L&B Linings Pty Ltd v WorkCover Authority of New South Wales

[2011] NSWSC 474

Supreme Court

New South Wales

Medium Neutral Citation:

L&B Linings Pty Ltd v WorkCover Authority of New South Wales [2011] NSWSC 474

Hearing dates:

14/03/2011, 15/03/2011

Decision date:

24 May 2011

Jurisdiction:

Common Law - Administrative Law

Before:

Rothman J

Decision:

(i) Summons dismissed;

(ii) The plaintiff pay the defendant's costs of and incidental to the proceedings, as agreed or assessed.

Catchwords:

ADMINISTRATIVE LAW - workers' compensation premiums - deemed worker assessment under Schedule 1 of the Workplace Injury Management and Workers Compensation Act 1998 - no error of law or jurisdictional error - certiorari (or orders in the nature thereof) and declarations refused

Legislation Cited:

Home Building Act 1980
Industrial Arbitration Act 1940
Industrial Relations Act 1996
Workers Compensation Amendment (Insurance Reform) Act 2003
Workers' Compensation Act 1942
Workers Compensation Act 1987
Workplace Injury Management and Workers Compensation Act 1998

Cases Cited:

Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321
Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126
Australian Mutual Provident Society v Allan (1978) 52 A.L.J.R. 407
Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139
Bell Bros Pty Ltd v Shire of Serpentine-Jarrahdale [1969] HCA 63; (1969) 121 CLR 137
Campbelltown City Council v Vegan [2006] NSWCA 284; (2006) 67 NSWLR 372
Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163
Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR
Frauenfelder v Reid [1963] HCA 3; (1963) 109 CLR 42
Haberfield v Department of Veterans' Affairs as Delegate for Comcare [2002] FCA 1579
Haider v JP Morgan Holdings Aust Ltd Trading as JP Morgan Operations Australia Ltd [2007] NSWCA 158
Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21
Humberstone v Northern Timber Mills [1949] HCA 49; (1949) 79 CLR 389
Kostas v HIA Insurance Services Pty Limited [2010] HCA 32; (2010) 241 CLR 390
Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24
Minister for Immigration & Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259
Minister for Immigration and Citizenship v SZIAI [2009] HCA 39; (2009) 83 ALJR 1123
Minister for Immigration v Eshetu [1999] HCA 21; (1999) 197 CLR 611
Moir v Schrader [1936] HCA 69; (1936) 56 CLR 310
Neale v Atlas Products (Vic) Pty Ltd [1955] HCA 18; (1955) 94 CLR 419
NRMA Insurance Limited v Ainsworth [2011] NSWSC 344
Parisienne Basket Shoes Pty Ltd v Whyte [1938] HCA 7; (1938) 59 CLR 369
Project Blue Sky Inc & Ors v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355
Public Service Board of NSW v Osmond [1986] HCA 7; (1986) 159 CLR 656
Re Minister for Immigration and Multicultural Affairs; Ex parte S154/2002 [2003] HCA 60; (2003) 77 ALJR 1909
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497
Riverina Wines Pty Ltd v Registrar of The Workers Compensation Commission of NSW & Ors [2007] NSWCA 149
Sinclair v Maryborough Mining Warden [1975] HCA 17; (1975) 132 CLR 473
Solution 6 Holdings Limited v Industrial Relations Commission of NSW [2004] NSWCA 200; (2004) 60 NSWLR 558
Soulenezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247
Staging Connections P/L v Workcover Authority of New South Wales [2004] NSWCA 357
Stevens v Brodribb Sawmilling Company Pty Ltd [1986] HCA 1; (1986) 160 CLR 16
Sydney Ferries v Morton [2010] NSWCA 156
Turner v Stewardson [1961] WCR 169
Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73; (1955) 93 CLR 561

Texts Cited:

H Arthurs, Reinventing Labor Law for the Global Economy (2001) 22 Berkeley J. Emp. & Lab. L. 271
G Davidov, The (Changing?) Idea of Labour Law (2007) 146 International Labour Review 311
G Davidov and B Langille, Boundaries and Frontiers of Labour Law: Goals and Means in the Regulation of Work (2006) Heart Publishing (in particular A Trebilcock, Using Development Approaches to Address the Challenge of the Informal Economy for Labour Law at 63-76)
M Freedland, Application of Labour and Employment Law Beyond the Contract of Employment (2007) 146 International Labour Review 3
M Freedland, The Personal Employment Contract (2003), Oxford University Press
J Fudge and R Owens, Precarious Work, Women and the New Economy: The Challenge to Legal Norms (2006) Hart Publishing
R Owens and J Riley, The Law of Work (2007) OUP
A Stewart, Redefining Employment? Meeting the Challenge of Contract and Agency Labour (2002) 15 AJLL 246
K Stone, Flexibilisation, Globalisation and Privatisation: Three Challenges to Labour Rights in Our Time, GALS Working Paper (2005)
K Stone, From Widgets to Digits: Employment Regulation for the Changing Workplace (2004) Cambridge University Press

Category:

Principal judgment

Parties:

L&B Linings Pty Ltd (Plaintiff)
WorkCover Authority of New South Wales (Defendant)

Representation:

Counsel:

S Epstein SC / J Dodd (Plaintiff)
A Mitchelmore (Defendant)
Solicitors:

Thompson Eslick Solicitors (Plaintiff)
WorkCover Authority of New south Wales (Defendant)

File Number(s):

2010/258252

Judgment

1. The plaintiff, L&B Linings Pty Ltd (hereinafter "L&B"), challenge the determination and/or assessment by the WorkCover Authority of New South Wales (hereinafter "WorkCover") of L&B's premiums for insurance under the Workers Compensation Act 1987 (hereinafter "the Act"). The amended summons seeks declarations and orders effectively declaring invalid the insurance premiums assessed by WorkCover for the years ending 13 September 2004, 13 September 2005 and 13 September 2006.

1. On 14 May 2010, WorkCover adjusted upwards L&B's insurance premiums to reflect WorkCover's determination that persons for whom insurance premiums had not previously been paid were workers or deemed workers within the meaning of the Act and L&B were liable for insurance premiums in relation to them. The insurance company, Allianz Australia Workers' Compensation (NSW) Limited (hereinafter "Allianz"), while not a party to the proceedings, is required to charge in accordance with the determination of WorkCover, and is the payee for any premium required to be paid.

