Mark Andrew Johnson v MNG Investments Pty Ltd T/As Australian Temporary Fencing
[2011] ACTSC 124
•12 August 2011
MARK ANDREW JOHNSON v MNG INVESTMENTS PTY LTD T/AS AUSTRALIAN TEMPORARY FENCING & ORS
[2011] ACTSC 124 (12 August 2011)
NEGLIGENCE – personal injury – work accident – whether plaintiff employee or independent contractor – indicia of employment – whether Odco agreement between employer and labour hire company genuine – whether agreement effective – whether labour hire company owed duty of care to plaintiff
EMPLOYMENT - whether plaintiff employee or independent contractor – Odco agreement between employer and labour hire company – written agreement genuine – effect of agreement
WORKERS COMPENSATION – whether plaintiff employee – independent contractor – whether insurer liable to indemnify defendant in respect of liability independently of Workers Compensation Act 1951 (ACT)
Workers Compensation Act 1951 (ACT) ss 11, 144, 147, 166, 172
Building Workers Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104
Hollis v Vabu (2001) 207 CLR 21
Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Insurance Co of Australia (1931) 46 CLR 41
Yaraka Holdings Pty Ltd v Giljevic [2006] ACTCA 6
Abdalla v Viewdaze Pty Ltd (2003) 53 ATR 30
TNT Australia Pty Ltd v Christie [2003] 65 NSWLR 1
Glass, McHugh and Douglas, The Liability of Employers in Damages for Personal Injury, 2nd ed. (1979)
No. SC 849 of 2005
Judge: Master Harper
Supreme Court of the ACT
Date: 12 August 2011
IN THE SUPREME COURT OF THE )
) No. SC 849 of 2005
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:MARK ANDREW JOHNSON
Plaintiff
AND:MNG INVESTMENTS PTY LTD t/as AUSTRALIAN TEMPORARY FENCING
(ACN 105 211 630)
First Defendant
CONTRACTING INNOVATIONS PTY LTD (IN LIQ.)
(ACN 102 584 967)
Second Defendant
THE WORKERS COMPENSATION DEFAULT INSURANCE FUND MANAGER
Third Defendant
ZURICH AUSTRALIA INSURANCE LTD
(ACN 000 296 640)
Fourth Defendant
ORDER
Judge: Master Harper
Date: 12 August 2011
Place: Canberra
THE COURT ORDERS THAT:
judgment be entered for the second defendant.
This action was commenced as a claim by an employee against an employer for damages for personal injury in the course of his employment. By the conclusion of the hearing, agreement had been reached between the plaintiff and the original defendant as to liability and quantum, leaving the court to determine issues between the defendant and other parties which had been joined over the years, as to who should ultimately be responsible for the plaintiff’s damages and in what proportions.
The accident and the injuries
The plaintiff was injured on 25 February 2004 when he fell from the back of a truck owned by the defendant company while unloading temporary fencing panels and concrete anchor blocks from the back of the truck. The defendant conducted a business of supplying and installing temporary fencing, generally around building sites in the suburbs of Canberra. The plaintiff was working for the defendant, although there is an issue as to whether he was an employee of or independent contractor to the defendant, or an employee of or independent contractor to another company subsequently joined as second defendant, Contracting Innovations Pty Ltd, which by the time of the hearing was in liquidation.
The plaintiff asserted in his statement of claim that the concrete blocks weighed up to forty-five kilograms each. On the day of his injury, he did not have an offsider. He drove the truck to a building site. He climbed onto the tray of the truck to unload the fence panels and anchor blocks. The system of work was patently not a safe one. The plaintiff fell from the back of the truck to the ground and injured his lumbar spine, ultimately requiring surgery in the form of disc excision. He incurred substantial expenses for treatment, and suffered an impairment of his earning capacity which will continue into the future. His damages have been agreed at $650,000.00. At the conclusion of the hearing I entered judgment in the plaintiff’s favour against the first defendant for that amount. I was informed that a substantial amount had been paid by way of workers’ compensation to the plaintiff and on his behalf by the first third party, Zurich Australia Insurance Ltd, pursuant to a policy of workers’ compensation in force at the time of the injury between the first defendant and Zurich. The agreed judgment amount is inclusive of workers’ compensation.
The parties and the pleadings
The plaintiff commenced the action in November 2005 against the first defendant only. In May 2006, the first defendant joined its workers’ compensation insurer, Zurich, its public liability insurer, and Contracting Innovations as third parties. Two months later, the first defendant joined two further insurers as third parties.
In November 2007, I gave leave to the plaintiff to add as defendants Contracting Innovations, until then the third third party, and the Workers Compensation Default Insurance Fund Manager, an entity established under the Workers Compensation Act 1951. At that time Contracting Innovations was not yet in liquidation but it had become known that it had not carried workers’ compensation insurance: if it was found to have been the plaintiff’s employer, the scheme of the legislation was that damages recovered by the plaintiff would have been payable by the Default Insurance Fund, which would in turn have had a right of recovery from Contracting Innovations.
In August 2008, the first defendant joined Insurance Australia Ltd as yet another third party, in its capacity as compulsory third party insurer of the truck. By the time of trial, Insurance Australia Ltd had taken over the conduct of the matter on behalf of the first defendant.
In September 2009 the plaintiff’s solicitors amended the statement of claim again. By the time the hearing commenced later in that month, proceedings had been discontinued against many of the third parties. The only parties represented at the hearing were the plaintiff, the first defendant (MNG Investments), the third defendant (the Default Insurance Fund) and the first third party (Zurich). The second defendant, Contracting Innovations, by then in liquidation, remained a party but was unrepresented and took no part in the hearing.
The statement of claim upon which the plaintiff went to trial asserted that he had been employed by the first defendant, or alternatively, had been an independent contractor to the first defendant; that he had been employed at the time by the second defendant, or alternatively had been an independent contractor to the second defendant; and that the second defendant had not held a workers’ compensation insurance policy, nor had it been exempt as a self-insurer from the requirement to do so. The plaintiff sought a declaration as against the third defendant (the Fund) that at the time of the injury he was taken to be a worker of the second defendant (Contracting Innovations) for the purposes of the Workers Compensation Act.
