McCann and Secretary, Department of Jobs and Small Business

McCann and Secretary, Department of Jobs and Small Business [2018] AATA 3030 (22 August 2018)
Division:GENERAL DIVISION
File Number(s): 2016/5269
Re:Sam McCann
APPLICANT

AndSecretary, Department of Jobs and Small Business
RESPONDENT

DECISION
Tribunal:Deputy President P Britten-Jones
Date:22 August 2018
Place:Adelaide

The decision under reviewed is affirmed
...................................[SGD].....................................
Deputy President P Britten-Jones
CATCHWORDS
FAIR ENTITLEMENTS GUARANTEE – Eligibility for an advance – Whether applicant an employee or a contractor – Whether applicant a de facto director – Decision under review affirmed.
LEGISLATION
Fair Entitlements Guarantee Act 2012, ss 3, 10, 11, 38
Corporations Act 2001, s 556
CASES
Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16
Hollis v Vabu Pty Ltd (2001) 207 CLR 21
Re Porter; Re Transport Workers Union of Australia [1989] FCA 226
ACE Insurance v Trifunovski (2011) 200 FCR 532
On Call Interpreters and Translators Agency Pty Ltd v Federal Commission of Taxation (No 3) (2011) 214 FCR 82
Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296
SECONDARY MATERIALS
Explanatory Memorandum, Fair Entitlements Guarantee Bill 2012
REASONS FOR DECISION

