Code applies.
[34] Mrs Peschler affidavit 11.4.2013, [18], Annexure “E”
In evidence given under cross-examination, Mrs Peschler accepted that the letter from the ABCC assumed that Bavco’s workers were subcontractors, although she maintained that she understood the workers were subcontractors.[35] Mrs Peschler also accepted that she did not take up the suggestion made in the letter that Bavco have its workplace arrangements assessed by DEEWR.[36]
[35] 20.3.14, T88.5
[36] 20.3.14, T88.20
In late July 2009 Bavco received a letter dated 27 July 2009 from the ABCC.[37] The letter contains the following opening paragraph:
The purpose of this letter is to inform you of an upcoming audit by our Inspectors. BAVCO Pty Ltd has been selected by the Office of the Australian Building and Construction Commissioner (ABCC) for an audit examining compliance with the sham contracting provisions of the Workplace Relations Act 1996 (Cth) . . .and the Fair Work Act 2009 . . . . Sham contracting arrangements occur when an employer seeks to disguise an employer-employee relationship to falsely appear as an independent contracting arrangement in order to avoid the responsibility for entitlements legally due to employees.
[37] Mrs Peschler affidavit 11.4.2013, [22], Annexure “G”
The letter also stated that the “[k]ey functions of the ABCC include monitoring compliance with the Workplace Relations Act and other designated building laws”.
After specifying the time and place of the audit, the letter identified the following documents that Bavco was required to make available to the inspectors at the audit:
1.Copies of time, wage and superannuation records from 1st March 2009 to the 30th June 2009 for 100% of your employees.
2.A copy of industrial instruments used by Business Name (e.g. Collective Agreement, Award, AWA etc).
3.Copies of insurance coverage – Workers Compensation Certificate of Currency and current wage declaration form.
4.A list of independent contractors/ABN workers, including contact details, invoices (past 6 months), details of payments (past 6 months) and contract for services, engaged by Business Name on the project.
5.Copy of financial statements, including profit and loss statements, for 2007-2008 financial year.
6.Copy of any PAYG voluntary agreements with any Independent Contractors/ABN workers.
According to Mrs Peschler, whose evidence I accept, officers of the ABCC attended Bavco’s office on 13 August 2009 and conducted an audit. Mrs Peschler made available to the ABCC officers the documents requested in the ABCC’s letter of 27 July 2009.[38] The information Mrs Peschler provided included, among other things, a sheet that listed the names, telephone numbers, and Australian Business Numbers of Bavco’s workers. It also included “Recipient Created Tax Invoices” in relation to work performed by its workers. Mrs Peschler says, and I accept, that during the audit, she informed the ABCC officers that “all workers are engaged as sub-contractors”.[39]
[38] Mrs Peschler affidavit 11.4.2013, [23]. A copy of the documents Mrs Peschler provided to the auditors is Exhibit F.
[39] Mrs Peschler affidavit 11.4.2013, [23]
In about early October 2009 Bavco received a letter dated 29 September 2009 from the ABCC.[40] The ABCC noted that during the audit of 13 August 2009 it identified a “number of subcontractors/ABN workers who were engaged by” Bavco on the refurbishment of the Edmund Barton Government Office Building. The letter then stated:
An assessment was made of your independent contracting arrangements and at the time of the audit and on the basis of the information supplied to ABC [sic] Inspectors, no specific breaches of Part 3 of the Fair Work Act 2009 – Sham Contracting, were identified.
However, the audit identified practices relating to non-skilled workers employed by BAVCO Pty Ltd as Independent Contractors where such persons may have been more appropriately employed as casual employees. It is recommended you seek further legal advice on these employment arrangements.
[40] Mrs Peschler affidavit 11.4.2013, [26]; Annexure “H”
For reasons not stated in the letter, the ABCC said it “will be providing the Australian Taxation Office with details of these employment arrangements for their information and consideration”.
Mrs Peschler was cross-examined about the recommendation the ABCC made in its letter that Bavco seek further legal advice on the employment arrangements of persons the audit identified as “non-skilled workers”. Mrs Peschler said that she did not then believe Bavco had any unskilled workers, although she now acknowledges that, after Bavco engaged its workers as employees, she became aware from the relevant award that they were classified as CW2, not CW1 and were, therefore, unskilled workers.[41] In response to its being put to Mrs Peschler that she knew that the “non-skilled workers” referred to in the letter was intended to refer to all of the workers performing labour work who were engaged as independent contractors, Mrs Peschler said:[42]
No, I did not. . . . I read the letter and I particularly read obviously the second paragraph where there were no specific breaches identified. The subcontractor agreements, or copies of the subcontractor agreements, the recipient created invoices, all that information had been given to the inspectors and – and I think probably I – I thought well, that there’s no evidence of sham contracting.