Jurisdiction of the Court

1. The amended summons, as previously stated, seeks to have the Court issue a declaration that the determination of WorkCover of 14 May 2010 is "invalid", and orders in the nature of mandamus requiring WorkCover determine L&B's application for review under s 170 of the Act in accordance with law.

1. Declarations are a proper tool for judicial review, and I will treat the declaration of invalidity as including an order that the determination, whether or not valid, was affected by error of law. Further, it would seem, if such a finding were made, an order quashing the determination would be appropriate.

1. I therefore approach the task before the Court on the basis that the determination should be quashed (or is invalid) if error of law is disclosed or there has been jurisdictional error in the determination or in the process of reaching the determination.

1. Thus, relevantly, error will be disclosed at least where WorkCover has: not taken into account a criterion required by law; or taken into account an irrelevant criterion; utilised, or asked itself the wrong test or question; or misapprehended the nature or limits of its powers as a consequence of which it has performed an act or made a decision (or not done so), which is not sanctioned by authority: see, inter alia, Craig v South Australia [1995] HCA 58; (1995) 184 CLR 163; Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24. Further, jurisdictional error will have occurred if there has been a denial of procedural fairness. Error of law will be dealt with later in these reasons but, relevantly, includes, if there be an obligation to provide reasons, insufficiency of reasons. Lastly, in the case of both jurisdictional error and error of law, I accept the legal foundation that the plaintiff alleges, namely, that, even if identifiable error were not disclosed, the determination may be quashed for manifest unreasonableness, being a decision so unreasonable that error is manifest and, for jurisdictional error, such that no reasonable decision-maker could have to come to it: see Peko-Wallsend , supra, at 41-42.

Procedural facts

1. L&B has for some time carried, as is required by law, a workers' compensation insurance policy for whom the insurer was Allianz. Allianz was the insurer for each of the relevant years. A premium was charged in relation to each year in accordance with the prescribed calculation based upon the schedule and returns of L&B.

1. On or about 1 September 2007, Allianz appointed auditors, AEA & Associates (hereinafter "AEA"), to carry out a wage audit for the relevant years. On or about 30 November 2007, AEA reported to Allianz (which report included a number of annexures) and assessed the total insurable wages for the three-year period at $2,247,019.

1. On 30 December 2007, the chartered accountants (Byrons) acting on behalf of L&B wrote to AEA (again with annexures) complaining about the increase in total wages assessed for insurance purposes. The annexures to the letter from Byrons included certain decisions of the Administrative Decisions Tribunal (hereinafter "ADT") relating to the status of a number of persons performing work for L&B.

1. On 27 February 2008, Allianz wrote to L&B and claimed additional premium of $102,033.97 based upon the foregoing wage assessment carried out by AEA. On 26 March 2008, Byrons "appealed" the wage audit assessment under s 170 of the Act. On 15 August 2008, Allianz sought additional premium of $97,772.88. On 16 December 2008, WorkCover wrote to L&B in relation to its appeal under s 170 of the Act. In that letter, after referring to the appeal, WorkCover stated:

"As a result of my investigations and in consultation with Emma of Clark Pacific Insurance Brokers it was agreed to reverse the findings of the audit conducted by AEA & Associates in 2007 and have a different auditor review the same policy periods. As such, your appeal is no longer required and has been closed.

I understand that WorkCover's Compliance Branch has arranged for a new audit to take place in the near future. In the event that you are not satisfied with the outcome of this audit, in the first instance, please liaise with the auditor and agent to resolve any issues. Failing this, please lodge a new Appeal with the WorkCover Appeals Branch."

1. On 8 January 2009, the new auditors, referred to above, Coulton Isaac Barber (hereinafter "CIB"), appointed by WorkCover, reported. The report included annexures and assessed an alleged total wages bill of $3,579,102 over the three-year period.

1. On 28 January 2009, Allianz, pursuant to the CIB audited wage assessment, wrote to L&B informing them that an additional premium of $178,109.74 was payable. That premium was based upon the direction of WorkCover, which, in turn, was based on information resulting from the conduct of the CIB audit.

1. On 30 April 2009, Byrons, on behalf of L&B, wrote to WorkCover attaching an Application for Review (also referred to by the parties as an appeal under s 170 of the Act) and annexures thereto. (Notwithstanding the reference by the parties to the term "appeal", s 170 of the Act refers to the process as a review, which it clearly is and it is a review of the disputed aspect of a premium determination.) By letter dated 30 October 2009, WorkCover responded to Byrons and reduced the total wages assessed by CIB to $2,682,965. The response, in part, stated:

"WorkCover has received all the available information and is satisfied that 17 of the contractors previously included by the auditor are operating independent businesses....

Indicators examined by the Commission and WorkCover in determining whether a contractor is a deemed worker are whether the:

• arrangement is evidenced in writing
• contractor/deemed worker measures and inspects the site and provides a fixed price quotation inclusive of labour and material
• contractor/deemed worker deals directly with the client requesting the work or the principal contractor for whose benefit the work is to be done
• contractor/deemed worker has an opportunity to make a profit or loss over and above an hourly rate
• contractor/deemed worker supplies the materials, plant and equipment used in completion of the job
• contractor/deemed worker pursuant to any contract is subject to statutory and/or common law liability or loss as a result of bad workmanship
• contractor/deemed worker employs and/or sublets any of the contracted work.

...

While the indicia used in any decision made by the Commission are given consideration in our deliberations, the decision on whether any contractor is a deemed worker must be made having regard to the individual circumstances of each case."

1. To that letter was annexed a schedule setting out the persons that WorkCover had classified as deemed workers for the purpose of the Act. Following the letter of 30 October 2009, there was correspondence, predominantly through emails, between WorkCover and Byrons regarding these issues. On 1 December 2009, Byrons wrote to WorkCover objecting to the proposed determination of 30 October 2009. The letter in part stated:

"We submit that your reference to factors and information taken into account gives no indication of the reasoning process adopted which has resulted in 17 contractors being excluded from the proposed calculation of wages and 46 contractors being included.