The Default Insurance Fund conceded that Contracting Innovations had not held a workers’ compensation policy, but denied liability on the basis that the plaintiff was not an employee of Contracting Innovations. The position of the Default Insurance Fund is that it can be liable only if Contracting Innovations had an obligation to take out a policy and failed to do so. Such an obligation would arise if the plaintiff were found to have been an employee of Contracting Innovations. It might also arise if the plaintiff was found to have been taken to be a worker employed by Contracting Innovations for the purposes of the Workers Compensation Act, but such a finding would not be available if the court found that at the time of his injury he had been employed by the first defendant.
Zurich concedes that it was at the time of the injury the workers’ compensation insurer for MNG Investments, but denies that the plaintiff was employed by that company. Zurich concedes that the plaintiff is taken to be an employee of MNG Investments for the purposes of the Act. It was on that basis that Zurich met the plaintiff’s claim for workers’ compensation. But Zurich says that its policy does not extend to cover MNG Investments against liability independently of the Act, that is liability under the general law, in respect of persons who are not in fact employees, even though they may be deemed employees for workers’ compensation purposes.
Thus the determination of the issues between the parties will require findings as to whether or not the plaintiff was an employee of MNG, an independent contractor to MNG, an employee of Contracting Innovations, or an independent contractor to Contracting Innovations. It seems to be common ground between the parties that he must have fallen into one of those four categories at least.
The evidence
Michael and Natalie Froome are the directors of the first defendant, MNG. Mrs Froome is the plaintiff’s sister. Until 2002, the plaintiff had been employed in the printing industry. He was looking for a change, and while on holidays, received an offer from his brother-in-law of work. He accepted the offer. On his first day he attended the yard at Belconnen from which the business was operating. Michael Froome showed him what to do and took him to his first job. He showed the plaintiff how to erect the temporary fence panels, using the concrete blocks as anchors, and using clamps and a small ratchet spanner to connect the panels to each other. Thereafter the plaintiff was sent to sites to erect fencing on his own. He would be told where to go and what to do by Michael Froome. He started at 7:00 am each morning and worked until the job for that day was finished, generally somewhere between 3:00 pm and 5:00 pm. Michael Froome showed him how to load the panels and blocks onto the back of the truck using a forklift. Sometimes when the forklift was not working, they loaded the truck by hand. When the plaintiff first started, there were no other employees.
The plaintiff’s sister looked after the administration and paperwork for the business. She provided the plaintiff with a pair of steel-capped boots and a shirt and sloppy joe with Australian Temporary Fencing wording printed on them. The plaintiff’s evidence was that when he arrived at work he would sign on in an exercise book which was kept in an old car body on the site. He would sign off in the same way at the end of the working day.
When he first started, he was told how much he would be paid per hour. Initially he was paid in cash. His recollection was that he started work in December 2002. He said that he worked for his sister and brother in law for a number of weeks and then went back to his printing job where he gave notice and had to work out his period of notice of a week or so. He then returned to working with Mr and Mrs Froome, being paid cash in hand for two or three weeks before the system changed.
He was told by his sister about the change. She told him that there were some forms that needed to be completed and signed, and that this would make it cheaper for the business but would not affect him. She said that she and her husband were finding that it was too expensive to take out workers’ compensation insurance for him, and that they had been advised to change to the new system to save money. The plaintiff signed where he was asked to sign and gave the forms back to his sister.
The documentation was tendered. It comprised about fifteen pages, including a hiring agreement, an application form for a new account, a guarantee, an agreement to contract, a general deduction authority, and background explanatory or perhaps promotional material: the Contracting Innovations Engagement Model, Income Protection Insurance, and Explanation of Miscellaneous Costs, with a sheet setting out summary details of public liability insurance carried by the promoter, Information for Accountants: Taxation Issues for Independent Contractors working through “Odco” Style Labour Hire Arrangements, and Legal Basis of the Odco Agency Contract System.
In a number of places throughout the documentation, the word ODCO appears with the letters TM as a superscription, suggesting that the word has been registered as a trademark. The evidence did not descend into further detail about this, although the documentation states that further information is available on what is described as the Odco website, I have not visited the website but note that it is suggestive that by 2002 something of an Odco industry seems to have developed.
Its genesis was in an unreported decision of Woodward J in the Federal Court of Australia in 1989, endorsed by a Full Bench of the Court in Building Workers Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104, from which an application for special leave to appeal to the High Court was refused. Odco was a labour hire company in the construction industry. It engaged persons as independent contractors to work for builders at an hourly rate. The practice attracted the adverse attention of the trade union movement. In the context of proceedings by unions for breaches of the Trade Practices Act 1974 (Cth), Woodward J held that the workers were independent contractors to Odco, not employees.
The background material from Contracting Innovations described what it had to offer to companies like MNG. To quote from the Engagement Model document:
The Contracting Innovations system is a unique opportunity for companies to consider an alternative engagement system to employment. The Contracting Innovations system offers a refreshingly simple, cost-effective method of utilising your current personnel to improve their earnings and the bottom line of the company. Approved by Federal and High Court rulings, the system allows your current or future workforce to become recognised independent contractors, working in your business, without losing the feeling of teamwork or belonging. In addition, the Contracting Innovations system has been considered by lawyers, Allen Arthur Robinson [sic] to be a legally sound alternative method for companies to use to engage personnel in the business. We believe our system is the new method of engagement. The traditional employment structure is out of date and offers little to employees or employers.
Contracting Innovations system relieves the burden and costs of;
· Variable and overhead costs associated with employees.
· Superannuation, PAYG, WorkCover, and payroll expense.
· Dismissal issues and other engagement concerns.
· Administering and funding employee accruals on the companies [sic] balance sheet.
· General administration
Personnel engaged through Contracting Innovations
· Are bone fide, independent, self-employed people.