[41] 20.3.14, T94.25-94.30
[42] 20.3.14, T95.20
Ultimately, however, the reason Mrs Peschler gave in cross-examination for not taking the ABCC’s recommendation that Bavco seek legal advice was Mrs Peschler’s understanding of the second sentence of the ABCC’s letter of 29 September 2009. Mrs Peschler said “that, to me, was the purpose of the audit and there were no specific breaches identified”.[43] Mrs Peschler did not consider at the time she received and read the ABCC’s letter whether it would be prudent to obtain legal advice, as recommended by the ABCC,[44] although she acknowledged that, with hindsight, it would have been prudent.[45] Mrs Peschler said she was not aware “I needed to get further advice, because I understood I was doing the right thing”;[46] that there “was nothing – no bells going off to – for me to think that I was doing the wrong thing” and that, therefore, she should change Bavco’s arrangements.[47]
[43] 20.3.14, T97.30
[44] 21.3.14, T105.25-T105.30
[45] 21.3.14, T108.20
[46] 21.3.14, T109.5
[47] 21.3.14, T109.30
On or about 11 April 2011 Mrs Peschler prepared and provided to Bavco’s workers a letter offering each worker the choice of remaining as a subcontractor, or to being engaged as an employee.[48] In cross-examination, Mrs Peschler said she decided to do this because she received a call from a representative of the Construction, Forestry, Mining and Energy Union (CFMEU) who accused Bavco of sham contracting, and a telephone call from a journalist from the Canberra Times.[49] Mrs Peschler did not at that time, however, have any concern in her mind about whether Bavco’s workers were properly engaged as contractors rather than as employees.[50]
[48] Mrs Peschler affidavit 11.4.2013, [37]; Annexure “I”
[49] 21.3.14, T121.25-T121.40
[50] 21.3.14, T122.1
On or about 21 April 2011 Mrs Peschler telephoned the Canberra office of the CFMEU to seek advice about the manner in which Bavco employed the relevant workers. She spoke to Mr Dean Hall who said that he was not aware of any problem with Bavco; that Bavco was a respected business; that the CFMEU was confident that anytime Bavco is on a job site it conducts itself properly; from what Mrs Peschler told Mr Hall, Bavco’s workers have not been underpaid; that if Bavco had been audited twice and had not changed anything there should not be a problem; and Bavco’s workers could have been engaged as casuals.[51]
[51] Mrs Peschler affidavit 11.4.2013, [39]
On 27 April 2011 ABCC auditors attended Bavco’s office and handed Mrs Peschler a letter dated 27 April 2011 calling for the production of documents relating to Bavco’s arrangements with its workers.[52] On 16 August 2011 two officers of the ABCC attended Bavco’s office and conducted an audit.[53] Bavco was not informed of the outcome of the audit until on or about 21 February 2012 when it received a letter dated 20 February 2012 from the ABCC notifying Bavco of its intention to commence proceedings.[54]
[52] Mrs Peschler affidavit 11.4.2013, [40]; Annexure “K”
[53] Mrs Peschler affidavit 11.4.2013, [41]
[54] Mrs Peschler affidavit 11.4.2013, [49]
In the meantime, in about September 2011 Mrs Peschler sought advice from the Master Builders Association (MBA) about the audit that had occurred in August 2011, and about whether Bavco was in breach of any relevant laws. What prompted Mrs Peschler to seek that advice was the following views she says she then held:[55]
It was apparent to me at that stage that the area of workplace relations was confusing, the information appeared to be inconsistent, and that the ABCC was unhelpful in assisting with, or determining, compliance.
[55] Mrs Peschler affidavit 11.4.2013, [44]. I admitted this paragraph for the limited purpose of evidence of Mrs Peschler’s perceptions.
What then followed was described by Mrs Peschler in her affidavit:[56]
On or about October 2011, based on the apparent inconsistent information and advice we had received, and in an effort to avoid any doubt in respect to compliance, the third respondent and I together with the Accountant attended a meeting to discuss the matter, the outcome of that meeting was that the first respondent should convert all sub-contractors to employees.
Between approximately November 2011 and early January 2012 I provided a number of draft employment documents to the MBA for its advice in respect to the correct form.
On or about 9 January 2012 I provided to the relevant workers a letter advising that the first respondent was changing the manner in which workers are to be engaged, specifically from sub-contractors to either casual or full-time employees.
[56] Mrs Peschler affidavit 11.4.2013, [45], [46], [47]
In a letter dated 24 October 2012 to the Director’s solicitor, Mrs Peschler described her dealings with the MBA, the reasons that led to Bavco consulting the MBA, and what Bavco did after Mrs Peschler consulted the MBA:[57]
Further to our discussion of last Friday 19th October, and at your suggestion, I am writing to let you know of the changes in employment that were made in January of this year.
After the Record of Interview in August last year, Sarah Bulford, from the ABCC, suggested I contact an organisation like the MBA or HIA to gain information regarding employment arrangements. She also sent me an email with links to FWA regarding Enterprise Agreements and offered to discuss which Award (if any) best suited our workers. I was not convinced that we had engaged people incorrectly, as we had not altered our method since 2008/9.
About a week or two later I did contact the MBA and Bavco was accepted as a member of the MBA in September 2011. I had several meetings with Mike Baldwin from MBA after this to discuss employment arrangements. I also had several meetings and/or discussions with Dean Hall, Garry Hamilton and Jason O’Mara at the CFMEU office in Canberra.
After numerous meetings I realized that it was a complex & confusing area, and seemingly, relying heavily on terminology, but in an effort to avoid any doubt we chose to change the employment arrangements at Bavco. Mike Baldwin assisted with draft letters and contracts and in December 2011 and January 2012, letters of appointment for permanent and casual employment were sent or given to the guys we had working with us. Several of these workers rejected our offers of employment, wanting to remain as subcontractors, and left Bavco. On 16 January 2012 we commenced engaging workers as employees under the Building and Construction General On-Site Award 2010.
We have since offered conversion from casual to permanent employment to those who have been working with us for six months but not all have taken it up.
[57] Mrs Peschler affidavit 11.4.2013, Annexure “O”
In her affidavit, Mrs Peschler said, not entirely consistently with what she stated in her letter to the Director’s solicitor, that on 9 January 2012 Bavco provided to its workers offers of employment on the terms set out in the letters.[58]
[58] Mrs Peschler affidavit 11.4.2013, [47]
The employment arrangements
As I say at the beginning of these reasons, the respondents accept that the five workers to whom they represented were independent contractors were employees of Bavco. That acceptance is based on a number of facts that are agreed between the parties. These facts include the following: Bavco directed and controlled the work performed by each employee, including where the employee worked, what work was performed, and how it was performed; the employee worked full time and regular hours; Bavco supplied the employee with the tools and materials required to do the work, as well as all protective gear the employee had to wear when working; Bavco was responsible for rectifying defects; and Bavco provided workers compensation insurance for each employee.
The meaning of s.357(2) of the Act
Section 357 of the Act applies to a person (employer) that employs or proposes to employ an individual (employee). Subsection 357(1) prohibits an employer from making a particular representation to the employee about a particular subject. The subject about which the employer is prohibited from making a representation is a contract of employment the employer has made or proposes to make with the employee. The representation the section prohibits the employer from making is that the actual or proposed contract of employment is a contract for services under which the employee performs or would perform work as an independent contractor.
The prohibition of making a representation to the effect identified in s.357(1) is not absolute. Under s.357(2) of the Act, an employer who makes such a representation will not contravene s.357(1) if the employer proves two things. The first is that the employer “did not know” that the actual or proposed contract was a contract of employment rather than a contract for services. That is to say, an employer may represent that an actual or proposed contract of employment is a contract for services if the employer does not know the actual or proposed contract of employment is in fact a contract of employment. The second matter the employer must prove is that the employer “was not reckless as to whether” the actual or proposed contract was a contract of employment rather than a contract for services. That is to say, an employer may represent that an actual or proposed contract of employment is a contract for services if the employer “was not reckless as to whether” the actual or proposed contract was a contract of employment rather than a contract for services.