We submit that, as a decision maker affecting our client's rights and liabilities, you have an obligation to provide sufficient reasons to enable our client to understand why it is to be imposed with additional premiums."

1. The foregoing letter of 1 December 2009, also referred to a number of comments that, it seems, Byrons considered WorkCover had not taken into account. They included: the delay of over six months in WorkCover's response and the effect on premiums of withholding the determination of their application; that there is no statutory basis for a "proposed decision"; and certain matters relating to the contractors, and inquiries made by WorkCover in relation thereto. Particularly, in relation to the last mentioned matter, reference was made to the holding of contractor licences to which Byrons made the following comment:

"a. Contractors undertaking commercial installation need no such licence and contractors may rely upon such a licence held by a head contractor. The absence of such a licence should therefore not be viewed as a determining factor.

b. The holding of a contractor's licence is not included as an indicator at page 3 of your correspondence but notwithstanding was relied upon in as such [sic] in the exclusion of Wayne Fonari and the inclusion of Mr Zhao. The indicators referred to at page 3 appear to have been otherwise ignored.

c. The reliance upon the holding or absence of a contractors [sic] licence as a determining factor suggests consideration of matters outside the list on page 1 of your letter and indicators other than those at page 3. What other information have you based your decisions upon?"

1. Further, Byrons referred, in relation to the letter of 30 October 2009, to the fact that they had provided WorkCover with further information and were unaware of the use, if any, that had been made of that material. They also referred to a further aspect of the failure, in their view, to provide reasons, which included the absence of reasons for persons to be placed on the excluded list, the absence of an explanation or indication of the use made of additional information provided by Byrons in assessing the persons on the included list, and the inclusion, in particular, of three contractors who have their own workers' compensation policies (resulting effectively in the double payment of premiums). Particular reference was also made to one contractor, Jing Sheng, who had earned over $183,172 in 2005/2006 and the assertion made that the amount involved (together with the amounts of other persons of similar kind) meant that the person could not have been a deemed worker. Objection was also taken to the arbitrary inclusion of 80% of the payments made to such persons. Other matters were raised, but I do not repeat each and every one of them.

1. By letter dated 11 December 2009, WorkCover responded to Byrons. Given the relevance of this letter to the issues in these proceedings, it is appropriate to repeat the substance of the letter. It should be noted that the letter attached a compact disc that included the auditors' report, working papers and documentary evidence obtained during the audit and invited L&B to provide further information in support of its s 170 Appeal by no later than 1 February 2010. WorkCover also informed L&B that it would determine the wages as detailed in their proposed determination of 30 October 2009, in the absence of any further written information. The substance of the response to the arguments provided by L&B was in the following terms:

"1. WorkCover acknowledges and again apologises for the delay between the receipt of your submissions and the issue of a proposed determination.

However, in regards to your comments in relation to your client being 'forced to pay the premium' and that the delay in our response somehow contributed to this, we wish to advise you that in accordance with s 172(4) of the Workers Compensation Act 1987 ("the Act") your client is required to pay any premium identified as a result of the audit, despite the lodging of an appeal.

If, as a result of WorkCover's determination under s170 of the Act, your client is due a refund of premium already paid, your client will also be entitled to interest on the refunded amount.

2. WorkCover issues a Proposed Determination in relation to s170 appeals as a matter of procedural fairness, not in an attempt to avoid our statutory obligations. This affords you / your client the opportunity to provide additional information in support of any contentions that arise from our Proposed Determination, prior to finalising the appeal.

In addition, we advise that the inclusion of any contractor deemed to be a worker did have regard to the individual circumstances of each case and had regard to the information provided by you, your client, the auditor, legislation, case law and legal precedence.

3a). While acknowledging that a contractor licence is not required for commercial work, the evidence (invoicing etc) available to WorkCover and the Auditor appears to predominantly relate to residential work. To undertake this type of work a contractor licence is required.

b) The list of indicia on p3 is intended to be a guide to the types of indicia taken into consideration. As advised in our Proposed Determination, "the decision on whether any contractor is a deemed worker must be made having regard to the individual circumstances of each case" and is based on the available information.

c) The holding or otherwise of a contractor licence is just one of the many factors taken into consideration.

4. All documentary evidence provided by you was considered. In addition, the compact disc included with this response contains all the documentation supplied by the auditor and taken into consideration in our deliberations.

5. In regards to the various contractors who have been excluded, WorkCover was provided with sufficient evidence that supported the fact that they were not reliant on the principal to undertake the type of work they performed. As such, we are satisfied that they are operating independent businesses.

Some of the primary considerations were:

• Operated, as a Pty Ltd company
• Traded under a business name
• Had a workers compensation policy
• Employed workers
• Held contractor licences
• Advertised their services
• Worked for others
• Held an ABN
• Were registered for, and charged GST

In regards to some of the specific contractors you have identified, we offer the following:

3) Were not included by either the auditor or WorkCover.

4) Please refer to Anatoly Shishkin, reference number 16 on the attachment to our proposal of 30 October 2009.

9) Invoiced in the partnership name of E Zhang & X Zhang T/As Crystal Interior Linings, not Crystal Interior Linings Pty Ltd.

11) Invoiced in the partnership name of Milorad & Jelka Romanic prior to operating as M J Ceiling Partitions Pty Ltd. All invoices in the name of the Pty Ltd company have been excluded from the audited totals.

14) Were not included by either the auditor or WorkCover.

15) Juebao Pty Ltd has been excluded by WorkCover and should have been included on the list of excluded contractors.

Note: WorkCover excludes payments made to Pty Ltd companies in the first instance, on the basis that they are either employers in their own right or alternatively they further sub-contract the work.

In instances where no workers compensation policy is identified for a Pty Ltd company, the matter is referred to WorkCover's Compliance Improvement Branch for investigation and potential recovery of premium.

However, there are provisions within the Act that allows for WorkCover to recover unpaid premiums from a principal contractor in the event they cannot be recovered from an uninsured employer. In addition, the Act allows for injured workers to lodge a claim against the principal contractor in instances whereby their employer does not hold a workers compensation policy.