· Are recognised by the ATO and Industrial Relations Commissions.
· Do not have to register for an ABN, or charge GST.
· Are not deemed your employees.
. . .
With this simple, yet proven, system your business can attract effective people with better opportunities than your competitors. The arrangement creates self-employed people within your business without taking away the feeling of teamwork and sense of belonging.
The Agreement to Contract was a document signed by the plaintiff, constituting on its face an agreement between Contracting Innovations and the plaintiff. The terms were as follows:
1. I acknowledge and agree that there is no relationship of employer/employee with Contracting Innovations (CI) and that CI does not guarantee me any work. I am self-employed and, as such, I am not bound to accept any work through CI.
2. I hereby agree to work for an agreed amount per hour for actual on-site hours or job price to be agreed.
3. I instruct CI to make deductions under the PAYG system of taxation.
4. I hereby agree that I have no claims on CI in respect of holiday pay, long service leave, sick pay or any similar payment.
5. I hereby agree that CI has no responsibility or liability to me, except that I am guaranteed to be paid for actual on-site hours worked or agreed job price for work done.
6. It is agreed that I must carry out all work that I agree to do through the agency of CI in a proper manner and CI is hereby guaranteed against faulty work. All work must be made good. Further, I agree to cover the work (where necessary) for public liability, accident insurance, long service, and holiday pay, and have no claims on CI in respect of the above.
7. I hereby agree to supply my own equipment, including safety equipment, where necessary to perform the work, and that I have no claim on CI in respect of the above.
The agreement to contract form was signed by the plaintiff on 2 February 2003. It purports to have been witnessed by Mr Daniel Harrison, described elsewhere in the evidence as a director of Contracting Innovations, although the plaintiff’s evidence was that he had no recollection of ever having met Mr Harrison, and that there was no such person present when he signed the form.
The new account application form was completed by Michael Froome in his own name trading as Australian Temporary Fencing, with an Australian Business Number but no company name or number. A company search for MNG Investments Pty Ltd shows the company as having been incorporated on 23 June 2003, with an Australian Business Number consistent with its Australian Company Number and different from the ABN given by Mr Froome in the account application form. A business name search shows that the name Australian Temporary Fencing – Canberra was registered on 25 February 2002, and was by the date of the search in September 2009 carried on by MNG Investments Pty Ltd. I infer that the business was originally registered by Mr Froome as a sole trader, and that the registration was transferred to the company following its incorporation. It follows that when the plaintiff started work with the business, it was conducted by Mr Froome. At the time of the change to the Odcosystem, Mr Froome remained the proprietor of the business. Following the incorporation of the company, the business was conducted by the company and that was the position by the date of the plaintiff’s injury.
The hiring agreement between Contracting Innovations and Mr Froome trading as Australian Temporary Fencing was signed on 12 December 2002 by Mrs Froome, describing her position within the business as “admin”. Thereafter the parties conducted themselves as though the agreement was operative and valid, and I infer that Contracting Innovations accepted the execution of the agreement by Mrs Froome as binding on her husband. The following are extracts from the hiring agreement:
We are a service company that operates a licensed agency contracting system, which has been supplying contract personnel to commerce and industry on a casual basis for over eighteen years. We supply a high standard of worker/tradesperson and we deal in volume, which means that you save time, money, and effort for a better result.
The personnel we supply to you are yours to direct, and the onus of inspection and satisfaction is yours. If, for any reason, you are unhappy with our contractor, simply send the person off site and inform us of your dissatisfaction. Our service MUST supply good personnel to ensure your continued usage. We therefore ask for feedback from you on the worker’s performance.
We refer you to our Conditions of Hire (overleaf) which are binding on you upon the signing of this agreement.
Inter alia the following appeared:
CONDITIONS OF HIRE:
i. Tools: Basic tools of trade are included in our rates.
ii. Work done out of normal hours is negotiable – eg overtime, weekends, public holidays, afternoon/night shift and country jobs.
iii. A safe workplace must be provided.
PAYMENT TERMS AND CONDITIONS:
You are invoiced per site per week for all personnel on that site. We pay the personnel immediately and then invoice you. Your invoices will be faxed to you on Wednesday of each week and you are required to deposit cleared funds for the total amount of the invoices into our Bank account by 4:00 pm the same day.
. . .
RATES:
Our rates include an administration charge plus all statutory obligations for the contractors as the agency is legally responsible for and fully administers payroll tax and superannuation and ensures contractors have sickness and accident insurance and property and public liability insurance.
TAXATION:
Payments that we make to the workers are PAYG. We do all the administration associated with the PAYG system, including reporting and making payments to ATO as required.
DISSATISFACTION:
If you are not satisfied with any worker’s performance, simply notify us and send the worker off site immediately. You will be charged for hours on site or units delivered only. You are not liable to make any other payment for the services supplied. The workers supplied are not your employees and are not ours; they are bone fide independent contractors.
The plaintiff was asked what he had been told when being given the documents to sign. He said that he was basically told that nothing would change as far as his work was concerned. The new system would just make it easier for the business financially. There would be no changes to his pay rate. No mention was made of any effect the change might have on his entitlement to workers’ compensation in the event of injury. Thereafter, he received his pay by direct transfer to his bank account, but was given a pay slip by his sister. Michael Froome determined where and when he would work, sometimes requiring him to work on Saturdays.
The plaintiff was asked whether he ever met anyone from Contracting Innovations. He said that he met a man on two occasions, at a worksite in a northern Canberra suburb. The first occasion was perhaps a month or two after the new system had come into operation. By that time a junior employee had joined the business and was with him. The conversation with the man from Contracting Innovations lasted not much more than five minutes and “was basically just to see how we were going”.
A few months later the same man came out to visit them, and much the same sort of conversation took place.
At some point the plaintiff negotiated an increase of $2.00 in his hourly rate, with his sister. This came into effect from his next payday. He never had any communication with anyone from Contracting Innovations about it.
