Mr Ivo Pasalic v Technometal Pty Limited

[2012] FWA 3291

[2012] FWA 3291

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Mr Ivo Pasalic
v
Technometal Pty Limited
(U2011/13765)

VICE PRESIDENT WATSON SYDNEY, 20 APRIL 2012

Application for unfair dismissal remedy - jurisdictional questions - Whether an employee or contractor- Fair Work Act 2009 ss 382, 386, 394.

Introduction

[1] This decision relates to an application for an unfair dismissal remedy by Mr Ivo Pasalic concerning the termination of his employment by Technometal Pty Limited. The application is made under s.394 of the Fair Work Act 2009 (the Act).

[2] Mr Pasalic worked as a mechanical engineer with Technometal Design Pty Ltd (Technometal Designs) from October 2005. In September 2011, Technometal Designs acquired a new Australian Business Number (ABN) and was thereafter known as Technometal Pty Limited (Technometal).

[3] Mr Pasalic contends that his employment with Technometal was unfairly terminated without a valid reason on 3 November 2011. Technometal objected to the application on the basis that there is no jurisdiction for Fair Work Australia to deal with the application because Mr Pasalic was never an employee. Technometal contends that Mr Pasalic was only ever engaged as an independent contractor.

[4] A jurisdictional hearing to determine this issue was held on 9 March 2012. At the hearing Mr J Boghossian represented Mr Pasalic and Mr M Donovan represented Technometal.

The issue for determination

[5] To be protected from an unfair dismissal the person dismissed must be an employee who has completed the minimum employment period: s.382(a). Technometal contend that Mr Pasalic was never an employee of Technometal and is therefore not a person protected from unfair dismissal under s.382 of the Act.

[6] Therefore the issue for determination is whether Mr Pasalic was employed by Technometal as an employee or engaged as an independent contractor. If he is found to be the latter, his application must be dismissed.

[7] At the jurisdictional hearing, Technometal raised another jurisdictional objection to Mr Pasalic’s application. Technometal submitted that Mr Pasalic had not completed the minimum employment period as required by s.382(a) of the Act. Technometal contends that Mr Pasalic had only been working for the named respondent in the application, Technometal Pty Limited, for 2 months before he was terminated. Technometal contends that Mr Pasalic’s service from October 2005 to September 2011 with Technometal Design, the predecessor to Technometal, should not be included in his length of service. While this matter is a further jurisdictional objection that may require determination, I do not intend to deal with it in this decision.

Statutory and legal context

[8] The basis for the respondent’s jurisdictional objection arises from the wording of s.382 of the Act. Relevantly that section provides:

“382 When a person is protected from unfair dismissal

A person is protected from unfair dismissal at a time if, at that time:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and

(b) …”

[9] As the applicant, Mr Pasalic bears the onus of establishing that he was an employee of Technometal at the time of the dismissal.

[10] For the purposes of Part 3-2 of the Act, s.380 defines “employee” as a “national system employee”. Section 13 of the Act defines “national system employee” as an “individual so far as he or she is employed, or usually employed, as described in the definition of national system employer in section 14, by a national system employer...” It is not disputed that Technometal is a national system employer. Section 15 of the Act provides that “[a] reference in this Act to an employee with its ordinary meaning includes a reference to a person who is usually such an employee.”

[11] The effect of these sections is that the issue for determination requires the application of common law principles to determine whether Mr Pasalic was an employee or an independent contractor.

[12] There are well established principles of common law that have been developed by courts to determine whether an individual is an employee or an independent contractor. In Abdalla v Viewdaze Pty Ltd t/a Malta Travel  1 (Abdalla) a Full Bench of the Australian Industrial Relations Commission summarised the legal principles as to whether a person is an employee or an independent contractor.

[13] These principles were refined by a Full Bench of Fair Work Australia in Jiang Shen Cai trading as French Accent v Do Roazrio  2as follows:

“(1) In determining whether a worker is an employee or an independent contractor the ultimate question is whether the worker is the servant of another in that other’s business, or whether the worker carries on a trade or business of his or her own behalf: that is, whether, viewed as a practical matter, the putative worker could be said to be conducting a business of his or her own of which the work in question forms part? This question is concerned with the objective character of the relationship. It is answered by considering the terms of the contract and the totality of the relationship.

(2) The nature of the work performed and the manner in which it is performed must always be considered. This will always be relevant to the identification of relevant indicia and the relative weight to be assigned to various indicia and may often be relevant to the construction of ambiguous terms in the contract.

(3) The terms and terminology of the contract are always important. However, the parties cannot alter the true nature of their relationship by putting a different label on it. In particular, an express term that the worker is an independent contractor cannot take effect according to its terms if it contradicts the effect of the terms of the contract as a whole: the parties cannot deem the relationship between themselves to be something it is not. Similarly, subsequent conduct of the parties may demonstrate that relationship has a character contrary to the terms of the contract.