6. In relation to Jing Sheng Zhao we again note your contention. However, no direct evidence has been provided to verify that he was an employer or sub- contracted the work during the relevant periods. If evidence is made available to verify that he was an employer or sub-contracted the work, WorkCover would re-consider his inclusion.

In regards to Milorad & Jelka Romanic, any invoices / payments made out in the name of partnership (ABN 34 654 643 620) have been included. However, both WorkCover and the auditor have excluded any invoices in the name of M J Ceiling Partitions Pty Ltd.

7. The percentage applied to the contractors in your client's case is in accordance with page 32 of WorkCover's Wages Definition Manual (October 2003), Chapter E - Contractors. The percentage used is a default value applied in the absence of information to the contrary. In the case of your client, no evidence has been provided to support the use of an alternative percentage rate for any of the included deemed workers.

If you or your client is able to produce documentary evidence that support a different rate being used, WorkCover will give further consideration to the rate.

8. As stated in our Proposed Determination, the concerns you raised in relation t o the auditor and their report will be dealt with by WorkCover's Compliance Improvement Branch.

In regards to the information used in our deliberations, the enclosed compact disc contains a copy of all the information provided to us by the auditor.

9. Under workers compensation legislation, payment made to both workers and deemed workers are included in the Agent's calculation of premium. In the case of your client, both categories of workers were identified making this a correct statement.

In arriving at our Proposed Determination, WorkCover considers all the factual information contained within the audit report.

However, in determining the inclusion or otherwise of various types of payments, we take into account all supporting documentary evidence gathered by the auditor, WorkCover and any submissions from the employer or their representative.

As a result of our review, and in consideration of the additional information provided, a number of contractors previously included by the auditor as deemed workers were excluded from our Proposed Determination.

10. As outlined in our Proposed Determination, the decision to undertake a new audit for the same period was made in consultation with Emma of Clark Pacific Insurance Brokers over a number of conversations.

During the abovementioned conversations, WorkCover was led to believe that this course of action was at the insistence of your client. If this was not the case, we apologise for the inference.

However, we stand by our comment that we were prepared to issue a Proposed Determination based on the initial audit findings."

1. By letter dated 12 March 2010, Byrons, on behalf of L&B, responded to the above letter from WorkCover. That response again asserted a failure to give reasons for the inclusion of certain contractors and remarked that "blandly referring to a list of indicia ... does not assist us to understand your reasoning or be in a position to advise our client or make sensible further submissions". As to the failure to give reasons, it also criticised the letter because it asserted that all documentary evidence had been considered but gave no indication of the reasoning in each individual case. The response further criticises the indication by WorkCover because it referred to considerations not previously notified and took a broad-brush approach to the predominance of residential work for which the alleged contractors tendered.

1. The response letter of 12 March 2010 referred to numbered criteria by which WorkCover suggested it was determining the status of each of the "contractors" and remarked that there were no entries in relation to any contractor regarding numbered questions 3, 4, 6, 7, 8, 9, 11, 13, 14, 15 and 17. The letter then accused WorkCover of failing to make inquiries on the "very indicators" that WorkCover had notified it was considering as relevant to the decision it was required to make. The letter complained that WorkCover had not used its powers under the legislation to require information on particular contractors, but, instead, relied on simple limited internet searches. Byrons made the following comments as to each of the contractors:

(1) Every invoice was for a fixed amount or a rate per meter, not an hourly rate.

(2) One of the alleged deemed workers submitted invoices for jobs at 24 different suburbs, sometimes in respect of work done by other staff. The geographic range extends from East Bowral to Wentworth Falls, Woolooware to Manly and to Kellyville. This, it is said, would make instruction or supervision by L&B "well-nigh impossible".

(3) Jin Sheng Shao, trading as ZJ Plastering, has submitted invoices for work done in at least 43 suburbs between April 2005 and November 2006. It again noted that Mr Sheng must have been employing workers, seemingly on the basis that he was paid over $183,000 in one year. The letter further complained about the absence of understandable reasons for decision.

1. On 14 May 2010, WorkCover wrote to Byrons, referring to its second appeal under s 170 of the Workers Compensation Act , the correspondence of 30 October 2009, 10 November 2009, 11 November 2009, 1 December 2009, 11 December 2009, 16 December 2009, 21 December 2009, 16 February 2010 and 12 March 2010, and assessing for each of the three-year period the total wages for workers and deemed workers, which assessment formed the basis for the calculation of insurance premiums for the year in question. This letter, which is the determination that is sought to be challenged, states:

"WorkCover advises that some of the issues you raised have been addressed in previous correspondence and therefore we do not intend to address them again. However, we offer the following responses.

In relation to your contention that various 'errors' were contained in the Coulton Isaac Barber ('CIB') report, as previously advised, the matter has been referred to the WorkCover Compliance Improvement Branch for their review. However, in relation to the parts of the report WorkCover relied upon in our determination, we advise that the only information that was taken at 'face value' within the audit report were the 'wage' figures used for-each of the audited periods. We note that these amounts have not been disputed.

In reaching a decision in relation to the status of each contractor, WorkCover gave consideration to the evidence contained on the compact disc (as provided to you) and the subsequent evidence provided by you / your client in your various submissions.

In regards to the so-called 'Contractor Questionnaire' completed by CIB, WorkCover did not give any consideration to its contents. Furthermore, we advise that WorkCover is unaware of the circumstances behind the documents creation and can only assume it is used by the Auditor as reference material.

We note that you are of the opinion that WorkCover, as the Regulator, have powers under legislation to obtain information from the contractors in dispute. Please be advised that WorkCover does not have any legislative power to compel an uninsured person to do anything except in instances where an authorised officer has reasonable grounds to believe the person is capable of giving information, producing documents or giving evidence in relation to a possible contravention of the Workers Compensation Ac 1987 or the Workplace Injury Management and Workers Compensation Act 1998. No evidence has been made available to determine that this is the case.

It is the employer's responsibility to make themselves aware of workers compensation legislation and to produce, on request, the evidence that they rely upon in support of their contention that a particular contractor should be excluded from the calculation of wages. In instances whereby an employer is unsure about the status of a worker, they should seek independent advice, or alternatively seek a Private Ruling from WorkCover's Worker Status Rulings Branch.