The applicant Sam McCann has made a claim under the Fair Entitlements Guarantee Act2012 (the FEG Act) which provides financial assistance for employees who have not been fully paid for work done for a company to which a liquidator is appointed.
The main issue in dispute is whether the applicant was an employee of Leromar Holdings Pty Ltd (the Company). If the applicant was an employee, then a secondary issue arises, namely whether the applicant is not eligible because he is a de facto director or a shadow director.
On 2 December 2015 the Department of Employment, as the original decision maker, decided that the applicant was not eligible for an advance under the FEG Act because he was a contractor and not an employee. An internal review affirmed that decision. The applicant has applied for a review of that internal review decision.
UNCONTENTIOUS FACTS
Robyn Harris, who gave evidence for the respondent, was the sole director and shareholder of the Company since its incorporation in 2004. The Company was trustee of the West Terrace Trust which traded as Montero Homes. The Company’s primary business activity was building and designing residential houses under the trading name of Montero Homes but it also engaged in some property development. The business was based in Whyalla.
From 2008, Ms Harris became involved in the day-to-day operations of the Company and thereafter she attended the Company office daily until it was wound up in June 2015. During that time she dealt primarily with the sales section of the business.
The applicant’s father, Gavin McCann, gave business advice to Ms Harris and was the Company accountant. He became a significant creditor of the Company and was involved with its operations. Company records show the Company had a long term liability of $785,660.55 to Gavin McCann as at June 2015. Gavin McCann suffered a stroke in 2008 and thereafter was significantly incapacitated.
In 2011 Gavin McCann introduced his son, the applicant, to Ms Harris. Gavin McCann wanted his son to get involved with the business of the Company because he thought it was in financial trouble. The applicant was aware that the Company owed a considerable debt to his father and he thought he could help his father by assisting Ms Harris with respect to the business of the Company.
The applicant relocated to Whyalla and started working for the Company from about August 2012. There was no written contract recording the terms on which the applicant was engaged. The internal wage payment system of the Company did not record the applicant as an employee. There were 23 employees listed in the Company’s records. PAYG tax was withheld from these employees. No tax was withheld from the applicant.
The applicant’s initial title was Project Manager and then, about 6 months later, General Manager. The applicant attended the office daily and worked regular business hours often between 50 and 60 hours per week. He wore the Company uniform and had a Company email address.
The accounting software used by the Company denoted that all payments made to the applicant were for consultancy fees or internet transfers for reimbursement of Company expenses. The applicant’s bank records show that he received his first weekly payment of $1,500 on 14 September 2012.
On 30 October 2012, Dakota Investments Pty Ltd was registered as a proprietary company with the applicant and Ms Harris as directors and equal shareholders. Dakota Investments was trustee of the Dakota Trust and operated from the same principal place of business as the Company until 11 January 2015. From 12 January 2015, the applicant was the sole director and secretary. Dakota Investments was a property developer which bought land, then developed house and land packages and sold them. The applicant and Ms Harris did land divisions and property development using Dakota Investments as the corporate vehicle. Sometimes Dakota Investment entered into a building contract with the Company. The applicant carried out this work with respect to Dakota Investments at the same time as he was doing work for the Company.
From 30 May 2013, the applicant received weekly payments of $2,000 although as time went on these payments became more irregular in terms of frequency and amounts. The last payment he received was in the amount of $7,500 on 12 January 2015.
For the financial year ending 30 June 2013, the applicant’s Australian Tax Office Notice of Assessment recorded a taxable income of $60,333 with no PAYG withheld. This assessment was based upon the applicant’s tax return for the 2013 financial year which recorded a share of trust income from the Dakota Trust but no salary or wages. This tax return was prepared by CPH Accounting with the usual agent’s declaration that the tax return had been prepared in accordance with information supplied by the applicant and that the applicant had provided a declaration that the information was true and correct.
In the period from about September 2013 to February 2014, the applicant together with Ms Harris signed numerous credit applications and personal guarantees in favour of suppliers to the Company. This happened as part of a change in trading name from Cavalier Homes Spencer Gulf to Montero Homes.
When the Company started to experience cash flow difficulties in the second half of 2014, the applicant would sometimes pay Company expenses from his own account and then seek reimbursement. Christelle Grant, the Company accounts manager, provided a statutory declaration that the applicant paid multiple trades and suppliers varying amounts at different stages to help the Company during some difficult times. The applicant later made a claim for payments not reimbursed in the amount of $58,731.73.
The applicant gave notice to Ms Harris of his resignation from the Company on 13 January 2015.
The applicant’s bank records show payments of a “salary” from Gavin McCann in the sum of $1600 on 30 January 2015, 5 February 2015, 12 February 2015 and 19 February 2015.
On 26 May 2015, Mansueto Legal wrote to the Company claiming on behalf of the applicant an amount of $55,000 in unpaid wages and $31,026.87 for unpaid superannuation entitlements.
Liquidators were appointed to the Company on 17 June 2015 after it had ceased trading. The report to creditors dated 25 June 2015 noted that it was expected that insufficient funds would be recovered to enable a full distribution to employees and that the government Fair Entitlements Guarantee system might be of assistance to those employees.