I first turn to the meaning of the word “know”.
Meaning of “know”
To “know” denotes a conscious mental state; and it is a mental state of an intentional character. That is, to “know” denotes a mental state that is directed to some object or state of affairs in the world outside and independent of the mind of the person who has that mental state. Additionally, to “know” implies a particular propositional attitude, namely, a belief that there exists or does not exist the object or state of affairs to which the mind is directed. To know of the existence of an object or a state of affairs, a person must have his or her mind directed to the object or state of affairs, and believe that the object or state of affairs exists. And, finally, to “know” of the existence of an object or a state of affairs means that the object or state of affairs exists. This last element has been held to be a necessary feature of “knowledge”. In United States of America v Dynar, Cory and Iacobucci JJ of the Supreme Court of Canada said that “[i]n the Western legal tradition, knowledge is defined as true belief”. [59] And in R v Saik, Lord Nicholls of Birkenhead said that, in the context of the law of criminal conspiracy, “knowledge means true belief”.[60]
[59] 1997 CanLII 359 (SCC) at [41] (emphasis in original)
[60] [2007] 1 AC 18, page 36 ([26])
What must the employer not know?
Next, I consider the object or state of affairs of which the employer must not know. And this is a composite of two things. The first is a contract or a proposed contract between the employer and the individual; and the second is the contract’s being a contract of employment rather than a contract for services.
The expressions “contract of employment” and “contract for services” are not defined in the Act. The two expressions, however, have had and continue to have a wide currency in the common law. The expressions serve to distinguish two classes of contract under which one party is bound to provide work to the other. The distinction was initially made for the purposes of the common law doctrine of vicarious liability.[61] Under that doctrine, a tort committed by a person in the course of work he or she is bound to perform under a contract will render liable not only the tortfeasor, but the person who engaged the tortfeasor to perform the work. This doctrine, however, only applies to work performed under a contract of employment, not to work performed under a contract for services. Hence, definitions and criteria have been developed by the courts to differentiate a contract of employment from a contract for services.
[61] In Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210 Windeyer J said (at page 217) that the distinction between a servant and an independent contractor was first “formulated in its modern form in relation to vicarious liability”.
The distinction between the two classes of contract has been stated in a number of ways. It has been said that the distinction “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”.[62] It has also been said that work, although undertaken for the benefit of another person, will be considered as having been undertaken by an independent contractor, and hence under a contract for services, if the work “is considered as the independent function of the person who undertakes it, and not as something which the person obtaining the benefit does by his representative standing in his place” and if the independent contractor “carries out his work, not as a representative but as a principal”.[63] These statements, however, may be viewed [but not necessarily] as posing the question of what is a contract of employment “in a different way rather than offering a definition which could be applied for the purpose of providing an answer”.[64] And in practice, whether or not a particular contract is a contract of employment rather than a contract for services is not resolved by applying any definition; the modern approach is “to have regard to a variety of criteria”.[65]
[62] Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210 at page 217 (Windeyer J).
[63] Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 at page 48 (Dixon J, as his Honour then was).
[64] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at page 35 (Wilson and Dawson JJ)
[65] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at page 35 (Wilson and Dawson JJ)
One significant factor that suggests a contract is one of employment is the existence of control by the employer over the work the employee is required to undertake under the contract. But control is “merely . . . one of a number of indicia which must be considered in the determination” of whether a contract is one of employment.[66] The indicia that have been held to suggest a contract of employment “include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like”.[67] On the other hand, indicia that indicate a contract for services “include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax”.[68]
[66] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at page 24 (Mason J)
[67] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at page 36 (Wilson and Dawson JJ)
[68] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at pages 37 (Wilson and Dawson JJ)
Relevant to determining what s.357(2) requires an employer not to know is the nature of and difficulties in determining whether a particular contract is one of employment rather than one for services. For example, Wilson and Dawson JJ in Stevens v Brodribb Sawmilling Co Pty Ltd said:[69]
This approach is not without its difficulties because not all of the accepted criteria provide a relevant test in all circumstances and none is conclusive. Moreover, the relationship itself remains largely undefined as a legal concept except in terms of the various criteria, the relevance of which may vary according to the circumstances.
[69] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at page 35
What is involved in assessing whether a particular relationship is that of an employer and employee was described as follows by Mummery J in Hall (Inspector of Taxes) v Lorimer:[70]
The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual detail. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another.
[70] [1992] 1 WLR 939 at page 944. This passage was quoted with approval by Ipp JA in J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue [2001] NSWCA 125 at [14]
This, then, leads me to the next issue. To “not know” a particular contract is a contract of employment, what is it the employer must not know? There are a number of possibilities. One is that, when addressing his or her mind to the relationship the employer has with the person whom the employer has engaged, or proposes to engage to perform work, it is sufficient the employer does not have in his or her mind a proposition to the effect of “this contract that I have with the person I have engaged to perform work for me is an employment contract” or, if he or she does have such proposition in mind, he or she does not believe it. A second possibility is that the employer does not have in his or her mind those factors that would lead a court to conclude that the relationship between the employer and the person the employer has engaged, or proposes to engage to perform work, is a contract of employment.
In my opinion, neither of these two possibilities is satisfactory. As to the first, it is too narrow. The expression “contract of employment” is a technical term of the law. And, particularly given that the expression “contract of employment” is a conclusion courts arrive at only after considering a number of factors, it is unlikely that an employer who is not legally trained would have in his or her mind such expression in his or her dealings with the employee. On the other hand, the language of s.357(2) of the Act does not warrant the second possibility. Subsection 357(2) does not require that the employer not know of the existence of a contract; it presupposes knowledge by the employer of the existence of a contract. What s.357(2) requires is that the employer not know that the contract has a particular character, namely, that it is a contract of employment. To construe “not know” in s.357(2)(a) as referring to the absence of knowledge of those factors that would lead a court to conclude the contract is one of employment is to construe s.357 as requiring the employer not to know of the existence of a contract, rather than not know the type of contract it is. Further, to construe “not know” as requiring absence of knowledge of those factors which would lead a court to conclude that the contract is one of employment would deprive s.357(2) of the Act of any operation; for it is to be expected that the employer, in employing and dealing with the employee would be aware of those factors that would lead a court to conclude that the contract is one of employment, even though the employer may be unaware that the law would characterise such contract as one of employment.