In previous correspondence, WorkCover advised you of some of the more common indicia considered when determining the status of a contractor and provided examples of the types of documentation that could be provided to support their exclusion. Further, we advised that any decision concerning the inclusion of contractor wages must be in accordance with workers compensation law and precedent cases, having regard to the individual circumstances of each case.

WorkCover is not in a position to know what evidence your client is in possession of, nor can we give any indication whether particular documents / evidence will have any bearing on the decision of whether a particular contractor is deemed to be a worker. All evidence is considered in its entirety having regard to the individual circumstances of each case.

On the basis that the decision of whether a contractor is deemed to be a worker is based on common law principles, and that case law does not provide any indication of the weighting applied to particular indicia, it is not appropriate for WorkCover to attempt to do so.

Nevertheless, we accept that for the majority of the 47 contractors that WorkCover has included as deemed workers, you provided an ABN and copies of invoices. Also, for a limited number you provided additional documentary evidence in relation to advertising and other insurances (i.e. Sickness & Accident and Public Liability).

In addition, WorkCover, through its research was able to establish that most held an ABN, were registered for GST, but did not hold workers compensation policies nor contractor licences.

However, the evidence as detailed above on its own is not sufficient to support that the contractors deemed to be workers were conducting independent businesses.

In our letter of 30 October 2009 we advised you of the types of evidence we would require. Consequently, we would have expected to receive documentary evidence in the form of, but not necessarily limited to, the following:

• details of Contractor Licences;
• workers compensation policies that supports payment of wages;
• other insurances (i.e. Sickness & Accident and Public Liability);
• advertising of their business;
• subletting of the contract or employment of workers; and
• copies of quotes issued prior to the commencement of work.

As stated previously, WorkCover must review the facts on a case by case basis on the evidence presented for each individual contractor deemed to be a worker.

In the absence of this additional documentary evidence, WorkCover has determined that the wages as outlined above are to be used in the Agent's calculation of premium for the 13 September 2003 to 13 September 2006 policy periods.

The Agent has been advised of WorkCover's determination. This concludes WorkCover's review and our file has now been closed."

Relationship between WorkCover and Allianz

1. It is appropriate to describe the relationship between WorkCover and Allianz. In one sense, it is sufficient to state, as was agreed between the parties, that WorkCover calculates the amounts upon which premiums are based and the premiums that are payable and that calculation is binding on Allianz which, in turn, charges the client, in this case L&B. The strict relationship is slightly more complicated. WorkCover is constituted by the Workplace Injury Management and Workers Compensation Act 1998 (hereinafter "the 1998 Act") as a body corporate representing the Crown. The nominal insurer is established by the Workers Compensation Amendment (Insurance Reform) Act 2003 (hereinafter "the 2003 Act"). The Nominal Insurer is the legal entity responsible for the Scheme and its functions are set out in Part 7, Division 1A of the 2003 Act.

1. The funds of the Scheme are held in a fund called the Workers Compensation Insurance Fund and the Nominal Insurer manages the Insurance Fund also in accordance with Part 7 of the 2003 Act.

1. WorkCover administers the Scheme. The Scheme is a compulsory, no fault insurance Scheme that provides workers' compensation insurance for certain NSW employers and workers. It provides certain financial support, medical, rehabilitation and other services to persons injured at work. The principal legislation, as earlier discussed, is the Workers Compensation Act 1987, but each of the Workplace Injury Management and Workers Compensation Act 1998 and the Workers Compensation Amendment (Insurance Reform) Act 2003 is, at least in part, relevant.

1. WorkCover acts for the Nominal Insurer and, in so doing, may exercise all of the functions under any of the three statutes to which reference has been made. The 2003 Act allows for the Nominal Insurer to enter into arrangements with Scheme Agents (i.e. insurance companies) to exercise the functions of the Nominal Insurer, subject to its direction and control. Those functions include premium collection and claims management.

1. Pursuant to the foregoing, a Scheme Agent arrangement was made between the Nominal Insurer (represented by WorkCover) and Allianz, under which Deed Allianz levies or charges workers' compensation premiums to employers operating in NSW. Under the Scheme Agent arrangement, the Nominal Insurer issues the Scheme Agent (in this case WorkCover issues Allianz) with an Operational Document Set, which may be altered from time-to-time (Clause 6.19 of the Scheme Agent Deed). Under Schedule 2 of the Scheme Agent Deed, there is a requirement that the Scheme Agent must, at a minimum, collect all information necessary for the calculation of premiums included in the business activity, wages estimated and declared, cost of claims to be included in the calculation and any input tax credit.

1. Once that information has been ascertained, the Scheme Agent must calculate the premium in accordance with the correct Insurance Premiums Order (hereinafter "IPO"), which is an order made by the Governor on the recommendation of WorkCover under s 168 of the Act and specifies a different rate of calculation depending upon the industry in which the employer is engaged. The Scheme Agent then issues the employer with a premium demand and must adjust that premium when information is made available that will affect the premium and, once adjusted, notifies the employer.

1. Further, the Scheme Agent (in this case Allianz) is required to review information supporting the premium calculation on a targeted systematic basis in order to ensure the employers are paying the correct premium in accordance with the correct IPO. This process includes regular premium compliance audits, as required by the nominal insurer, which must be conducted in a timely manner and following which the scheme agent must review findings, assess recommendations, ensure appropriate action is taken in a timely manner, and calculate statutory fees and other charges, as appropriate, and charge those to the employer.

1. The foregoing describes the formal process, which, as a matter of practice, means that WorkCover (acting as the Nominal Insurer) has concluded a Scheme Agent Deed with Allianz, under which Allianz was required to perform all of the tasks referred to above in relation to its relationship with L&B.

The Workers Compensation Act 1987

1. I have already set out in brief some aspects of the scheme promulgated by the Workers Compensation Act 1987 and the Workplace Injury Management and Workers Compensation Act 1998. Some of that is described in the Scheme Agent Deed, to which reference has been made. The Act establishes the Nominal Insurer (s 154A), which is a legal entity and is not and does not represent the State or any authority of the State. Its functions are those that are necessary or convenient for enabling it to function and operate to the fullest extent as a Licensed Insurer and it may issue directions to any employer with respect to the insurance arrangements of the employer. WorkCover acts for the Nominal Insurer in all respects (s 154C).