(4) Consideration should then be given to the various indicia identified in Stevens v Brodribb Sawmilling Co Pty Ltd and the other authorities as are relevant in the particular context. For ease of reference the following is a list of indicia identified in the authorities:

• Whether the putative employer exercises, or has the right to exercise, control over the manner in which work is performed, place or work, hours of work and 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 an 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 the 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.

  “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.”  “[B]ut in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which work is performed for another. That was made clear in Queensland Stations Pty. Ltd v Federal Commissioner of Taxation, a case involving a droving contract in which Dixon J observed that the reservation of a right to direct or superintend the performance of the task cannot transform into a contract of service what in essence is an independent contract.”

• Whether the worker performs work for others (or has a genuine and practical entitlement to do so).

  The right to the exclusive services of the person engaged is characteristic of the employment relationship. On the other hand, working for others (or the genuine and practical entitlement to do so) suggests an independent contract.

• Whether the worker has a separate place of work and or advertises his or her services to the world at large.
• Whether the worker provides and maintains significant tools or equipment.

  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.

• 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 (as distinct from a contract for services) is personal in nature: it is a contract for the supply of the services of the worker personally.

• Whether the putative employer has the right to suspend or dismiss the person engaged.
• 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.

• Whether income tax is deducted from remuneration paid to the worker.
• Whether the worker is remunerated by periodic wage or salary or by reference to completion of tasks.

  Employees tend to be paid a periodic wage or salary. Independent contractors tend to be paid by reference to completion of tasks. Obviously, in the modern economy this distinction has reduced relevance.

• Whether the worker is provided with paid holidays or sick leave.
• 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.

• Whether the worker creates goodwill or saleable assets in the course of his or her work.
• Whether the worker spends a significant portion of his remuneration on business expenses.

  It should be borne in mind that no list of indicia is to be regarded as comprehensive or exhaustive and the weight to be given to particular indicia will vary according to the circumstances. Features of the relationship in a particular case which do not appear in this list may nevertheless be relevant to a determination of the ultimate question.

(5) Where a consideration of the indicia (in the context of the nature of the work performed and the terms of the contract) points one way or overwhelmingly one way so as to yield a clear result, the determination should be in accordance with that result. However, a consideration of the indicia is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture of the relationship from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another. The ultimate question remains as stated in (1) above. If, having approached the matter in that way, the relationship remains ambiguous, such that the ultimate question cannot be answered with satisfaction one way or the other, then the parties can remove that ambiguity a term that declares the relationship to have one character or the other.

(6) If the result is still uncertain then the determination should be guided by “matters which are expressive of the fundamental concerns underlying the doctrine of vicarious liability” including the “notions” referred to in paragraphs [41] and [42] of Hollis v Vabu.” (References omitted).

[14] The Full Bench of Fair Work Australia in that case highlighted the difficulty in attempting to categorise all employment relationships as either employee or independent contractor:

“The FW Act imposes obligations on employers in relation to their “employees” and confers benefits and rights on “employees” without defining when a worker is an employee as distinct from an independent contractor. The definition of “employee” leaves it to the general law to supply that distinction. The nature of the established general law approach to distinguishing between employees and independent contractors may be seen as contributing to the problem precisely because the nature of the general law test is such that it does not admit a clear answer in every case. Once one adopts the position, as the general law has done, that the distinction is rooted in the objective character of the work relationship two things follow. First, the infinite variety of human affairs means that work relationships present as a spectrum, some of which are clearly relationships of employment and others of which are clearly relationships of independent contract but some of which are less clear cut. Secondly, that character of a work relationship is what it is and cannot be changed simply because the parties agree to label it differently (unless, of course, the relationship is sufficiently ambiguous that a clear determination is not possible, the situation addressed by the Massey proposition). That is a matter clearly recognised by the courts and tribunals.”  3

[15] These tests and principles were not disputed by the parties. The circumstances of this case need to be considered against these tests.

Relevant facts

[16] Technometal Design, now known as Technometal, is in the business of Installation and Maintenance Engineering. It is a small family company employing approximately 15 employees, including the owners, Mr and Mrs Togi, at its operations in Ingleburn, New South Wales.

[17] Mr Pasalic is a licensed mechanical engineer of 25 years experience. In about early October 2005, Mr Pasalic became aware that Technometal Design was seeking a mechanical engineer, and Mr Pasalic was subsequently introduced to the owner of Technometal Design, Mr Marius Togi. It was agreed that Mr Pasalic would commence work with Technometal Design the following day on a one week probation basis. During the first week of probation, Mr Pasalic was told that he was required to draw and design parts for the manufacturing process for clients of Technometal Design. Mr Pasalic was also told by Mr Togi that he must work a minimum of 40 hours between 7am and 3pm and that he was entitled to a 10 minute break between 9am and 10am with the other workers.