There is another possibility; and that is to require that the employer not know that the person whom the employer proposes to engage or whom the employer has engaged to work is, or will be, an employee. This, in my opinion, is the preferable approach. “Employee” and “employer” are words of common currency; they are words employers and employees use to describe parties to contracts that in most cases the law classifies as contracts of employment; it is within the common knowledge of persons in the community that a person who is an employee is entitled to various rights under the law; and it is likely, therefore, that employers, when considering the terms on which to engage a person to perform work for the employer, will undertake such consideration by reference to whether they believe or understand the worker will be an employee if engaged.
On this approach, therefore, Bavco must prove on a balance of probabilities that it did not know that any of the five workers were in fact employees.
Meaning of “not reckless”
To escape liability under s.357(1) of the Act, an employer must also prove that he or she “was not reckless as to whether . . . the contract was a contract of employment rather than a contract for services”. This is loose language. To what is the posited recklessness intended to relate? Taken literally, s.357(2) suggests that the employer’s recklessness must relate to the contract of employment; that is, s.357(2) suggests the employer must not be reckless in the making of a contract of employment rather than a contract for services. That, however, cannot be the intention of s.357(2). There is an ellipsis between the words “not reckless” and the words “as to whether the contract of employment”. The words that are missing are “in not knowing”. That is, the employer must prove that, at the time the employer represented to the employee that the contract of employment was a contract for services, he or she was not reckless in not knowing the contract of employment was a contract of employment rather than a contract for services. That leads me to consider the meaning of the word “reckless” as used in s.357(2)(b) of the Act.
The Director makes a number of submissions in relation to the meaning of “reckless” for the purposes of s.357(2). First, he submits that “reckless” takes its common law meaning. Second, the word “reckless” is an ordinary term, not necessarily controlled by particular legal doctrines, and, in its ordinary use, may indicate conduct which is negligent, careless, rash or incautious. And, third, in the context of s.357(2), “reckless” means “careless or incautious”.
The Director relies on the decision of Judge Barnes in Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd.[71] In that case her Honour considered the meaning of “reckless”. First, her Honour referred to the decision of Turner FM (as his Honour then was) in Construction, Forestry, Mining & Energy Union v Nubrick Pty Ltd[72] as authority for the proposition that the notion of recklessness has been given different meanings in different contexts and under different statutes.[73] Second, her Honour noted there was no suggestion that the definition of “reckless” given in s.5.4 of the Criminal Code Act 1995 (Cth) applies to s.357.[74] Third, her Honour referred to observations made in the reasons for judgment of the plurality and of Callinan J in Banditt v R.[75] And, fourth, her Honour said that in the context of s.357(2) of the Act, the concept of “not reckless” “involves an element relating to the Respondent’s state of mind as to whether the contract was a contract of employment rather than a contract for services”.[76] The Director particularly relies on the conclusion of Judge Barnes in paragraph 403 of her Honour’s reasons for judgment, and in particular, her Honour’s conclusion that the employer in that case “acted in a manner that was careless or incautious”.
[71] [2013] FCCA 216
[72] [2009] FMCA 981
[73] [2013] FCCA 216 at [381]
[74] [2013] FCCA 216 at [382]. The Criminal Code has effect as a law of the Commonwealth under s.3 of the Criminal Code Act 1995 (Cth).
[75] (2005) 224 CLR 262 at [1]-[3], [36], and [108]. Her Honour referred to these passages in Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd [2013] FCCA 216 at [383]-[385]
[76] [2013] FCCA 216 at [387]
In my opinion, Judge Barnes did not in Metro Northern Enterprises hold that “reckless” simply means acting “in a manner that was careless or incautious”. That is clear from her Honour’s observation that the concept of “not reckless” “involves an element relating to the Respondent’s state of mind as to whether the contract was a contract of employment rather than a contract for services”.[77] It is also clear from the following passage of her Honour’s reasons (emphasis added):[78]
On all the evidence it is apparent that, notwithstanding this advice and knowledge, Metro [the employer] acted in a manner that was careless or incautious as to whether the contracts with the complainants were in fact contracts of employment.
[77] [2013] FCCA 216 at [387]
[78] [2013] FCCA 216 at [403]
This passage indicates that whether or not an employer acted carelessly or incautiously is to be assessed by the employer’s actual knowledge of relevant circumstances. The questions about what type of knowledge and the extent of such knowledge, however, were not explored by her Honour in Metro Northern Enterprises.
As with all statutory provisions, the meaning of the expression “not reckless” must be assessed having regard to the ordinary meaning of the words and the context in which they appear. Subsection 357(2) of the Act, however, is closely analogous to the provision the High Court considered in Banditt v R, namely, s.61R(1) of the Crimes Act 1900 (NSW).[79] Both provisions use the words “not reckless as to whether”. In my opinion, a consideration of the High Court’s analysis of that provision would be of great assistance to construing the meaning of “not reckless” in s. 357(2) of the Act.
[79] (2005) 224 CLR 262 at [1]-[3], [36], and [108]. Her Honour referred to these passages in Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd [2013] FCCA 216 at [383]-[385]
In Banditt v R the High Court considered a direction given by the trial judge about s.61R(1) of the Crimes Act, which provides as follows (emphasis added):
[A] person who has sexual intercourse with another person without the consent of the other person and who is reckless as to whether the other person consents to the sexual intercourse is to be taken to know that the other person does not consent to the sexual intercourse.
For the plurality, the principal question in the appeal was what “degree or extent of advertence in the state of mind of the [accused] will answer the statutory criterion of recklessness found in s 61R(1)”;[80] and in that regard, their Honours made a number of observations, which included the following. First, although it may be possible to construe “reckless” as “involving measurement against an objective criterion”, there was a “need here to accommodate the term to the requisite mental element”.[81] Second, because in its ordinary use “reckless” may “indicate conduct which is negligent or careless”, and because “reckless”, as used in s.61R(1) of the Crimes Act, involves a mental element, it was “inappropriate for charges to juries to do no more than invite the application of an ordinary understanding of “reckless” when applying s 61R(1)”.[82] Third, the trial judge in that case “properly emphasised that it was not the reaction of some notional reasonable man but the state of mind of the appellant which the jury was obliged to consider and that this was to be undertaken with regard to the surrounding circumstances, including the past relationship of the parties”.[83]
[80] (2005) 224 CLR 262 at [31]
[81] (2005) 224 CLR 262 at [33]
[82] (2005) 224 CLR 262 at [36]
[83] (2005) 224 CLR 262 at [37]
Fourth, one or more of the expressions used in R v Morgan[84] and by Professor Smith[85] referred to by the plurality “may properly be used in explaining what is required by s 61R(1)”.[86] The plurality referred to the following expressions used in R v Morgan:[87]
In Morgan, the House of Lords used various expressions when describing the requisite mental element of the offence. Lord Cross of Chelsea said that to his mind rape imported “at least indifference as to the woman's consent”. Lord Hailsham of St Marylebone identified the mental element of the offence as an intention to commit the act or “the equivalent intention of having intercourse willy-nilly not caring whether the victim consents or no”. His Lordship also said that an intention to have intercourse “recklessly and not caring whether the victim be a consenting party or not” was “equivalent on ordinary principles to an intent to do the prohibited act without the consent of the victim”. Lord Edmund-Davies also said that the man would have the necessary mens rea: “if he set about having intercourse either against the woman's will or recklessly, without caring whether or not she was a consenting party”.