1. By operation of s 155 of the Act, an employer must obtain from a Licensed Insurer (relevantly, in this case, Allianz) and maintain in force a policy of insurance that complies with Division 1 of Part 7 of the Act "in respect of all workers employed by the employer and for an unlimited amount in respect of the employer's liability independently of this Act for any injury to any such worker". Non-compliance with that provision is a criminal offence.

1. Section 169 of the Act, as previously stated, requires the premium for insurance to be calculated in accordance with the IPO issued by the Governor under s 168 of the Act.

1. An employer from whom an insurer has demanded a premium may dispute one or more aspects of the determination of that premium on the basis that it is not in accordance with the relevant Insurance Premiums Order. This right is conferred by s 170 of the Act. Where such an application or dispute arises, WorkCover must notify the insurer of the application by the employer, must consider the application and may have regard to such oral or written evidence or representation as it thinks fit and by operation of s 170(3)(c), WorkCover:

"(c) must dismiss the application if [it] decides that:

(i) the policy is not a policy to which a relevant insurance premiums order applies, or

(ii) the disputed aspect was determined by the insurer in accordance with the relevant insurance premiums order,

or must in any other case determine the disputed aspect in accordance with the relevant insurance premiums order, and

(d) shall, in such manner as it thinks fit, inform the employer and the insurer of its dismissal of the application or its determination, as the case may require."

1. As a consequence of the foregoing, WorkCover was required to determine the "appeal" under s 170 of the Act, being an appeal from the premium demanded by Allianz, which in turn is based on the determination/calculation that WorkCover itself had issued.

Classification of persons performing work

1. At the heart of the issue between WorkCover and L&B is the classification of persons performing work for L&B. The Act (s 155 and s 156) requires that a workers' compensation policy be obtained and maintained and that the premiums be paid in relation to each person performing work who is a worker within the meaning of the 1998 Act (see s 4) or a deemed worker pursuant to the provisions of Clause 2 of Schedule 1 to the 1998 Act. It is necessary to recite the relevant extracts of those definitions.

1. Section 4 defines "worker", relevantly, as meaning "a person who has entered into or works under a contract of service ... with an employer". There are exceptions, which are currently irrelevant. Section 5 of the 1998 Act renders binding Schedule 1 to the 1998 Act which, relevantly, defines "worker" to include deemed employees, being certain contractors in the following terms:

"(i) where a contract:

(a) to perform any work exceeding $10 in value (not being work incidental to a trade or business regularly carried on by the contractor in the contractor's own name, or under a business or firm name), or

(b) (Repealed)

is made with the contractor, who neither sublets the contract nor employs any worker, the contractor is, for the purposes of this Act, taken to be a worker employed by the person who made the contract with the contractor."

Again, there is an exclusion provision in relation to sporting organisations, which is currently irrelevant. There are other, currently irrelevant, provisions dealing with lent labour and labour hire arrangements.

1. The mischief to which Clause 2 of Schedule 1 (hereinafter "the deemed worker provisions") is directed is plain and is of longstanding. It is aimed at the provision of workers' compensation benefits to persons who do not work under contracts that fit the traditional definitions of contracts of service. Since at least 1926, the legislature has sought to overcome some of the more arcane distinctions in the common law between contracts of service and contracts for services by extending workers' compensation, and other benefits, to persons performing work who are not servants or employees under the common law.

1. In its earliest manifestation, the deemed worker provisions required even employers to be the subject of a workers' compensation insurance policy if the employer were performing work in fulfilment of a contract with the principal.

1. The similar provision in the 1926 Act was repealed in 1929 and a provision, almost identical to the current provision, was inserted by the Workers' Compensation Act 1942: see Turner v Stewardson [1961] WCR 169, per Rainbow J for a history of the legislation.

1. These types of provisions seek to overcome the difficulty associated with providing benefits to workers on the basis of the existence of a contract of service, in circumstances where the employer/principal has a significantly greater bargaining power and an ability to construct the relationship between the parties in a way that puts the relationship outside common law notions of employment. The contract of employment derives, historically, from notions of serfdom and, for that and other reasons, historically differentiated itself from other contracts by the ability of the employer to control. This discrimen has created enormous difficulties for the law and attempts have been made to identify contracts of employment by different criteria. Generally, those attempts have simply swapped one set of problems for another.

1. In legislative terms, many attempts have been made to define the kind of relationship that warrants particular regulatory schemes and those attempts have, themselves, been the subject of interpretation by the Courts: see, for example, the promulgation of s 88F of the Industrial Arbitration Act 1940 (which, through a number of changes, became s 106 of the Industrial Relations Act 1996) and the judgment of the High Court in Fish v Solution 6 Holdings Limited [2006] HCA 22; (2006) 225 CLR 180 and in the Court of Appeal Solution 6 Holdings Limited v Industrial Relations Commission of NSW [2004] NSWCA 200; (2004) 60 NSWLR 558. In Australia where there has been extensive regulation of contracts for the performance of work, including contracts of employment, there has been less incentive to develop alternative tests for what we refer to as a contract of employment or expand to other contracts for personal service those common law attributes of a contract of employment.

1. In other jurisdictions, where contractual rights in employment do not depend upon legislative intervention, different debates have occurred. In academic circles there has been much incentive to look critically at the way in which we define personal contracts of employment: see J Fudge and R Owens, Precarious Work, Women and the New Economy: The Challenge to Legal Norms (2006) Hart Publishing; K Stone, From Widgets to Digits: Employment Regulation for the Changing Workplace (2004) Cambridge University Press; K Stone, Flexibilisation, Globalisation and Privatisation: Three Challenges to Labour Rights in Our Time , GALS Working Paper (2005); G Davidov, The (Changing?) Idea of Labour Law (2007) 146 International Labour Review 311; H Arthurs, Reinventing Labor Law for the Global Economy (2001) 22 Berkeley J. Emp. & Lab. L. 271 ; G Davidov and B Langille, Boundaries and Frontiers of Labour Law: Goals and Means in the Regulation of Work (2006) Heart Publishing (in particular A Trebilcock, Using Development Approaches to Address the Challenge of the Informal Economy for Labour Law at 63-76); A Stewart, Redefining Employment? Meeting the Challenge of Contract and Agency Labour (2002) 15 AJLL 246; R Owens and J Riley, The Law of Work (2007) OUP; M Freedland, The Personal Employment Contract (2003), Oxford University Press; M Freedland, Application of Labour and Employment Law Beyond the Contract of Employment (2007) 146 International Labour Review 3.