On 2 July 2015, the applicant submitted to the liquidators a formal proof of debt claiming $58,731.73 for accounts paid on behalf of the Company.
On 21 July 2015, the applicant gave notice to the liquidators of his claim for outstanding wages through the Fair Entitlements Guarantee system.
On or around 23 July 2015, the applicant amended his tax return for the 2013 financial year so as to record a gross salary from the Company of $115,911 with $50,419.88 of tax withheld. At the same time, the applicant lodged his tax return for the 2014 financial year showing a gross salary of $184,600 with $80,600 tax withheld. On or around 23 July 2015, the applicant also lodged his tax return for the 2015 financial year showing gross salary of $92,300 with $40,000 tax withheld.
On 5 September 2015, the applicant lodged an online claim under the FEG Act. The Fair Entitlements Guarantee branch of the Department of Employment obtained documents from and liaised with the liquidators and made a decision rejecting the claim on 2 December 2015. The decision was based on the advice from the liquidators that according to the books and records of the Company the applicant was not an employee. On 21 December 2015, the applicant requested a review of the decision under section 38 of the FEG Act.
By letter dated 15 April 2016, the Review Officer of the Fair Entitlements Guarantee branch of the Department of Employment advised that there was insufficient evidence that the applicant was engaged by the Company as an employee. Further, even if an employee, there was insufficient information to support the claim for unpaid entitlements.
The applicant provided further information by emails dated 29 May 2016 and 9 June 2016. The Fair Entitlements Guarantee branch considered this information and decided to affirm the original decision by letter dated 6 September 2016.
THE REASONS FOR THE REVIEW DECISION
The reasons for the review decision were as follows:
1)Section 3 of the FEG Act sets out the main objectives of the Act and states that the FEG Act will “provide for the Commonwealth to pay advances on account of unpaid employment entitlements of former employees of employer”. As such, in order to be eligible for FEG assistance, a person must have been an employee.
2)I have carefully considered the evidence about the relationship between you and Leromar Holdings. I am not satisfied that the evidence supports a finding that you were an employee of Leromar Holdings. I have considered the following evidence in reaching a determination as to your eligibility for FEG assistance:
(a)The insolvency practitioner has confirmed that the company records do not list you as an employee of Leromar Holdings. For the 23 persons who were recorded by the company as employees, the records show that these persons were issued with PAYG summaries and received amounts that were recorded and paid by the company as “wages”. The information available to the Department also indicates that employees regularly received weekly pay slips. In contrast, you were not recorded as employee, did not receive payslips or other regular documentation from the company in relation to payments made to you, and the payments made to you were recorded by the company as “consultancy fees”.
(b)The director of Leromar Holdings has advised the department and the insolvency practitioner that she did not regard you to be an employee of Leromar Holdings. The director has also provided the following information regarding your relationship with Leromar Holdings:
(i)     You were originally engaged to undertake work experience with Leromar Holdings at the request of Mr Gavin McCann (your father); and after approximately six months you started performing work in the capacity of General Manager or Project Manager. There was never any discussion between yourself and the director about you becoming or being treated as an employee.
(ii)    Prior to you commencing to perform work, Mr Gavin McCann was described by the director as the company’s accountant and business adviser. It was also noted that he was a significant investor in the business, and was involved in making decisions in the running of the business.
(iii)    No formal arrangements were entered into between you and the company in relation to the work you performed or how you were paid. In performing work in connection with the business, you worked very closely with your father to make significant decisions about the running of the business.
(iv)    No discussions took place between yourself and the director about you being an employee, or being paid as such. The director advised that she was surprised to receive your letter of demand for wages after you ceased performing work for the company as she had never considered that you were an employee.
(v)    The director’s understanding was that you were able to authorise decisions about the conduct of the business without reference to her, although in practice you informed the director of decisions relating to significant expenditure as a courtesy.
(vi)    There was no limit to the amount of expenditure you could authorise, which indicates that you were a signatory to the bank account.
(vii)   You also invested money into the business, and the director regarded payments to you as “drawings” from the business, rather than a wage.
(c)A search of the ASIC database indicates that you are the sole director and joint shareholder of Dakota Investments Pty Ltd and that you have been a director since its incorporation on 30 October 2012. Leromar Holdings and Dakota Investments operated from the same principal place of business until 11 January 2015. The director has advised that Dakota Investments was the “property development arm” of Leromar Holdings. The company records also indicate multiple transactions from Leromar Holdings to Dakota investments listed as progress payments, supplier payments and fund transfers.
(d)The insolvency practitioner is of the view that you were not an employee of the company. The insolvency practitioner has reached this view based upon the director’s advice that you are not an employee of the company, the fact that you are not listed on the company’s employee records and the company transaction list showing that payments you received were characterised as consultancy fees.