[84] [1976] AC 182
[85] Smith and Hogan, Criminal Law, 10th ed (2002) at 471 quoted at (2005) 224 CLR 262 at [35]
[86] (2005) 224 CLR 262 at [38]
[87] (2005) 224 CLR 262 at [27]
The expressions used by Professor Smith to which the plurality referred are contained in the following passage:[88]
“If D is aware that there is any possibility that P is not consenting and proceeds to have intercourse, he does so recklessly. Lord Hailsham in Morgan required an ‘intention of having intercourse, willy-nilly, not caring whether the victim consents or [no]’. Another way of putting it is to ask, ‘Was D's attitude one of “I could not care less whether she is consenting or not, I am going to have intercourse with her regardless.”’ What, however, of the man who knows that the woman may not be consenting but hopes, desperately, that she is? He could care much less; but is he not reckless?”
[88] (2005) 224 CLR 262 at [35] (references omitted)
Thus, the expression “reckless”, as used in s.61R(1) of the Crimes Act, was construed by the plurality in Banditt as importing a mental element. That mental element was “advertence”. Subsection 61R(1) of the Crimes Act required proof of advertence by the accused of the possibility that something might not exist; in that case, consent to sexual intercourse. The crime provided for by s.61R(1) of the Crimes Act is committed by the accused engaging and continuing to engage in the act of sexual intercourse notwithstanding his being aware of the possibility of the absence of consent by the person with whom the accused had sexual intercourse.
If the plurality’s construction of “reckless” in Banditt is translated to s.357(2) of the Act, to prove he or she was not “reckless as to whether . . . the contract was a contract of employment rather than a contract for services”, the employer must prove one of two things. The first is that the employer did not know there was a possibility that the employee might be an employee. The second arises if the employer was aware there was a possibility that the employee was an employee. In those circumstances, the employer must prove he or she was not indifferent about whether the employee was in fact an employee.
The next question is whether the analysis in Banditt should be applied to s.357(2). In my opinion, it should. First, as I note above, the language of s.61R(1) of the Crimes Act is similar to the language of s.357(2) of the Act. Both subsections use the words “reckless as to whether”. Secondly, if the legislature intended to use an objective criterion by which to measure “reckless”, it could have used words that are commonly used to express objective standards of conduct, such as “reasonable” or “negligently” or “grossly negligent”. It cannot be said the legislature was unaware of the availability of these words.
Whose mind is to be attributed to Bavco?
Before I consider whether Bavco has proved the matters set out in s.357(2) of the Act, it is necessary to determine the persons whose state of mind can be attributed to Bavco.
Subsection 793(1) of the Act provides, among other things, that conduct engaged in on behalf of a body corporate by “an officer, employee or agent (an official) of the body within the scope of his or her actual or apparent authority . . . is taken, for the purposes of this Act . . . to have been engaged in also by the body”. Subsection 793(2) of the Act provides that if it is necessary for the purpose of the Act to establish “the state of mind of a body corporate… it is enough to show” that the conduct was engaged in by a person referred to in s.793(1) of the Act within the scope of his or her actual or apparent authority and that that person had that state of mind. Subsection 793(3) provides that the “state of mind” of a person referred to in s.793(1) of the Act includes the “knowledge, intention, opinion, belief or purpose of the person”, and the person’s “reasons for the intention, opinion, belief or purpose”.
In the agreed statement of facts, each of the acts the Director alleges constitutes a contravention by Bavco of s.357(1) of the Act is an act done by Mrs Peschler. The Director does not allege that Mr Peschler engaged in any conduct on behalf of Bavco. The evidence shows that it was Mrs Peschler who was responsible for issuing to the relevant employees the “Subcontractor Agreements” and the “Recipient Created Tax Invoices”. There is no question, therefore, that it is Mrs Peschler’s knowledge that is to be attributed to Bavco.
Has Bavco proved it did not know the employment contracts were in fact employment contracts?
Before I consider whether Bavco has proved it did not know the contracts with the five employees were employment contracts, it would be useful to say something about how a person’s knowledge that a fact exists may be proved.
Proof of knowledge
There are at least three potentially relevant classes of evidence from which a person’s knowledge may be inferred. [89] One is the conduct or behaviour of the person who is alleged to have knowledge. A generalisation that is applied to such evidence is that the manner in which a person acts is a reflection of a person’s state of mind. At least in some circumstances, then, it is possible to rationally infer from a persons’ behaviour the state of mind that has produced it. A second class of evidence is external circumstances; that is, circumstances that are likely to bring to the persons’ mind the matters about which it is alleged the person has knowledge. Examples include evidence of direct exposure to the fact, the making of a communication to the person about the fact, and reputation about the existence of a fact. And a third class of evidence is that which shows a person had knowledge of a fact at a time before or after the time at which it is necessary to prove that person had that knowledge. Knowing a fact at one point in time may be a basis for inferring knowledge of the fact at a later or earlier time.
[89] J.H. Wigmore, Evidence in Trials at Common Law, Volume 2, Chadbourn revision, 1979, page 48.