In the course of the discussions, which took place in the kitchen of Mr and Mrs Froome’s home, with the plaintiff’s wife present, Mrs Froome agreed that it would be reasonable for the plaintiff to have some share of the profits of the business when they could afford it. There seems to have been an agreement to review the position in twelve months’ time. Again, no-one from Contracting Innovations was involved in the discussions.
After the plaintiff’s injury he was offered light duties with the business, which he accepted. Mr and Mrs Froome prepared a letter setting out the pay and duties for this position. The letter was given to the plaintiff in May 2005, on his return to work, and his recollection was that he accepted the terms and signed it. So far as he was aware, there was no involvement by Contracting Innovations Pty Ltd. His understanding was that from that point, his remuneration came from the workers’ compensation insurer and not from the business or from Contracting Innovations. Indeed, the only income received by the plaintiff after his injury was by way of workers’ compensation. He was still receiving periodical payments from that source when he gave his evidence.
The plaintiff’s evidence was that notwithstanding the wording of the agreement to contract which he signed in February 2003, he always regarded himself as employed by the business. At no time did he regard himself as self-employed or as employed by Contracting Innovations. He said that he did not read all of the documentation at the time he signed it. He was never asked to supply any of his own equipment and did not do so, with one exception: he found that the ratchet spanner provided to him was unsatisfactory. After many attempts to get Mr Froome to provide him with a satisfactory spanner, he bought one himself. He paid $200.00 and he claimed a tax deduction in his next return for it. He was not required or even asked to do this, but did it because it made it quicker and easier for him to carry out his work.
The plaintiff said that when the new system started, his sister told him that he would need to get himself an Australian Business Number. He did so, but never used it. It was not suggested to him that he needed to register a business name for himself, and he never did so.
He was provided by Mr Froome with a mobile telephone but was not permitted to use it for personal calls. He was also provided with a Caltex card to fill the truck with petrol, and was authorised to use the business’s account with Goodyear at Fyshwick if new tyres were needed for the truck.
The plaintiff was asked in cross-examination whether he ever worked for another employer, and whether he ever had time to do so. He replied in the negative to both questions, saying that Mr and Mrs Froome would not have allowed it. He regarded himself as subject to having his employment terminated by Mr Froome or Mrs Froome or MNG but not by Contracting Innovations.
Photographs of the truck were tendered, showing, as one would expect, signage identifying it with Australian Temporary Fencing.
The plaintiff enjoyed his work with Australian Temporary Fencing. He enjoyed working outdoors, which he found a welcome change after having worked for many years in a factory.
The plaintiff agreed in cross-examination that he understood that he was required to enter the arrangement with Contracting Innovations as a condition of his continued employment with Australian Temporary Fencing. As a married man with two young children he needed job security and thought that the position offered this. He was optimistic about the future, particularly after Mr and Mrs Froome agreed to review the possibility of a profit-sharing arrangement the following year. His intention was to continue working for the business. At no time before his injury did he harbour any thoughts of changing his employment.
He was cross-examined about whether he took any holiday leave while with the business. So far as he could recall he had not done so, being aware that he would not have been paid if he took time off. It did not occur to him that he might have been able to raise the issue with Contracting Innovations. He agreed that he had nothing to do with Contracting Innovations, and would not have known who to contact there. He certainly never contacted anyone at Contracting Innovations about other work and it never entered his mind that he might be expected to work for anyone other than Australian Temporary Fencing, which he regarded as his employer.
He agreed that when he signed the documents on 2 February 2003, he had never been interviewed by or even met anyone from Contracting Innovations. He did not know where their offices were. As far as he was concerned the whole thing had been arranged by Mr and Mrs Froome.
It was put to the plaintiff in cross-examination that he knew that he would not be covered by Contracting Innovations for workers’ compensation, and that that was the reason that he would be arranging his own accident insurance. His response was that he did not realise that. He “just basically signed the form because [he] had to”. Asked why he thought he needed accident insurance, he said that he never asked. It was just part of the contract that he had to sign to keep the job.
The plaintiff’s sister, Natalie Froome, gave evidence that she was a director of MNG Investments Pty Ltd trading as Australian Temporary Fencing, holding the Australian Temporary Fencing agency in Canberra since about 2000. She recalled discussions with her brother about working for the business at about the end of 2002. At that time they needed someone to work for them and her brother was looking for work. At about the same time they had set up a deal with Contracting Innovations, which had been recommended by their accountant as offering a facility which would save them money. After an initial telephone contact, a Mr Scott Yates came to their home. Mrs Froome could not remember whether this was before or after she and her husband had talked to the plaintiff about coming to work for them. Mr Yates came to their home on two occasions, and explained how the Contracting Innovations system worked, how much MNG would be paying and what services they would receive. The advantages included a reduction in administration, in that there would be one invoice only for all staff. She understood that workers’ compensation would be covered by Contracting Innovations, as would public liability. She was informed that she and her husband would be covered by insurance also, and would not be liable in the event of injury to an employee. She and her husband were persuaded of the benefits of the proposed system and signed the documentation provided to them by Mr Yates. I accept, although Mrs Froome could not remember the precise date, that the documents were signed on 12 December 2002.
Mrs Froome did not recall that her brother had to go back to his previous printing job to work out a week’s notice but acknowledged that this might have been the case. She was unable to remember whether he had worked for her and her husband for a period before the Contracting Innovations system came into effect.
Her evidence was that when the business started, her husband had had a partner. The partnership would obtain workers from time to time through Adecco, a labour hire company. The partnership had come to an end prior to the plaintiff starting work with the business, and prior to the arrangement with Contracting Innovations. She agreed that she and her husband had not asked Contracting Innovations to provide them with someone to do the work the plaintiff was employed to do.
She accepted, although she had no independent recollection of it, that the plaintiff might have started with the business, and been paid cash, prior to going on to the Contracting Innovations system.