(e)During the period you are performing work in connection with the company, you did not declare receipt of any income from Leromar Holdings. You lodged a tax return for the 2013 financial year that made no reference to any income from work performed as an employee of Leromar Holdings. You did not lodge a tax return for the 2014 financial year during 2014.
(f)It is only after you left the company and the company went into liquidation that you took steps to amend your tax return to claim income from Leromar Holdings. You submitted an amendment to your 2013 tax return signed by you on 21 July 2015. This amendment included income received from Leromar Holdings in the 2013 financial year. While you claimed income from employment with Leromar Holdings in your 2014 tax return, this tax return was not lodged until after 21 July 2015 (at the same time as your 2015 tax return).
(g)Your statements about verbal agreements between yourself and the director about agreed terms of employment are not supported by the information provided by the director. As outlined above, the director has advised that she was not involved in any conversations regarding an employment arrangement.
(h)There is no documentary evidence available to support that you were engaged as an employee of the company such as a letter of offer/appointment, employment contract, timesheets or PAYG summaries. There is also no record of an employment declaration on the company files. You have provided payroll reports listing two payments made to you which you have claimed are representative of payslips, however these documents are not consistent with the payslips issued to employees.
(i)In your FEG claim form, you stated that you worked in the position of General Manager/Project Manager. You listed your duties as “chair daily meetings, oversee budgeting, scheduling, staff management”. These duties support the director’s claim that you were controlling the running of the business. Given the position of authority you held within the company, you were in a position to manage company records and the recording of work you performed. You did not take any effective steps to record the work you performed as an employee or otherwise to create an employee relationship with Leromar Holdings.
(j)There is no evidence of correspondence where you are identified as an employee of the company. There is also no evidence that you performed work under the direction of the director or anyone else. In contrast, the advice from the director indicates that you had a high level of control over how you performed work, and also in the running of the business as a whole.
(k)You have advised that you often worked “overtime” and took time off in lieu. The director has also confirmed that you did work long hours, however you chose to work the hours that you worked, and took time off when needed.
(l)There is no evidence to suggest that the company deducted income tax from the payments made to you or recorded any liabilities to you in relation to superannuation, as was the case for persons recorded as employees. There is also no evidence of the company having recorded a debt to you with respect to income tax.
(m)There is no documentary evidence in the company records to support that you were paid a gross amount of $3,550 per week. The company records indicate that you received varying amounts with respect to consultancy fees as well as separately identified amounts listed as “funds transfer” and “personal”. You have asserted that you were to receive an amount of $2,000 with respect to consultancy fees, and any amount above this represented a reimbursement to you, however there is no evidence in the company records to support any distinction between consultancy fee payments and reimbursement payments.
(n)The statutory declaration provided by the Accounts Officer does not contain information which demonstrates an employment relationship with Leromar Holdings.
3)As the Department is not satisfied that you have established that you were an employee of Leromar Holdings, you are not eligible for a payment under the FEG Act.
LEGISLATIVE SCHEME
The objects of the FEG Act are set out in s 3:
Objects of this Act
The main objects of this Act are:
(a)to provide for the Commonwealth to pay advances on account of unpaid employment entitlements of former employees of employers in cases where:
(i)      the employers are insolvent or bankrupt; and
(ii)     the end of the employment of the former employees was connected with that insolvency or bankruptcy; and
(iii)     the former employees cannot get payment of the entitlements from other sources; and
(b)to allow the Commonwealth to recover the advances through the winding up or bankruptcy of the employers and from other payments the former employees receive for the entitlements.
Section 10 sets out the conditions of eligibility for an advance:
Conditions of eligibility for advance
General conditions
(1)A person is eligible for an advance if the Secretary is satisfied of all of the following:
(a)     the person's employment by a particular employer has ended;
(b)     after the commencement of this section, an insolvency event happened to the employer;
(c)     the end of the employment:
(i)was due to the insolvency of the employer; or
(ii)occurred less than 6 months before the appointment of an insolvency practitioner for the employer; or
(iii)occurred on or after the appointment of an insolvency practitioner for the employer;
(d)     the person is (or would, apart from the discharge of the bankruptcy of the employer, be) owed one or more debts wholly or partly attributable to all or part of one or more employment entitlements;
(e)     the person has taken steps, so far as reasonable, to prove those debts in the winding up or bankruptcy of the employer;
(f)      if the person was owed any of those debts before the insolvency event happened, the person took reasonable steps before that event to be paid those debts;
(g)     when the employment ended, the person was an Australian citizen or, under the Migration Act 1958 , the holder of a permanent visa or a special category visa;
(h)     an effective claim (see section 14) that the person is eligible for the advance has been made to the Secretary by or on behalf of the person.