The evidence of Mrs Peschler’s knowledge
Mrs Peschler has sworn an affidavit in which she deposes to the following:
a)She did not know during the relevant period that any of the workers were employees, rather than subcontractors.[90]
b)She genuinely believed that Bavco and she were complying with the relevant laws in respect to the manner in which workers were engaged and remunerated.[91]
c)Following the first and second ABCC audits, Mrs Peschler did not believe it was necessary for Bavco to change any of its business practices.[92]
[90] Mrs Peschler affidavit 11.4.2013, [55]
[91] Mrs Peschler affidavit 11.4.2013, [57]
[92] Mrs Peschler affidavit 11.4.2013, [58]
Mrs Peschler also gave evidence under cross-examination. Mrs Peschler said she understood that the difference between engaging persons as employees and as subcontractors was that Bavco engaged employees while subcontractors had an ABN and worked for themselves;[93] she did not understand the subtle difference between a company engaging a person as an employee and as a subcontractor; [94] when Lend Lease asked Mrs Peschler to check the situation about the persons Bavco had engaged to work, Mrs Peschler knew there was a difference between employees and independent contractors,[95] and that the fact there was a distinction was of some importance;[96] Mrs Peschler did not deliberately choose not to engage the relevant employees as employees;[97] in answer to the question whether she understood at the time the employees signed the “Subcontractor Agreements” that it was Bavco’s choice as to whether or not to engage them as employees or subcontractors, Mrs Peschler said that she “understood at the time that it was a mutual decision between us and whoever was going to do the work with us”;[98] when Bavco was seeking to do work for Baulderstone Hornibrook, it was not an issue whether it would be of advantage to Bavco to engage contractors rather than employees, and she was not aware that it would have involved a higher level of compliance with various statutory requirements if Bavco had been employing employees rather than subcontractors;[99] Mrs Peschler did not start making superannuation contributions in February 2011 because she had significant doubts or any doubts about whether or not the workers were in fact subcontractors as opposed to being employees;[100] Mrs Peschler offered employees on 11 April 2011 the option of remaining as subcontractors or being engaged as employees after someone from the CFMEU accused Bavco of sham contracting;[101] and Mrs Peschler continued to engage those employees who did not wish to be engaged as employees as independent contractors because there “didn’t seem to be any reason to change that”, and that “the audits that had been conducted seemed to confirm that what we were doing was correct”.[102]
[93] 20.3.14, T74.5
[94] 20.3.14, T74.10
[95] 20.3.14, T74.10; T75.25
[96] 20.3.14, T75.25-T75.30
[97] 20.3.14, T80.35
[98] 20.3.14, T81.20
[99] 20.3.14, T92.1-T92.5
[100] 21.3.14, T121.5-T121.20
[101] 21.3.14, T121.25-T121.30
[102] 21.3.14, T125.1-T125.5
There is other evidence from which Mrs Peschler’s state of knowledge may be inferred. First, as I note earlier in these reasons, in November 2008 Mrs Peschler represented to DEEWR that Bavco employed no direct labour.[103] Although in cross-examination it was suggested to Mrs Peschler that her representation to DEEWR was incorrect, it was not suggested to Mrs Peschler that she did not believe the representation to be true. Her making a representation to DEEWR that Bavco employed no direct labour is evidence of her believing that none of Bavco’s workers were employees of Bavco.
[103] Mrs Peschler affidavit 11.4.2013, [11]
Secondly, Mrs Peschler prepared and provided to each of the relevant employees a “Recipient Created Tax Invoice” and to four of them a “Subcontractor Agreement” that contained representations to the effect that the employee to whom each of these documents was sent was an independent contractor. Counsel for the Director submits that these documents “point to knowledge (or at least suspicion) that the employees were employees”.[104] That is so because they “show that quite some effort was made to obscure the fact that the employees are employees, and create the impression (by way of contractual agreement to overcome that fact) to each of the employees that they are contractors rather than employees”.[105]
[104] Applicant’s Outline of Case on Liability, [19]
[105] Applicant’s Outline of Case on Liability, [19]
This submission is difficult, if not impossible to sustain. It is an allegation of fraud. That is, it alleges Mrs Peschler was aware the relationship between Bavco and the relevant employees was that of employer and employee; yet Mrs Peschler drew up the documents to obscure that fact. It was not, however, suggested to Mrs Peschler in cross-examination that she or someone else to her knowledge prepared these documents in an effort to obscure an underlying reality of which she was aware. In the absence of any basis for finding that Mrs Peschler knew the documents were prepared to obscure the true nature of the relationship between Bavco and each employee, her preparing and sending to employees “Recipient Created Tax Invoice” and “Subcontractor Agreement” documents is evidence that Mrs Peschler believed in the truth of the representations contained in them.
A third item of evidence is Mrs Peschler’s conduct in relation to the audit ABCC conducted in 2009. Mrs Peschler provided to the ABCC all information requested of Bavco. This included a list of all persons who worked for Bavco and their home and mobile telephone numbers, their Australian Business Numbers, and their trades. It was not suggested to Mrs Peschler that she did not provide all of the documents requested by the ABCC, or that she did not co-operate and answer questions asked of her by the ABCC. From all of this, it is reasonable to infer that Mrs Peschler conducted herself in this way because she believed that Bavco had properly engaged the employees as independent contractors.
A fourth item of evidence is the letter from the ABCC to Bavco dated 29 September 2009 to which I refer earlier in these reasons. In particular, there is the ABCC’s statement that an assessment had been made of Bavco’s “independent contracting arrangements” and that at the time of the audit, and based on the information supplied to it, the ABCC found “no specific breaches of Part 3 of the Fair Work Act 2009 – Sham Contracting, were identified”. In cross-examination, Mrs Peschler said that the letter “said there were no specific breaches”, so that she “understood that that was affirming that what we were doing was correct”.[106] It was not put to Mrs Peschler that she did not hold the understanding that she said she held as a result of reading this part of the ABCC’s letter.
[106] 21.3.14, T110.1-T110.5
Counsel for the Director submitted the ABCC’s statement went no further than confirming it had found no breaches of the sham contracting provisions of the Act, and that it could not be read as an affirmation of Bavco’s engagement of its employees as independent contractors. Counsel further submitted that it was reckless to read the ABCC’s letter as an affirmation of Bavco’s work practices, particularly because the ABCC recommended Bavco seek “further legal advice on these employment arrangements”, namely, the “practices relating to non skilled workers employed by” Bavco. Whether or not Mrs Peschler was reckless is a matter I will consider below. In my opinion, however, it was at the very least reasonably open to Mrs Peschler to read the ABCC’s letter as affirming that what Bavco was doing in relation to the engagement of its workers was correct, and I find that Mrs Peschler did believe that the ABCC’s letter represented that what Bavco was doing was correct.