Mrs Froome agreed that notwithstanding the wording of the hiring agreement, she and her husband did not expect Contracting Innovations to supply them with someone to do the job the plaintiff was doing, nor would they, or did they, provide Contracting Innovations with any feedback on his performance. They did not expect the plaintiff, or Contracting Innovations, to provide any tools of trade. It did not occur to them that they might have any right, if dissatisfied with the plaintiff’s performance, to notify Contracting Innovations and send him off site. They did not regard the plaintiff as part of a pool of workers who might be provided to them by Contracting Innovations. Their intention was to keep the plaintiff on full time. They had no intention of allowing him to go into a general pool of labour controlled by Contracting Innovations so that he could be sent to other places of work from time to time. She agreed that the arrangement with Contracting Innovations in relation to the plaintiff was really in the nature of an administrative arrangement whereby Contracting Innovations took care of payments to him and on-costs, while she and her husband kept him working at their place of employment. It did not enter her mind that the plaintiff would cease to be an employee of the business or that he was an independent contractor. This was something to which she gave no consideration.
Mrs Froome agreed that she and her husband determined the plaintiff’s hourly rate of pay, and gave the information to Contracting Innovations. She did not think that this was a matter about which Contracting Innovations had any other role to play.
She identified an email she had sent to Mr Yates at Contracting Innovations on 20 June 2003, asking him to increase the hourly rate for the plaintiff by $1.00 per hour. The increase also applied to a second worker, Mr Tim Rasmussen.
After the plaintiff’s injury, Mrs Froome received a telephone call from someone from ACT WorkCover, who told her that the plaintiff was deemed to be an employee of the company and that they were liable to pay workers’ compensation and medical expenses. This took her aback, because she had thought that this was what they were paying Contracting Innovations to cover. After telephoning Contracting Innovations and speaking to someone there, she sought legal advice and subsequently arranged for the completion and lodgement of a claim form with Zurich, the workers’ compensation insurer for MNG Investments. This form showed MNG as employer and the plaintiff as the injured worker, and was signed by the plaintiff and by Mrs Froome on 11 March 2004.
After this experience, Mrs Froome said that she and her husband discontinued the relationship with Contracting Innovations. They thought that they had been misled about the insurance cover offered by the arrangement, and did not want to have anything to do with them again.
Michael Froome was more definite about his recollection of the events of some seven years earlier. He said that the plaintiff was not working for his company when the documentation was signed with Contracting Innovations. He had taken his accountant’s advice to go into the arrangement, for the reason that they were at the time not a large or busy business, with work coming and going. In the circumstances it was preferable to use subcontractors rather than employees, paying them only when needed. A further attraction of the arrangement was that the insurances of the contractors were to be taken care of.
His recollection was that the plaintiff started work with the business in January 2003. He took the plaintiff around and showed him how to undertake the required tasks over a period of weeks.
Mr Froome did not remember the plaintiff working for the business for cash prior to being brought into the Contracting Innovations scheme.
It was put to him that the plaintiff had asked him to pay for a ratchet spanner because the spanner provided had been unsatisfactory, and that Mr Froome had refused the request. He said that this was false. It was possible that the plaintiff had complained about one of the spanners being unsatisfactory, but there were spare spanners available and it would have been replaced immediately.
At one point Mr Froome gave evidence that prior to the plaintiff starting the business, he had had part-time workers who had been engaged through Contracting Innovations. He conceded that his recollection of conversations and other matters of more than six years earlier was less than perfect, and his recollection about this seems inconsistent with all of the other evidence. I accept that he had probably had other part-time assistance before taking the plaintiff on, and that this may have been provided through a labour hire company. Mr Froome did say that Adecco, a large labour hire organisation, had provided him with workers they had selected, but that he had identified and chosen the workers for whom he used the Contracting Innovations scheme. On the evidence, it seems to me that there were probably only ever two such workers, the plaintiff and Mr Rasmussen. Mr Froome gave evidence about two other workers, one named Wayne Berry and another named Nigel, who had worked for his business prior to his signing the documentation with Contracting Innovations, and who signed up with Contracting Innovations and worked through their scheme. Mrs Froome did not mention either of these people, and the plaintiff’s evidence was that he was the only worker with the business from the time he started. There seems to have been almost no time between when Mrs Froome signed the hiring agreement with Contracting Innovations and when the plaintiff started for the other two men to have worked for the business, and I think it more likely that they worked for the business either before or after the plaintiff’s time, and that they were not signed up with Contracting Innovations. I regard Mr Froome’s recollection about this as unreliable.
It was put to Mr Froome that he had not looked to Contracting Innovations to select suitable workers to carry out work for his business. His answer was that he had not, and that this was not how Contracting Innovations operated. He agreed that it would be his function to select the workers, and to decide how much to pay them. Having done so, he would notify Contracting Innovations of the names of workers and the pay rates, and Contracting Innovations would have each worker enter an agreement. The function of Contracting Innovations was limited to paying the workers, and billing his business, charging a margin as their profit. Mr Froome did not expect or want Contracting Innovations interfering in how he carried out his work. In contrast with the labour hire companies through whom he had obtained workers earlier, Contracting Innovations did not come out to inspect his workplace.
Mr Froome said that he understood that the effect of the arrangement with Contracting Innovations was that the plaintiff would be an independent contractor and would not be an employee of his business. His understanding was that signing up to the Contracting Innovations system would relieve his company of the obligation to pay worker’s compensation premiums for people such as the plaintiff, although the plaintiff would remain a full-time worker with the business.
Inconsistently with the evidence of the plaintiff himself and of Mrs Froome, Mr Froome stated that the plaintiff was not permitted to take his mobile telephone home and had to return it at the end of the working day. He would be given the phone again when he turned up for work the following morning.
Mr Froome was asked whether, if someone from Contracting Innovations had come to his yard one day and made a suggestion that there was a safer way of unloading panels and blocks from the truck, he would have taken notice of what they were suggesting. He said that he would have, and if persuaded that there was merit in the suggestion, would have implemented it. There is of course no evidence that any such suggestion was ever made or that any such change was ever implemented.