A de facto director or a shadow director is excluded by operation of s 11 which provides as follows:
Exclusion for personal connection with employer
(1)A person is not eligible for an advance for the person's employment by an employer if:
(a) section 556 of the Corporations Act 2001 applies to the winding up of the employer; and
(b) the person is an excluded employee under that section in relation to the employer.
Section 556(2) of the Corporations Act 2001 defines an excluded employee as:
“"excluded employee", in relation to a company, means:
(a)     an employee of the company who has been:
(i)at any time during the period of 12 months ending on the relevant date; or
(ii)at any time since the relevant date;
or who is, a director of the company;
(b)     an employee of the company who has been:
(i)at any time during the period of 12 months ending on the relevant date; or
(ii)at any time since the relevant date;
or who is, the spouse of an employee of the kind referred to in paragraph (a); or
(c)     an employee of the company who is a relative (other than a spouse) of an employee of the kind referred to in paragraph (a).
EVIDENCE AT THE HEARING AND SOME PRELIMINARY FINDINGS
Ms Harris gave oral evidence that she did not know the basis on which the applicant was employed and that it was Gavin McCann who decided how much the applicant would get paid. Ms Harris said in her witness statement:
5.I cannot remember exactly when Sam started working at Leromar. He initially started in a work experience role that was organised by his father. He did not have a specific supervisor but we all worked together and he learnt from the people around him. When Sam started work at Leromar the arrangement was between him and his father. Sam’s father was my business adviser and had invested a lot of money in the company. He had been unwell for some time and had had less involvement with Leromar. I viewed Sam as his delegate.
In cross examination Ms Harris rejected the suggestion that she told others that the applicant was an employee. She also said that the decision to pay $1,500 per week was the decision of Gavin McCann and not her. As to whether she offered him a job, she said that she did not remember specifically offering him a job and that the decision for him to stay on after his work experience was between the applicant and his father.
The applicant gave evidence that Ms Harris offered him a job with a wage of $1,500 per week after tax. He said that the office manager gave him an employment tax file number declaration form together with a form with respect to superannuation which he completed and returned.
Insofar as the applicant’s evidence is inconsistent with the evidence from Ms Harris, I prefer the evidence of Ms Harris. She was a candid witness. The applicant was also candid but some of his evidence was not consistent with documentary evidence. He tended to give evidence that was consistent with the outcome he wanted, but not deliberately so.
There is no doubt that Gavin McCann exerted considerable influence over the affairs of the Company. I accept the evidence from Ms Harris that the applicant’s father was her business adviser and that he had invested a lot of money in the Company and that when he became ill the father had less involvement and arranged for his son to work in the Company as his delegate and to look after his interests. This context in which the applicant was engaged by the Company is consistent with the applicant’s own evidence that:
3.1 I was introduced to the Director of Leromar Holdings Pty Ltd … Robyn Harris in 2011 at Cavalier Homes Darling Terrace office by my father, Gavin McCann…
3.2 Ms Harris and I were introduced as Mr McCann wanted me to become involved in the business as he thought it was in trouble. I understood that Leromar Holdings owed a considerable financial debt to Mr McCann and I thought I could help Mr McCann by assisting Ms Harris and her company to operate more efficiently.
I find that it was Gavin McCann who arranged for the applicant to be engaged by the Company and that he decided that the applicant would be paid $1,500 per week. There is no documentary evidence to support the applicant’s evidence that he completed an employment tax file number declaration form or a form with respect to superannuation. The Company records list the employees and record that they were paid superannuation and had tax withheld. There is no explanation for the applicant not being included in those records. It is likely that if he were an employee, then he would have been recorded as such in the Company records. In fact, the Company records show that he received “consultancy fees” as opposed to wages. Unlike the actual employees, the applicant never received a payment slip. His bank records show that he often received irregular payments of a varying amount. Even if some of these variations can be explained on the basis of the applicant being reimbursed expenses he paid on behalf of the Company, this in itself is not consistent with the conduct of an employee.
It is telling that the applicant’s tax return for the 2013 financial year recorded no salary or wages from the Company and that it was not until July 2015 that the applicant lodged documents with the Australian Taxation Office which record a salary. There is no documentary evidence of a contemporaneous nature to support his assertion that he was an employee receiving a salary.
There is no documentary evidence to support the applicant’s contention of an entitlement to a gross wage in the amount of $3,550 per week and consequently there is no evidence of unpaid wages or any other employment entitlements.
The documentary evidence said to support the applicant’s claim to be an employee are the tax returns in which the applicant records wages paid to him and tax paid by him. However, these documents were created in July 2015 at about the same time as the applicant first raised a claim under the FEG Act. To support that claim, the applicant amended his tax return filed in 2013 (which showed no wages or salary for the 2013 financial year) and replaced it with a tax return recording gross wages of $115,911 and tax withheld of $50,419.88.
I give very little weight to the documents lodged with the Australian Taxation Office in July 2015. I consider those documents to be self-serving documents lodged at around the same time as the applicant was first making his claim for monies under the FEG Act.
I infer that no tax was withheld by the Company because it did not consider the applicant was an employee. There were 23 employees for whom tax was withheld and superannuation was paid, but this did not include the applicant.
There is no legitimate documentary support for the applicant’s claim to be an employee nor is there any documentary evidence to support a claim for unpaid wages or other employee entitlements.
THE CASE LAW
The stated object of the FEG Act is to provide “advances” to former employees in defined circumstances. The Explanatory Memorandum provides that the term “employee” refers to an employee at common law and does not include contractors.[1]
[1] Explanatory Memorandum, Fair Entitlements Guarantee Bill 2012 (Cth) 3, [4].
The issue as to whether a person is an employee or an independent contractor has been considered in numerous authorities including the High Court decisions of Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16 (Stevens) and Hollis v Vabu Pty Ltd (2001) 207 CLR 21 (Hollis).
In Stevens at 23-24 Mason J said:
The first question to determine is whether the relationship between Brodribb and Gray was one of employer and employee or one of principal and independent contractor. It will also be convenient at this point to consider whether Stevens was an employee of Brodribb or an independent contractor, for, although not directly relevant to the matter presently under consideration, both issues arise from a common factual foundation. A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it: Zuijs v. Wirth Bros. Pty. Ltd.; Federal Commissioner of Taxation v. Barrett; Humberstone v. Northern Timber Mills. In the last-mentioned case Dixon J. said:
“The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's order and directions.”
But the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question: Queensland Stations Pty. Ltd. v. Federal Commissioner of Taxation; Zuijs' Case; Federal Commissioner of Taxation v. Barrett; Marshall v. Whittaker's Building Supply Co. Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee.
(citations omitted)
Wilson and Dawson JJ at 35 of the Stevens decision referred to the classic test being one of control but that the modern approach is to have regard to a variety of criteria. Wilson and Dawson JJ conclude at 37 that:
The ultimate question will always be whether a person is acting as the servant of another or on his own behalf and the answer to that question may be indicated in ways which are not always the same and which do not always have the same significance.
In Re Porter; Re Transport Workers Union of Australia [1989] FCA 226, Gray J considered Stevens and said at [13]:
A Court determining whether a particular relationship is that of employment or of some other kind can therefore only resort to the process of balancing all of the factors, or as they are called in Stevens and other cases, the "indicia". In truth, the result may be a matter of impression. It is unfortunate that this is so. It should not be necessary for people to obtain a decision of a court, in order to know the true nature of their relationship. Unfortunate or not, that is the case. Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive. A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it. As Mr. Black put it in the present case, the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.
In Hollis, the plurality said at 38-39:
In Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia, 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:
“[t]he 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.”
This statement merits close attention. It indicates that employees and independent contractors perform work for the benefit of their employers and principals respectively. Thus, by itself, the circumstance that the business enterprise of a party said to be an employer is benefited by the activities of the person in question cannot be a sufficient indication that this person is an employee. However, Dixon J fixed upon the absence of representation and of identification with the alleged employer as indicative of a relationship of principal and independent contractor. These notions later were expressed positively by Windeyer J in Marshall v Whittaker's Building Supply Co. His Honour said that the distinction between an employee and an independent contractor is “rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own”. In Northern Sandblasting, McHugh J said:
“The rationale for excluding liability for independent contractors is that the work which the contractor has agreed to do is not done as the representative of the employer.” (citations omitted)
A more recent and oft cited authority is ACE Insurance v Trifunovski (2011) 200 FCR 532 (ACE Insurance) where Perram J says at [29]:
first, the distinction between an employee and an independent contractor is “rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own” (Hollis v Vabu Pty Ltd at [40] citing Marshall v Whittaker's Building Supply Company); secondly, the answers to that question are to be determined by reference to the “totality” of the relationship (Hollis at [24]); thirdly, a number of indicia have accreted over time in the authorities which are thought to throw light to varying degrees on the outcome without being determinative: the terms of the contract; the intention of the parties; whether tax is deducted; whether sub-contracting is permitted; whether uniforms are worn; whether tools are supplied; whether holidays permitted; the extent of control of, or the right to control, the putative employee whether actual or de jure; whether wages are paid or instead whether there exists a commission structure; what is disclosed in the tax returns; whether one party “represents” the other; for the benefit of whom does the goodwill in the business inure; how “business-like” is the alleged business of the putative employee — are there systems, manuals and invoices; and so on — the list is neither exhaustive nor short: see Stevens vBrodribb Sawmilling Company Pty Ltd; for application see Hollis; Sweeney.
(emphasis added and citations omitted)
In Stevens, Wilson and Dawson JJ said that in many, if not all cases, it is still appropriate to apply the control test in the first instance. I will do that before turning to the other relevant indicia listed by Perram J in ACE Insurance.
APPLICATION OF THE LAW TO THE FACTS
The applicant contends that the Company’s records or lack of them should not be determinative of the issue as to whether the applicant is an employee or a contractor. That issue must be determined objectively: On Call Interpreters and Translators Agency Pty Ltd v Federal Commissioner of Taxation (No 3) (2011) 214 FCR 82 (On Call Interpreters and Translators), 119 at [188]. The applicant has said that he considered himself an employee but that is not determinative of the issue. Ms Harris has expressed a view that the applicant was not an employee but this too will not be determinative of the issue.
The applicant contends that the Tribunal should not place any significant weight on the Company’s failure to withhold tax or pay for superannuation when considering whether the applicant was an employee, as the Company’s failure to withhold tax or pay superannuation is as a result of the Company’s poor administration rather than an indication that the applicant was not an employee.
The evidence does not support a finding of poor administration by the Company. To the contrary, the liquidators found that employees were properly recorded and were paid their entitlements. I find that the Company properly administered all the affairs of its employees. With respect to the applicant, he was treated differently because he was not an employee. The Company properly recorded him as receiving consultancy fees of varying amounts and not always in a regular manner. I accept the evidence of Ms Harris that she did not determine the amount the applicant was paid but rather it was Gavin McCann who made that decision.
It would appear from all the available evidence that the applicant has made a claim and attempted to characterise his relationship with the Company as that of an employee and an employer. There are numerous factors which distinguish the applicant from the Company employees and which suggest that he was in fact a contractor:
(a)The fact that he was the son of the Company accountant who was also one of the Company’s major creditors;
(b)His position as a director and shareholder of Dakota Investments thereby acting in a form of quasi partnership with Ms Harris;
(c)The fact that he was not exclusively working for the Company but was also doing work for Dakota Investments;
(d)His willingness to guarantee Company debts to suppliers;
(e)His willingness to pay significant Company expenses (resulting in a debt owed by the Company in excess of $58,000) and not receive regular weekly payments in the period leading up to his resignation in January 2015.
The circumstances of the engagement of the applicant were unique to the applicant and distinguish his position in the Company from other employees. It was Gavin McCann who wanted his son to become involved in the business because he thought it was in trouble. The applicant expressly saw his role as helping his father to protect his investment. Ms Harris saw the applicant as the delegate of his father. Further, Ms Harris said that: “Sam regularly received drawings from the business rather than a wage. The amount of the drawings was dictated by Sam’s father”.
Control
The evidence from Ms Harris suggests that the Company exercised a lesser degree of control over the applicant than would be expected with respect to an employee. This is consistent with the basis on which the applicant was first engaged by the Company through his father. Ms Harris said that because of the fact that the applicant was the son of Gavin McCann, he had the ability and capacity to discuss things with her and influence her.
Further factors relevant to control are as follows:
(a)Ms Harris, as the sole director of the Company, did not control how much the applicant was paid nor when he would be paid.
(b)Ms Harris left to the applicant the management of the money, cash flow, the staff and the clients whilst she focused on the sales part of the business.
(c)The applicant did not need approval from Ms Harris to be reimbursed for expenses incurred by him. Ms Harris trusted the applicant’s father due to the long business relationship she had had with him and that trust extended to the applicant.
(d)Ms Harris said that the applicant was treated like an owner and gave an example that on one occasion the applicant went away for Christmas and asked to take $10,000 for the trip which was immediately actioned, the money being paid to him out of a bank account of the Company.
(e)Ms Harris did not control if and when the applicant took a holiday. If the applicant wanted to go away then Ms Harris said that he went away.
(f)The applicant’s work performance was not monitored and no one supervised him in his role as General Manager.
(g)Ms Harris was happy for the applicant to make decisions.