A fifth item of evidence is Mrs Peschler’s decision in early 2011 to offer Bavco’s workers the choice of remaining as independent contractors or being engaged as employees. In his written submissions, counsel for the Director submitted the respondents gave no explanation why this was done. Counsel submitted that unless Mrs Peschler already knew, or suspected that the employees were employees, there was no reason for Mrs Peschler to take such a step; and that Mrs Peschler’s writing those letters is explicable only if Mrs Peschler was “conscious of the issue, and had very real doubts about the legitimacy of the employees being treated as contractors, and sought to try and secure the position by obtaining the employees [sic] consent”.[107]
[107] Applicant’s Outline of Case on Liability, [20]
I do not accept these submissions. As I note earlier in these reasons, Mrs Peschler explained when giving evidence under cross-examination why she wrote the letters. She wrote them because of a complaint made by the CFMEU. Mrs Peschler did not accept that she wrote the letters because she had significant doubts about whether Bavco’s workers were contractors, rather than employees.[108] And the terms of the letters she did write cannot reasonably be construed as an attempt by her to “secure the position by obtaining the employees [sic] consent”. The letters offered each employee “the choice of working for Bavco Pty Ltd either as” a “full time employee on wages” or “[r]emaining, as you are, a subcontractor being offered and conducting work on a mutually agreed basis”.[109] If Mrs Peschler’s intention was to “secure the position”, she would not have offered Bavco’s workers any choice; she would have insisted on the workers being engaged as employees.
[108] 21.3.14, T121.5-T121.10
[109] Mrs Peschler affidavit 11.4.2013, annexure “J”
The letters Mrs Peschler sent to Bavco’s workers in April 2011 indicate that Mrs Peschler believed that whether or not a worker of Bavco was an employee or an independent contractor was a matter to be decided between Bavco and the worker. Mrs Peschler was not aware that the position under the law was that a person who is engaged to perform work for another can only be either an employee or an independent contractor, depending on how a court would characterise the relationship having regard to the factors that courts take into account when determining whether a particular contract is one of employment or for the provision of services. As Mrs Peschler said in evidence given in cross-examination, Mrs Peschler understood at the time that whether or not a worker was engaged as an employee or an independent contractor “was a mutual decision between us and whoever was going to do the work with us”.[110]
[110] 20.3.14, T81.20
A sixth item of evidence is that which shows that the workers whom Bavco had engaged as independent contractors were paid at least $5.31 per hour more than they would have been paid had they been engaged as employees.[111] That shows that Mrs Peschler did not engage workers as independent contractors to enable Bavco to evade financial and other obligations Bavco had as an employer. That is the usual reason why employers intentionally set up sham contracting arrangements. The absence of any intention on the part of Mrs Peschler to deny Bavco’s workers of their entitlements renders it more probable than not that Mrs Peschler believed that the Bavco workers who had been engaged as independent contractors could be and had been engaged as independent contractors.
[111] The evidence is summarised in MFI4 which, in turn, is based on the affidavit of Mrs Peschler, and in particular, at [50]-[53]
Findings on Mrs Peschler’s knowledge
In my opinion, up to around September 2011, when Mrs Peschler first consulted the MBA about its subcontractor arrangements, Mrs Peschler was aware of the distinction between a person being engaged as an employee and a person being engaged as an independent contractor. Mrs Peschler was not aware, however, that, under the law, a person’s engaging another to do work could only be characterised as one of two mutually exclusive contracts. Mrs Peschler believed that whether or not a person is engaged as an employee or as a subcontractor was a matter of agreement between the parties. Mrs Peschler believed that if Bavco agreed with a worker that the worker would be engaged as an independent contractor, the worker would not be an employee, but an independent contractor. Mrs Peschler, therefore, did not know that a worker who had agreed to be engaged as an independent contractor had in fact been engaged as an employee. In the words of s.357(2) of the Act, Mrs Peschler did not know that each of the five Bavco workers was engaged by Bavco under a contract of employment rather than under a contract for services.
I must also consider the state of Mrs Peschler’s knowledge after she first consulted the MBA in or about September 2011 up to 12 January 2012 when Bavco began to engage its workers as employees, rather than as independent contractors. That is so because, during that period, Mrs Peschler was seeking advice or assistance about Bavco’s arrangements with its workers.
Mrs Peschler did not give direct evidence of the discussions she had with the MBA. She has, however, given evidence of the impressions she gained as a result of her dealings with the MBA. I have set out this evidence in paragraphs 37 and 38 of these reasons. The evidence shows, and I find, that Mrs Peschler believed that the issue of whether Bavco’s workers had been properly engaged as independent contractors was complex and confusing. Mrs Peschler remained unconvinced, however, that the workers Bavco had engaged as independent contractors had in fact been engaged as employees. Nevertheless, Mrs Peschler arranged for Bavco to engage its workers under employment contracts to remove the risk that Bavco was engaging workers in a manner that was contrary to law. On the basis of these findings, it follows that until 16 January 2012 when Bavco began to engage its workers under employment contracts, Mrs Peschler continued not to know the workers it had been engaging as independent contractors were engaged under contracts of employment.
Has Bavco proved it was not reckless?
Having found that Mrs Peschler did not know Bavco’s workers were employees, I need to consider whether Mrs Peschler was reckless in not knowing that the Bavco workers were employees. I first consider that question by reference to the period ending early September 2011 when Mrs Peschler first approached the MBA.
I have found that during the period ending early September 2011, Mrs Peschler was aware there was a distinction between engaging a worker as an independent contractor and engaging a worker as an employee, but that she believed that it was a matter of mutual agreement between Bavco and the worker whether the worker would be engaged as an employee or as a subcontractor. I find that at no time during this period did Mrs Peschler consider there was a possibility that her belief was wrong, or that Bavco had to engage the Bavco workers as employees, notwithstanding the fact that the workers had agreed to be engaged as independent contractors. My finding is based on the same matters on which I based my finding that Mrs Peschler did not know that Bavco’s workers were in fact employees, not independent contractors.
As to the period commencing on the day Mrs Peschler first consulted the MBA up to 16 January 2012, when Bavco offered to engage its workers as employees, I have found that Mrs Peschler considered that the issue of whether Bavco’s workers had been properly engaged as independent contractors was complex and confusing. From this evidence, I cannot find that Mrs Peschler was not aware at least during part of this period of the possibility that Bavco’s workers were, in fact, employees rather than independent contractors. On the contrary, Mrs Peschler herself says that by October 2011 Bavco resolved to convert its independent contractors to employees, and Bavco resolved to do so to remove any doubt about compliance. I find, however, that Mrs Peschler was not aware of the risk that Bavco’s workers were employees until the date in October 2011 on which Mr and Mrs Peschler decided to convert all subcontractors to employees.