Counsel for MNG Investments tendered a copy of a letter from Mr Daniel Harrison, a director of Contracting Innovations, to the then solicitors for MNG, dated 8 September 2004. The letter was in response to a letter from the solicitors which is not in evidence. Mr Harrison confirmed in the letter than Contracting Innovations did not hold workers’ compensation insurance. They had disclosed that fact to ACT WorkCover and had paid a consequent fine. They had ceased business. Mr Harrison had believed on advice that his company was not required to carry workers’ compensation insurance for persons in the position of the plaintiff, who was not an employee but an independent contractor.
My assessment of the plaintiff was that he was an honest and truthful witness, doing his best to remember what had happened and to give true and accurate answers to the questions he was asked. I was impressed by his demeanour in the witness box, and quite apart from that, I take account of the fact that by the time he gave his evidence, liability had been admitted by the third party insurer on behalf of the first defendant and quantum of damages had been agreed, so that the plaintiff had nothing to gain by embellishing his evidence and nothing to lose by being completely truthful. Where his evidence is inconsistent with that of Mrs Froome or Mr Froome, I prefer his evidence.
Having said that, there was little inconsistency with Mrs Froome’s evidence. There was some inconsistency with that of Mr Froome, by whom I was less impressed. Mr Froome gave the impression of being careful not to make any concessions which might have had any adverse impact on the case for his company. I am not suggesting that Mr Froome deliberately gave misleading or false evidence, but I found him less satisfactory as a witness than his wife and his brother-in-law. He conceded that his recollection was less than perfect about events more than six years earlier, and I am persuaded that some of his evidence was inaccurate based on faulty recollection.
Also in evidence was a copy of the Zurich policy in force at the date of the plaintiff’s injury, showing Australian Temporary Fencing Canberra as the insured. The wording of the body of the policy described the cover offered as being for “liability under the Act to all workers employed by” the insured. The insurer agreed to indemnify the employer for “compensation under the Act to or in respect of any person who is or is deemed by the Act to be a workman of such Employer.” The wording in the body of the policy did not make any mention of cover for liability independently of the Workers Compensation Act, that is to say, for liability for damages under the general law. However, the policy incorporated a schedule which included the following words: “Common law limit: unlimited as per policy wording”.
The legislation
Section 147 of the Workers Compensation Act, as in force at the relevant time, required an employer to maintain a compulsory insurance policy with an approved insurer, subject to some presently irrelevant exceptions and conditions. A compulsory insurance policy was defined in section 144 of the Act as follows:
In this Act:
“Compulsory insurance policy”, for the employer, means an insurance policy –
(a) for an unlimited amount for any liability of the employer under this Act, or independently of this Act, for an injury to, or the death of, each Territory worker employed by the employer; and
(b) that complies with this Act.
A note to section 144 provided that if a form was approved under the Act for a compulsory insurance policy, the form must be used. No such form had been approved at the time of the issue of the Zurich policy. There is no doubt that the plaintiff was a territory worker as defined in the Act.
The Act provides for certain persons to be taken to be workers employed by a principal, including regular contractors and casuals. Section 11 of the Act provided that where an individual was engaged by a principal under a contract for services to work for the principal and personally do part or all of the work, the individual was taken to be a worker employed by the principal if the engagement had been on a regular and systematic basis, or the individual had a reasonable expectation of the engagement continuing on a regular and systematic basis. The section included examples where individuals would be taken to be workers. These included an example of a bricklayer engaged under contracts for services by a particular builder for some years, who had worked for almost no-one else over that time, even if there was no express or implied guarantee of continuing work. Such a person would be taken to be a worker of the builder. On the other hand, a bricklayer engaged under contracts for services by a particular builder several times a year, but who was not regularly engaged by the builder, would not be taken to be a worker of the builder.
The significance of these provisions relates to the third party claim by MNG Investments against Zurich. Zurich has clearly accepted that the plaintiff was a deemed worker of MNG at the time of his injury, that is to say that he was taken to be a worker employed by MNG for the purposes of section 11 of the Act. This is the basis upon which Zurich has met the worker’s compensation claim. Zurich concedes that its policy would require it to indemnify MNG in respect of a judgment against it by an employee in a claim for damages under the general law, but argues that the policy does not provide indemnity in respect of a common law judgment against MNG by an independent contractor, even though the independent contractor may be a deemed employee by virtue of section 11. Zurich argues that the plaintiff was not an employee of MNG at the time of his injury. MNG submits in the first instance that the plaintiff was its employee. If that is accepted, the workers’ compensation issued by Zurich will indemnify MNG in respect of any liability to the plaintiff in the present action.
MNG’s fallback position, assuming that I find that the plaintiff was not its employee, is that the plaintiff was a deemed employee under the Workers Compensation Act, and that it is entitled to indemnity by Zurich on the proper construction of the policy. MNG also seeks, in the event of a finding that it is liable to the plaintiff, contribution from Contracting Innovations as a joint tortfeasor.
Zurich’s position is that it can only have any liability to indemnify MNG if there is a finding that the plaintiff was an employee of MNG at the time of his injury. If he was not, then even if I find that he was a deemed employee, that is not enough to engage the policy.
The position of the Default Insurance Fund is that it can be liable only if I find that Contracting Innovations was obliged to take out a policy of workers’ compensation insurance in respect of the plaintiff. That would have been the case if the plaintiff had been either an employee or a deemed employee of Contracting Innovations, and if he was not an employee of MNG. Senior counsel for the Fund asserts that a worker can have but one employer, so that if I find that the plaintiff was an employee of MNG, it must follow that Contracting Innovations was not obliged to take out workers’ compensation insurance cover for him, and hence the Fund itself cannot be liable.
The Default Insurance Fund is established by section 166 of the Workers Compensation Act. Section 172 provides that any proceedings against the Fund are to be taken in the name of “Workers Compensation Default Insurance Fund Manager”. The fund manager is a public servant appointed by the Chief Executive under section 166C. Subsection 166A(4) provides as follows:
166A(4) The DI Fund must meet the cost of an employer’s liability that arises independently of this Act in relation to an injury to, or the death of, a territory worker of the employer if the employer of the worker does not have a compulsory insurance policy to cover the liability, by paying an amount that satisfies or discharges the liability to a person entitled to that amount.