The applicant received payments from and made payments to the Company which are not consistent with being an ordinary employee. For example the applicant received $10,684 on 20 September 2013, $10,000 on 27 December 2013, $7,205 on 6 February 2014 and $10,000 on 1 September 2014. There were other payments described as “funds transfer” or “personal”. A payment of $6,000 to Whyalla Real Estate on 9 March 2014 has the description “furniture for Sam’s house”.
In addition to receiving payments from the Company, the applicant made significant payments to the Company which are not consistent with the conduct of an employee. Some of these payments correspond precisely with amounts paid to creditors of the Company. Other payments by the applicant to the Company do not correspond with Company payments to third parties. For example, on 22 August 2014, the applicant paid the Company $14,177.45 and on 2 and 3 December 2014, the applicant paid the Company amounts totalling $6,000.
It is also noted from the applicant’s banking records that he received payments from his father which it can be inferred were used to pay Company expenses (for example $10,000 on 17 September 2014, $3,200 on 27 November 2014, $6600 on 1 December 2014 and $2,000 on 18 December 2014 and $5,000 on 29 January 2015).
It appears that when the Company could no longer afford to pay the applicant that his father started paying him a “salary” of $1,600 per week from 30 January 2015.
All of the above suggest that Company funds were being used to pay the applicant on behalf of his father. The applicant was not under the control of the Company but rather was there on behalf of his father for the clear purpose of monitoring the affairs of the Company for his father.
I consider this factor to be in favour of a finding that the applicant was not an employee.
The terms of contract
There was no written contract between the applicant and the Company. Ms Harris said that the arrangement by which the applicant came to be employed by the Company was between him and his father. She also said that the amount the applicant was paid was dictated by his father. She had no recollection of specifically offering him a job and in cross examination she expressly rejected the suggestion that she proposed that he be paid $1,500 net. There were no terms of employment agreed by Ms Harris, on behalf of the Company, with respect to the amount of his wage or any other employee benefits. Ms Harris said and I find that she had no discussions with the applicant about entitlements to leave, sick leave or time off in lieu.
Intention of the parties
There is no written evidence that the Company intended to engage the applicant as an employee, rather than a contractor. Ms Harris in her statement gave evidence and I accept that:
9. It was standard practice for new employees to complete an employment tax file number declaration when they commenced work at the company. To my knowledge Sam did not fill one out when he started and I cannot imagine why he would have. From my recollection PAYG tax was not deducted from payments made to Sam and superannuation contributions were not made on his behalf.
The Company did not characterise the applicant as an employee. In cross examination, Ms Harris rejected the suggestion that she told others that he was an employee. It can be inferred and I so find that the Company intended that he be a contractor and not an employee.
As for the applicant, he contends that he was engaged by Ms Harris as an employee on a weekly wage of $1,500 net. Ms Harris denies this. The applicant says that when he first started working for the Company he was provided with and completed an employment tax file number declaration form. There is no record of this form within the records of the Company. If it had been completed, then one would expect the applicant to be included in the list of the employees of the Company, which he was not. The applicant said: “I was under the impression that this form had been properly filed with the ATO and I was led to believe that the PAYG payments were being made on my behalf”.
I reject this evidence based upon the evidence of Ms Harris and because the applicant did not include any wages or salary from the Company in his 2013 financial year tax return which he lodged in late 2013. If the applicant had been engaged as an employee with an expectation that tax and superannuation would be paid, then I would have expected that his tax return would reflect that. The fact that the tax return recorded no wages and that no tax was withheld and that no superannuation was paid are very strong indicia in favour of a finding that the applicant was not an employee.
I consider this factor to be in favour of a finding that the applicant was not an employee.
Whether tax is deducted
Tax was not withheld. This is a factor strongly in favour of a finding that the applicant was not an employee.
Whether sub-contracting is permitted
This is not a relevant factor.
Uniforms
The applicant did wear a uniform. This is a factor which favours a finding that the applicant was an employee.
Whether tools are supplied
This is not a relevant factor.
Whether holidays are permitted
Whilst working for the Company, the applicant took some time off. The applicant says and I accept that he continued to get paid. Ms Harris did not exercise any control over the applicant in this regard. She said that if he wanted to go away then he went away. Further, she said and I so find that if there was enough money for drawings the applicant was paid regardless of whether he was working. It follows that the applicant did not require permission to take a holiday, so this is not a relevant factor on its own. However, it does suggest a low level of control by the Company over the applicant which is more consistent with a contractor rather than an employee.
Whether wages are paid
The company did not record payments to the applicant as wages but instead recorded them as consultancy fees. The Company provided weekly pay advices to its employees but not to the applicant. The applicant did not include wages as part of his 2013 tax return lodged in late 2013. It was only much later and after asserting entitlements as an employee that the applicant amended his 2013 tax return to include wages. I consider that amendment to be a self-serving exercise and give it very little weight.
I consider this to be a factor strongly in favour of the applicant not being an employee.
What is disclosed in the tax returns