The question, then, is whether, notwithstanding Mrs Peschler in October 2011 becoming aware of the possibility that Bavco’s workers were employees, I am satisfied the evidence establishes Mrs Peschler was not reckless in continuing to issue “Recipient Created Tax Invoices” to Mr Wright until 16 January 2012. Does the evidence satisfy me that during this period Mrs Peschler was not indifferent or did not care whether Bavco’s workers were in fact employees? The evidence does so satisfy me; and for two reasons. First, although the ABCC had conducted an audit in August 2011, the ABCC had not yet informed Bavco that the contracting arrangements with its employees did not comply with the Act. Mrs Peschler continued to believe and, on the basis of the ABCC’s letter of 29 September 2009, she was reasonably entitled to believe that Bavco’s contractual arrangements did not contravene the Act’s sham contracting provisions. Second, the fact that Mrs Peschler and Mr Peschler decided in October 2011 to convert Bavco’s workers to employees, and then took steps to implement that decision by drafting employment contracts, and by 16 January 2012, engaging all its workers under contracts of employment satisfies me that Mrs Peschler was not indifferent. She took these steps to avoid the risk of her being wrong in her belief that Bavco had properly engaged its workers as sub-contractors.
Accordingly, I find that Bavco was not reckless up to and including 16 January 2012 in not knowing Bavco’s workers were employees.
Knowledge of Mr Peschler
Given that the agreed statement of facts alleges that it was through Mrs Peschler’s conduct that Bavco contravened s.357(1), it is not necessary to determine for the purposes of Bavco’s liability whether Mr Peschler did not know the workers were employees and was not reckless in not knowing they were employees. However, in the event I am incorrect in considering these matters to be irrelevant to Bavco’s liability, I will say something about Mr Peschler’s knowledge.
Mr Peschler, although the director of Bavco, relied on Mrs Peschler to attend to the administrative side of the business. At least before January 2012, Mr Peschler left the checking of the manner of engaging all the workers to Mrs Peschler,[112] and he did not have any role in that process himself.[113] Mr Peschler has problems reading, so Mrs Peschler generally read everything out to him.[114] That included part of the letter dated 29 September 2009 from ABCC.[115] Mr Peschler said that Mrs Peschler informed Mr Peschler that she received a letter from ABCC about the last audit; that “everything’s fine”; and that the ABCC said that “some casual subbies may be better engaged as employees, but they said there’s no breaches of the Fair Work Act, they’re referring it to the ATO”.[116]
[112] 20.3.14, T38.5
[113] 20.3.14, T38.10
[114] 20.3.14, T17.15
[115] 20.3.14, T35.40
[116] Mr Peschler affidavit 1.4.2013, [17]
Mr Peschler also gave the following evidence:[117]
I did not know prior to, or during, the relevant period that the relevant workers were employees rather than sub-contractors, and I did not know that any representation to them was false or misleading.
I genuinely believed at all relevant times that I, and the first respondent, were complying with the relevant laws in respect to engaging workers as sub-contractors. . . .
[117] Mr Peschler affidavit 1.4.2013, [20]-[21]
It was not put to Mr Peschler that he did not have the beliefs he claims he had. Nor was it suggested to him that he knew that Bavco engaged any of the workers as employees. I accept Mr Peschler’s evidence and find Mr Peschler did not know that any of the workers were engaged by Bavco as employees.
Further, it was not suggested to Mr Peschler that he was aware that the Bavco workers were employees rather than subcontractors, yet he continued to engage the workers as subcontractors. I find, however, that Mr Peschler entrusted Mrs Peschler with the administrative tasks relating to the engagement of the workers and that Mrs Peschler kept Mr Peschler informed of her activities that I have described earlier in these reasons. On the basis of those findings, I also find that in October 2011 Mr Peschler recognised, as Mrs Peschler then recognised, the possibility that the workers were employees. I find, however, that Mr Peschler was not reckless in failing to prevent Mrs Peschler from continuing to issue “Recipient Created Tax Invoices” to Mr Wright until 16 January 2012. Mr Peschler continued to believe, and, on the basis of that part of the ABCC’s letter of 29 September 2009 that Mrs Peschler read out to him, he was reasonably entitled to believe, that the Bavco workers were subcontractors. Further, as I have already found, the fact that Mrs Peschler and Mr Peschler decided in October 2011 to convert Bavco’s workers to employees, and then took steps to implement that decision by drafting employment contracts, and by 16 January 2012, engaging all its workers under contracts of employment, satisfies me that Mr Peschler was not indifferent about whether the Bavco workers were in fact engaged as employees.
Conclusions in relation to Bavco
My consideration of the Director’s claims against Bavco has led me to two conclusions. The first is that, during the period of the employment of each of Mr Jaeger, Mr O’Connor, Mr Gazis, and Mr Patterson, Bavco did not know and was not reckless in not knowing whether the contracts under which these workers were engaged were contracts of employment. Accordingly, the Director’s claims to the extent they relate to these workers must be dismissed.
The second conclusion or set of conclusions relates to the representations Bavco made to one of the five workers, Mr Wright. I conclude that up to 16 January 2012 Bavco did not know that Mr Wright was an employee, but believed that Mr Wright was an independent contractor. I further conclude that although after the day in October 2011 when Mr and Mrs Peschler resolved to convert their subcontractors to employees, Bavco was aware of the possibility that Mr Wright might not be an independent contractor, but was instead an employee, Bavco was not reckless in not knowing until 16 January 2012 that Mr Wright was an employee of Bavco.
Liability of Mr and Mrs Peschler
Because I have concluded that Bavco has not contravened s.357 of the Act, it is not necessary to consider the Director’s claims that Mr and Mrs Peschler was each involved in Bavco’s contraventions of s.357(1) of the Act within the meaning of s.550 of the Act.
Conclusions and disposition
I have concluded that the respondents have proved on a balance of probabilities that Bavco did not know that the contracts between Bavco and the five workers were in fact contracts of employment rather than contracts for services. The respondents have also proved on a balance of probabilities that Bavco was not reckless in not knowing whether such contracts were contracts of employment.
Accordingly, I propose to dismiss the application. I will direct that if any party wishes to apply for costs, that must be done by notifying my Associate within fourteen days.
I certify that the preceding one hundred and one (101) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 21 November 2014
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