Senior counsel for the Fund submits that the plaintiff was neither a direct employee of Contracting Innovations nor a deemed employee. In relation to deemed employment, the applicable section is:
12 Labour Hire Arrangements
For this Act, an individual is taken to be a worker employed by a person (the labour hirer) if –
(a) the individual has been engaged by the labour hirer under a contract for services to work for someone other than the labour hirer; and
(b) there is no contract to perform the work between the individual and the person for whom the work is to be performed; and
(c) the individual personally does part or all of the work; and
(d) if the labour hirer is a corporation – the individual is not an executive officer of the corporation.
A note to the section provides that it makes the labour hirer the employer only if there is no contractual relationship between the worker and the person for whom the work is to be performed.
Senior counsel for the Fund submits that on the facts of the case the plaintiff was a direct employee of MNG and was neither an employee nor a deemed employee of Contracting Innovations. In those circumstances the Fund can have no liability, even if the plaintiff succeeds against Contracting Innovations, or MNG succeeds in its contribution claim against Contracting Innovations.
Employee or independent contractor?
The High Court of Australia in Hollis v Vabu (2001) 207 CLR 21 considered the issue of whether a bicycle courier was or was not an employee, in the context of a claim based on vicarious liability for his conduct. The authors of the principal judgment (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ) said at para [39]:
In Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Insurance Co of Australia (1931) 46 CLR 41, Dixon J explained the dichotomy between the relationships of employer and employee and principal and independent contractor, in a passage which has frequently been referred to in this court . . . His Honour explained that, in the case of an independent contractor:
. . . the work, although done at [the principal’s] request and for his benefit, 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, therefore, identified with him for the purpose of liability arising in the course of its performance. The independent contractor carries out his work not as a representative but as a principal.
Their Honours observed that the old test of whether the contract placed the supposed employee at the command of the employer was of limited relevance in modern conditions and cited the following passage from Glass, McHugh and Douglas, The Liability of Employers in Damages for Personal Injury, 2nd ed. (1979) at 73-74:
The control test was the product of a predominantly agricultural society. It was first devised in an age untroubled by the complexities of a modern industrial society placing its accent on the division of functions and extreme specialisation. At the time when the courts first formulated the distinction between employees and independent contractors by reference to the test of control, an employer could be expected to know as much about the job as his employee. Moreover, the employer would usually work with the employee and the test of control and supervision was then a real one to distinguish between the employee and the independent contractor.
Their Honours noted that the control test was nonetheless one factor which might provide assistance in determining whether a worker was an employee or an independent contractor but said at [47] that:
. . . the Court of Appeal fell into error in making too much of the circumstances that the bicycle couriers owned their own bicycles, bore the expenses of running them, and supplied many of their own accessories. Viewed as a practical matter, the bicycle couriers were not running their own business or enterprise, nor did they have independence in the conduct of their operations. A different conclusion might, for example, be appropriate where the investment in capital equipment was more significant and greater skill and training were required to operate it.
The Court of Appeal had occasion to consider a similar issue in the context of entitlement to workers’ compensation in Yaraka Holdings Pty Ltd v Giljevic [2006] ACTCA 6. The worker was a builder’s labourer who had been injured in the demolition of a shed on a building site. The majority (Crispin P and Gray J) referred to a passage from Abdalla v Viewdaze Pty Ltd (2003) 53 ATR 30 as offering useful guidance on the question of whether a worker was an employee. Abdalla was a decision of a Full Bench of the Australian Industrial Relations Commission concerning the question of whether a worker was an employee for the purpose of termination of employment provisions. The passage is set out in full at [22] of Yaraka Holdings. The Full Bench of the Commission noted that the ultimate question would always be whether the worker was the servant of another in that other’s business, or whether the worker carried on a trade or business on his own behalf: that is, whether viewed as a practical matter, the worker could be said to be conducting a business of his own. The Full Bench referred to the following indicia:
a) Whether the putative employer exercises, or has the right to exercise, control over the manner in which work is performed, place of work, hours of work or the like. Control of this sort is indicative of a relationship of employment. The absence of such control or the right to exercise control is indicative of independent contract. While control of this sort is a significant factor, it is not by itself determinative. In particular, the absence of control over the way in which work is performed is not a strong indicator that a worker is an independent contractor where their work involves a high degree of skill and expertise. On the other hand, where there is a high level of control over the way in which work is performed and the worker is presented to the world at large as a representative of the business, then this weighs significantly in favour of the worker being an employee.
b) Whether the worker performs work for others, or has a genuine and practical entitlement to do so.
c) Whether the worker has a separate place of work or advertises his services to the world at large.
d) Whether the worker provides and maintains significant tools or equipment.
e) Where the worker’s investment in capital equipment is substantial and a substantial degree of skill or training is required to use or operate that equipment the worker will be an independent contractor in the absence of overwhelming indications to the contrary.
f) Whether the work can be delegated or subcontracted. If the worker is contractually entitled to delegate the work to others without reference to the putative employer then this is a strong indicator that the worker is an independent contractor. This is because a contract of service is personal in nature: it is a contract for the supply of the services of the worker personally.
g) Whether the putative employer has the right to suspend or dismiss the person engaged.
h) Whether the putative employer presents the worker to the world at large as an emanation of the business. Typically this will arise because the worker is required to wear the livery of the putative employer.
i) Whether income tax is deducted from remuneration paid to the worker.
j) Whether the worker is remunerated by periodic wage or salary or by reference to completion of tasks.
k) Whether the worker is provided with paid holidays or sick leave.
l) Whether the work involves a profession, trade or distinct calling on the part of the person engaged. Such persons tend to be engaged as independent contractors rather than as employees.
m) Whether the worker creates goodwill or saleable assets in the course of his work.
n) Whether the worker spends a significant portion of his remuneration on business expenses.