1. As can be seen, the issues are not confined to Australia. Because, amongst other things, of our autochthonous (and somewhat peculiar) system of industrial regulation, we have not in the past considered the experience of others as particularly relevant. But the problem is almost universal (at least within developed economies): see " The Employment Relationship", International Labour Conference, 95th Session, 2006, Report V(1) and, in the U.S., National Labour Relations Board v Hearst Publications 322 US 111; 64 S.Ct. 851 (1944); U.S. v Silk 67 S. Ct. 1463 (1947).

1. As earlier stated, while the academic discussion on these issues has, in jurisdictions outside Australia, climaxed in the last few years, the attempts to broaden regulation outside employment to personal contracts for work has been a long-time feature of Australian legislation. The early provisions of the Workers' Compensation Act , to which reference has already been made, have been the subject of judicial pronouncement. The terms of the deemed worker provisions, recited above, are in almost identical terms to legislation that has existed in every State of Australia for many years.

1. The legislation considered by the High Court in Humberstone v Northern Timber Mills [1949] HCA 49; (1949) 79 CLR 389 has a familiar ring. It included the following deemed worker provision:

"Notwithstanding anything in this Act or any law where any person (in this sub-section referred to as 'the principal') in the course of and for the purposes of his trade or business enters into a contract with any other person (in this sub-section referred to as 'the contractor') - (a) under or by which the contractor agrees to perform any work not being work incidental to a trade or business regularly carried on by the contractor in his own name or under a firm or business name; and (b) in the performance of which the contractor does not either sublet the contract or employ workers or although employing workers actually performs some part of the work himself - then for the purposes of this Act the contractor shall be deemed to be working under a contract of service with an employer and the principal shall be deemed to be that employer."

1. In the course of the judgment in Humberstone , supra, Latham CJ, at 397, said:

"The idea of this provision is evidently to extend the benefits of the Act to persons who agree to do work which is not work belonging to a trade or business carried on by them, even though they may regularly carry on a trade or business."

1. In the judgment of Dixon J, in Humberstone , supra, widely cited with approval and/or relied upon in other judgments, his Honour, at 401-402, said:

"There are two difficulties in applying the provision to the facts. The first is to say whether, upon the true meaning of the phrase in the sub-section, the work the deceased performed for the respondents was or was not 'work incidental to a trade or business regularly carried on by the contractor in his own name or under a firm or business name.' ...

... I think that the purpose of the exception or exclusion expressed by the words in question was to confine the benefit of the conclusive presumption which it establishes to persons who do not conduct an independent trade or business, who are not holding themselves out to the public under their own or a firm or business name as carrying on such a trade or business and who do not in the course of that trade or business, as an incident of its exercise, undertake the work by entering into the contract. The provision will thus cover men [sic] who work for the principal but have no independent business or trade and men [sic] who though carrying on an independent trade or business undertake a contract outside the scope or course of that trade or business. The word 'trade' is capable of including any handicraft and in that sense it may seem to lack the element of systematic practice or holding out which the idea of openly conducting a distinct or independent trade or business and seeking custom implies. But a consideration of the policy of the provision as well as of its text appears to me to show that the distinction it seeks to draw is between on the one hand an independent contractor whose relation with the principal is special or particular either because it is outside the course of the general business of the contractor or the general practice of his trade or because he has no such general business or is not a general practitioner of his trade, and on the other hand an independent contractor who performs work successively or perhaps concurrently for his customers or others in the course of a definite trade or business carried on systematically or who holds himself out as ready to do so. ... No doubt the policy is a matter of inference but it seems reasonable to suppose that it was considered proper that a person conducting a business in the course of which he contracted to perform work should himself carry the risk of personal injury as one of the hazards of his business, while the man who worked under contract but only for the employer or without any general trade or business or outside his trade or business should, like an ordinary employee, be insured by the Act against the risk of injury in his work."

1. It is in that historical context that one should examine the terms of the legislation that is required to be applied by WorkCover. There are differences between the legislation describing deemed workers under the current legislation and that considered by the High Court in Humberstone , supra. Leaving aside that the High Court in Humberstone was considering an Act of the Victorian Parliament, the style of legislative drafting has altered. Prior to 1946 it was unusual to insert commas in any style of drafting (and in some circumstances it still is). The legislation here under consideration inserts commas in a manner, which, on one view, may be significant. While, in most instances, the punctuation is inserted to make reading easier, there are circumstances where the insertion of a comma can make a significant difference to the meaning of a text.

1. I can relevantly ignore the requirement that the contract must be for the performance of work exceeding $10 in value. But the work must also not be work "incidental to a trade or business regularly carried on by the contractor in the contractor's own name, or under a business or firm name". The insertion of a comma after the words "own name" may arguably affect the construction of the provision and give it a meaning different from that considered by the High Court in Humberstone , supra. The disjunctive "or" joins the term "under a business or firm name" and the question arises as to whether that is an alternative to the carrying on of the work "in the contractor's own name", or whether it is an alternative to the whole phrase "incidental to ... the contractor's own name".

1. I take the view that the more obvious reading of the text is to make the term "under a business or firm name" an alternative to "in the contractor's own name" and thereby deny any real significance to the use of the comma after the first phrase in the provision.

1. I should also mention that the word "or" appearing at the end of paragraph 2(1)(a) in the Schedule to the 1998 Act is otiose. It seems to be a remaining vestige of the previous alternative contained in paragraph 2(1)(b) of the Schedule, which paragraph has since been repealed.

1. As a consequence of the foregoing, there are a number of aspects to the definition, which require specification. First, the definition applies to impose liability on the principal for persons performing work for the principal under each contract. Obviously the singular can include the plural, but it is the relationship between principal and contractor under each contract that determines whether the contractor is deemed to be an employee for the purposes of the 1998 Act and therefore a person for whom an insurance policy is required under the 1987 Act.