I have dealt with this above. The 2013 financial year tax return is a very strong indicator that the applicant did not see himself as an employee and that he was not in fact an employee. It records no salary or wages and no tax withheld. The tax returns record a share of net income from the Dakota trust in the amount of $60,039. This contradicts the applicant’s assertion that he only received income from the Company. During cross examination the applicant conceded that he did do work for the Dakota trust during the period that he was engaged with the Company. I consider that these matters are strongly in favour of the applicant being a contractor and not an employee.
Whether one party “represents” the other
I consider this to be an important factor in finding that the applicant was not an employee. Ms Harris saw the applicant as a delegate or representative of Gavin McCann. This is consistent with the evidence from the applicant himself who said that his father wanted him to get involved with the company because it was in trouble. Further the applicant said:
3.2 I understood that Leromar Holdings owed a considerable financial debt to Mr McCann and I thought I could help Mr McCann by assisting Ms Harris and her company to operate more efficiently.
Ms Harris said under cross-examination that the applicant represented his father for whom she had great respect and that if things were recommended by the father then she would not have done differently. Because of her respect for the father, Ms Harris also respected the applicant and therefore was influenced by him and took his views into account when making decisions.
The applicant was in a very different position to other employees because he came to the Company as a representative or delegate of his father for the purpose of assisting his father to enable a recovery of his debt. In that sense he was a representative of his father acting in his interests and on his behalf. This is not consistent with the position of an employee. The lack of control exerted by the Company over the applicant during his management with the Company is further support for a finding that the applicant was not an employee.
Who benefits from the goodwill in the business
This factor is not directly relevant in this case but there is a strong argument that the applicant’s conduct at the Company was directed towards achieving a benefit for the father. This favours a finding that the applicant was acting as an independent contractor and not an employee.
The guarantees given by the applicant
It is relevant to the question of benefit (above) that the applicant was prepared to provide guarantees to suppliers for the Company’s debts. It is also very unusual for an employee to guarantee the debts of a company because it involves the acceptance of a level of risk beyond that associated with an employee. An employee generally seeks security and is not risk tolerant: On Call Interpreters and Translators, 124 at [213]. Rather, it is the owners or directors who usually give such guarantees. In this case, the applicant was clearly acting for the benefit of his father when he agreed to take the risk of guaranteeing the debts of the Company to suppliers.
I consider this to be an important factor in support of finding that the applicant was not an employee.
Conclusion on factors – applicant was not an employee
Certain aspects of the work relationship between the applicant and the Company suggest an employer/employee relationship but I consider on the totality of the evidence that their relationship suggests “someone who acts as an independent principal, exercising an independent discretion in carrying out a task for his own business interest and who is retained simply to produce a result”: Hollis, 48 at [68] per McHugh J and cited by Kirby J in Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161, 184 at [67].
The ultimate question as expressed by Wilson and Dawson JJ in Stevens is whether a person is acting as the servant of another or on his own behalf. I find that the applicant was acting on his own behalf for the purpose of assisting his father to recover his debt owed by the Company. I make that finding after taking into account the indicia referred to above.
Consequently, the applicant fails to satisfy the conditions of eligibility for an advance under section 10 of the FEG Act because he was not an employee of the insolvent Company. I am satisfied with respect to the other conditions referred to in s 10(1) but the applicant still fails because all of the listed conditions must be satisfied.
Exclusion from eligibility
Though not necessary for me to say anything further, I consider even if the applicant were an employee, he would not be eligible for an advance due to the operation of s 11(1) of the FEG Act.
I find that the applicant was a de facto director because he commonly performed tasks carried out by a director and held himself out as a director: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [68] and [73]. As General Manager, the applicant managed the money, cash flow, the staff and the clients. Over time, the applicant played an active role in employing new staff and engaging service providers. The applicant did business development and worked on anything that came in. His work was not monitored and he was not supervised in his role as General Manager. Ms Harris occasionally gave him directions but otherwise she was happy for him to make decisions. The applicant was a signatory on the Company cheque-book although he only signed in emergencies.
It is very telling that the applicant signed numerous credit applications as a director of the Company. Further, he gave a director’s guarantee with respect to the credit given to the Company for numerous suppliers. The applicant attempted to downplay the significance of his signature appearing on these documents by saying that he did not realise he was signing as a director and that he signed a blank form without reading it and that they were completed after he signed them. I reject that contention and note that on one application to Brickworks Building Products, the applicant placed his signature directly above the printed words “Signature of Director” and on another to Southern Cross Austereo, he signed expressly “on behalf of” the applicant Company. I find that the applicant was holding himself out and acting as a director of the Company and that he did so knowingly.
Conclusion
For the reasons set out above I affirm the reviewable decision.

I certify that the preceding 89 (eighty‑nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President P Britten‑Jones

...............................[SGD]..................................
Associate
Dated: 22 August 2018

Date of hearing: 1-2 February 2018

Counsel for the Applicant:

Solicitors for the Applicant:

Mr E Belperio

Mr A Cartland
Cartland Law

Advocate for the Respondent: Mr L Holcombe
HWL Ebsworth Lawyers

[2018] AATA 3030

22 August 2018

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