On virtually all of these indicia, the plaintiff would ordinarily be found to have been an employee of MNG Investments. Mr Froome exercised, and the plaintiff accepted his right to exercise, control over the work performed by the plaintiff, the place of work and the hours of work. The plaintiff worked only for MNG and not for others. Neither he nor Mr and Mrs Froome contemplated that he would work for anyone else. He had no place of work other than the workplace or workplaces provided by MNG. He did not advertise his services to the world at large. He did not maintain significant tools or equipment (a $200.00 ratchet spanner could hardly qualify, and in any event I am satisfied that the plaintiff spent his own money on the spanner only out of frustration, not because he was required to do so). The plaintiff had no entitlement to delegate or subcontract his work. Both he and Mr and Mrs Froome thought that MNG had the right to suspend or dismiss him. He was presented by MNG to the world at large as part of their business, wearing clothing with their logo and driving a truck with their logo. He was remunerated by periodic payments rather than at the completion of a particular task. His work was labouring work rather than professional or skilled trade work. He created no goodwill or saleable assets in the course of his work. He spent little if any of his remuneration on business expenses. Income tax was deducted from his remuneration, although this was done by Contracting Innovations rather than MNG.
The only indicium suggestive of an independent contract arrangement rather than employment was that the plaintiff accepted that he was not entitled to paid holidays or sick leave.
On the overwhelming preponderance of the indicia, the plaintiff was not carrying on a trade or business of his own, but was the servant of MNG in its business.
Satisfaction of these indicia is not necessarily the end of the matter. The law recognises that there are persons who are employees of labour hire companies, who are provided by such companies for reward to what are sometimes called host employers. In these circumstances, often the host employer will exercise control over the person’s manner, place and hours of work, will not permit delegation or subcontracting of that work, and may provide the tools and equipment and sometimes even the livery used and worn by the person. The arrangements between the parties in TNT Australia Pty Ltd v Christie [2003] 65 NSWLR 1 are an example of such a set of relationships. There the worker was found to be an employee of the labour hire company, which retained its non-delegable duty of care to him notwithstanding that it was the host employer which exercised virtually entire control over his work.
There are also examples which have been the subject of decided cases where the worker has been held to be an independent contractor of the labour-providing company, and thus not an employee of either the labour-hire company or the host employer. Examples include Building Workers Industrial Union of Australia v Odco Pty Ltd, referred to above.
It is apparent in the present case that Contracting Innovations used documentation which was intended to cast the plaintiff as an independent contractor which it would provide as a labour hire company to MNG as a host employer, but on the basis that the plaintiff would not become an employee of MNG. The intention of those who drafted the documentation for Contracting Innovations was to do away with any relationship of employment with the plaintiff at all, principally as I see it in order to avoid the expense of workers’ compensation insurance. There were of course other advantages to MNG, particularly in reduced administrative work.
When one goes behind the documentation and looks at the reality, the relationship between the plaintiff and Contracting Innovations satisfies barely any of the indicia of employment. Contracting Innovations did not seek to exercise any control over the manner, place or hours of the plaintiff’s work, nor would MNG have accepted any attempt to exercise such control. Contracting Innovations did not in any practical sense have the right to suspend or dismiss the plaintiff, except on request by MNG.
There was some suggestion during the course of the hearing that the arrangement between Contracting Innovations and MNG as to the plaintiff’s working arrangements was a one-off, the plaintiff having already been found by MNG so that Contracting Innovations did not have to find him and supply him. The unspoken assumption was that Contracting Innovations were otherwise in the business of running a pool of workers they could supply to host employers. I do not accept that this was ever the case. There is no evidence that Contracting Innovations ever had any pool of workers. I am satisfied that all they ever supplied, or were in the business of supplying, was the administration arrangement which followed in practice after the execution of the documents. I am satisfied that Contracting Innovations had set themselves up with documentation from which they appeared to be a labour hire company providing independent contractors on the Odco model. I am satisfied that this was not the reality. I am in no doubt that there was no relationship at any time of employer and employee between the plaintiff and Contracting Innovations. I am far from satisfied that the plaintiff was an independent contractor to Contracting Innovations in the sense in which that relationship is generally understood in the workforce context. It seems to me that the effect of the agreement the plaintiff signed in February 2003 with Contracting Innovations did not go beyond an acknowledgement that Contracting Innovations would be paying him and deducting his tax. It would never have occurred to the plaintiff that he might have any right to compensation from Contracting Innovations itself if he were injured on the job. Ironically, his expressed agreement in his contract that that company had no responsibility or liability to him other than in relation to payment for work done reflected the reality of the situation.
I find that at the time of his injury the plaintiff was an employee of MNG. I find that he was neither an employee, nor an independent contractor to, Contracting Innovations.
Conclusion
MNG has admitted negligence, and I have already directed the entry of judgment for the plaintiff against it.
The plaintiff has not established the existence of a duty of care owed to him by Contracting Innovations and hence cannot succeed against that company. There is accordingly no occasion for any declaratory relief against the Default Insurance Fund.
MNG is entitled to be indemnified by Zurich under the workers’ compensation policy. MNG is also insured as registered owner of the truck out of the use of which the plaintiff’s injuries arose by the fifth third party, Insurance Australia Ltd. MNG’s liability should be borne equally by the two insurers.
There will be judgment for the second defendant. I shall hear the parties as to other orders which flow from these reasons, and as to costs.
I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.
Associate:
Date: 12 August 2011
Counsel for the plaintiff: Mr F M G Parker & Mr W L Sharwood
Solicitors for the plaintiff: Slater & Gordon
Counsel for the first defendant: Mr R P Clynes
Solicitors for the first defendant: Sparke Helmore
Counsel for the third defendant: Mr D D Feller SC
Solicitors for the third defendant: Minter Ellison
Counsel for the first third party: Mr G A Stretton SC
Solicitors for the first third party: Mallesons Stephen Jacques
Date of hearing: 21, 22, 23, 24 September, 1 October 2009
Date of judgment: 12 August 2011
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