1. As earlier stated, I ignore, for present purposes, the requirement that the value of the contract exceed $10. Secondly, in order for a contract to be one to which this provision of the Schedule applies, the work to be performed under the contract must not be "incidental to a trade or business regularly carried on by the contractor". Thirdly, the business (which I hereafter use to include trade) carried on must be in the contractor's own name or under a business or firm name.

1. Fourthly, in relation to each such contract, the contractor must neither sublet the contract nor employ any worker. This last provision requires that the contractor be the only person performing the work for which the contractor has contracted.

The first exclusion

1. The first-mentioned condition requires that the work not be incidental to a trade or business regularly carried on by the contractor (hereinafter "the first exclusion"). As a consequence of the earlier mentioned construction relating to the alternative and the use of the comma, it follows that unless the work being carried out is work incidental to a business carried on by the contractor, it is, subject to the conditions that arise thereafter, a contract to which Clause 2 of the Schedule applies.

1. That construction necessarily means that the mere fact that a contractor carries on work under the contractor's own name or under a business or firm name, or even under a company name, does not, without more, exempt the contract or contractor from the reach of Clause 2 of the Schedule. (Although, if there be a company name, the work must necessarily be sublet.) Rather, it is necessary that the contractor carry on a business, and that the business be carried on regularly and that this contract forms an incident of that business.

1. Historically, the term "business", usually used in conjunction with the word "trade", has been the subject of much authority. Often, the discussion on the meaning of the term relates to the business of the principal, because in much of the prior legislation the contract was required to be one between a principal and a sub-contractor executed in the course of and for the purposes of the principal's trade or business: see Humberstone , supra. Those authorities are useful in construing the term as it is used in the present context and, even in the past context, was used in relation to both the principal and the contractor.

1. Because, inter alia, the discussion in judgments dealing with earlier legislation concentrated on the term "business" as it related to whether the contract was made in the course of or for the purposes of the principal's trade or business, much discussion centres on not whether an undertaking (to use a neutral term) is or is not a business, but whether the contract was for the purposes of a business. In that regard, often the delineation was made between a contract involving capital infrastructure or improvement as distinct from recurrent activities: see, for example, Moir v Schrader [1936] HCA 69; (1936) 56 CLR 310, which turned on whether a partnership between a solicitor and a retired bank manager to develop timbered land for firewood involved the proposition that the contract with the engineer for the installation of a saw was in the course of or for the purposes of the business. See also Frauenfelder v Reid [1963] HCA 3; (1963) 109 CLR 42.

1. Central to the concept of the carrying on of a business is, as is stated by Dixon J in Humberstone , supra, at 401 the "independence" of the activity from the activity of the principal and, in that regard, whether the contractor is not holding itself out to the public (or other principals) under its own or a firm or business name. Contracting with the public is not an essential feature of the definition in Clause 2 of the Schedule, but it is a criterion that would inform the determination of whether the activities of the contractor involved an independent business. As earlier recited, Dixon J in Humberstone , supra, drew the distinction between, on the one hand, an independent contractor whose relation with the principal is special or particular because, inter alia, the contractor has no business or is not a general practitioner of his trade and on the other hand an independent contractor who performs work successively or perhaps concurrently for his customers and others in the course of a definite trade or business carried on systematically: Humberstone , supra, at 402, per Dixon J.

1. In a general sense, almost all of the indicia that are often used to determine if a person is an employee or a contractor are criteria that may be used to inform the determination of whether the contractor is carrying on business independently, i.e. in his own name or under a business or firm name and, therefore, exempted under the first exclusion. The provisions seek to cover contractors who are engaged in a manner that is more like that of an employee than independent business people.

1. In that regard, an examination of the criteria may seem like determining whether the contractor is an employee, but, in truth, it is an examination of various criteria to determine whether, on the continuum of relationships, the contractual one is truly independent. Those criteria will include: the level of control of the manner of the performance of work contracted, including the degree to which the contractor is responsible for faulty work; the giving of directions as to where and in what circumstances work is to be performed, including the order in which it is performed; exclusive service or overwhelmingly predominant service for one particular principal; taxation and insurance arrangements; the provision of materials and equipment beyond that ordinarily, in the particular work carried on, supplied by tradespersons or other employees; the manner of termination of the contract; the manner of computation of the remuneration; control over hours of work; whether the contractor operates as part and parcel of the business of the principal; whether there is negotiation as to price; whether there is predetermination of the precise amount of work to be done and a quote to be submitted; whether separate workers' compensation insurance has been taken out by the contractor; and whether the other attributes of an independent business exist, e.g. advertising, telephone entry, etc. and the totality of the relationship between principal and contractor ( Stevens v Brodribb Sawmilling Company Pty Ltd [1986] HCA 1; (1986) 160 CLR 16 at 29). Further, the criteria that may inform this determination may include the ownership of the assets, the chance of making a profit and the risk of loss in the business that is carried on (see Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at 526). The foregoing is not, and is not intended to be, exhaustive. Nor is it even indicative; there may be circumstances where some of the foregoing are not relevant.

1. Alternatively, if the legislature genuinely desired a system of compensation for workplace injury, which was informal and non-curial, then it could provide, quite simply, that all persons performing work should be covered by workers' compensation insurance and WorkCover's role would be to determine whether the premium for such insurance would be borne by either the principal or the contractor. Such a process would necessarily involve the contractor and make available to both WorkCover and the principal all of the information necessary to enable a full consideration of the criteria based on all of the evidence, rather than only the evidence that is available to L&B and/or WorkCover.

1. Nevertheless, that is not the legislative scheme with which the Court must deal and it is not the legislative scheme with which WorkCover must deal. The criticism made by L&B of the process undertaken by WorkCover is understandable and some of the correspondence from WorkCover to L&B may have been more felicitously expressed, but there is no error of law based on any of the grounds raised by L&B that warrants the quashing of the determination of WorkCover made 14 May 2010. No other determination is extant, nor warrants interference.

1. The Court makes the following orders:

(i) Summons dismissed;

(ii) The plaintiff pay the defendant's costs of and incidental to the proceedings, as agreed or assessed.

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Decision last updated: 27 May 2011