[18] During his week of probation, Mr Pasalic was instructed by Mr Togi to make sketches of mechanical parts. He would finalise the sketches into drawings and then seek approval of the drawings from Mr Togi.

[19] After the first week probation period, Mr Togi approached Mr Pasalic and explained that his performance has been satisfactory. It was agreed that Mr Pasalic was to continue working for Technometal Design and he was instructed by Mr Togi that he would be engaged as a contractor. It was also agreed that Mr Pasalic was to be paid $30 an hour subject to a weekly invoice which he was required to submit to Mr Togi.

[20] Mr Pasalics’s second week of engagement followed the same pattern as the first. In addition, Mr Pasalic also visited the sites of many of Technometal Design’s clients with Mr Togi, who introduced Mr Pasalic as “Technometal Design’s Mechanical Designer Draftsman”. During this second week of work, Mr Togi informed Mr Pasalic that he was to fill out and submit daily time sheets that detailed the task performed and hours worked.

[21] During his first month of work at Technometal Design, Mr Pasalic’s duties were expanded. In addition to making sketches and drawings under the instruction of Mr Togi, Mr Pasalic would also visit client sites to take measurements, liaise with Mr Togi to ensure client satisfaction, receive instructions from Mr Togi to make modifications to any sketches, assist in installation of machinery and create a DXF file of certain parts that would be sent to an external manufacturer who would then use a laser or water cutter to cut out the design.

[22] The period of engagement from November 2005 to December 2005 followed the same pattern of employment as the first month. During this time Mr Togi also provided Mr Pasalic with his own Technometal Design business card and email address. Mr Pasalic was provided with an office at Technometal’s premises, all equipment required to undertake his duties including a computer, printer and telephone, all necessary office supplies and safety equipment such as safety vests, a helmet and safety glasses.

[23] Mr Pasalic states that he never needed to use any of his own personal equipment to perform his work with Technometal Designs. Mr Pasalic regularly worked 40 hours per week with Technometal Designs and did not perform any other work for any other employer or business. Mr Pasalic’s tax affairs were undertaken by his accountant. Goods and Service Tax (GST) was added to his invoices. No PAYG tax was deducted from payments received from Technometal. When required to drive to a client’s premises, on Mr Togi’s instructions, Mr Pasalic would add an hour to his invoice to cover petrol used.

[24] In January 2006, Mr Pasalic’s hourly rate was increased to $32 an hour.

[25] While employed at Technometal Design, Mr Pasalic worked on several projects with many of Technometal Design’s clients. On or about early 2006, Technometal Design obtained a contract with VISY, a packaging products manufacturer. To complete the VISY contract, Mr Togi sourced other mechanical engineers to assist Mr Pasalic. On the recommendation of one the outsourced engineers, Mr Togi installed a computer design program called Solid Edge version 18 (Solid Edge) on all computers. Mr Pasalic was thereafter required to use Solid Edge to transform 2D sketches into 3D from.

[26] In early February 2008, Mr Pasalic’s hourly rate of pay was increased to $35 an hour and in August 2008 his hourly rate of pay was increased to $37. For the remainder of 2008, Mr Pasalic worked regular and systematic hours and would continue to perform duties assigned to him by Mr Togi.

[27] In 2009, Mr Pasalic was required to undertake interstate travel to client sites. On three occasions he was accompanied by Mr Togi and he travelled once on his own. All of Mr Pasalic’s travel expenses were covered by Technometal Design.

[28] In September 2011, Technometal Design became Technometal and was issued with a new ABN. Mr Pasalic was informed by Elena Togi that he was now required to invoice Technometal with the monies owed each week using a simpler from than was previously used.

[29] In October 2011, Mr Togi arranged for the installation of Solid Edge ST 3, an upgrade to the version of Solid Edge that Technometal Designs had previously installed. The manufactures of Solid Edge had also released Solid Edge ST 4, a version that improved on but incorporated much of the features of Solid Edge ST 3.

[30] Mr Pasalic submits that he downloaded a trial version of Solid Edge ST 4 on 30 October 2011, in order to improve his productivity and to better understand Solid Edge ST 3, which he used while at Technometal. In order to complete the download, Mr Pasalic was required to fill out a form with his contact details and supply this to the manufactures of Solid Edge.

[31] On 3 November 2011, Mr Pasalic was contacted by Mr Lee Northend, a representative of the manufactures of Solid Edge. Mr Northend informed Mr Pasalic that he required a licence to operate Solid Edge ST 3 and inquired whether Mr Pasalic was the owner of Technometal. Mr Pasalic submits that he told Mr Northend he was not the owner of Technometal and unaware of licencing issues.

[32] On the same day, Mr Pasalic was approached by Mr Togi who inquired whether Mr Pasalic had spoken to a representative of Solid Edge manufactures. Mr Pasalic affirmed that he had and states that after he informed Mr Togi of the conversation, Mr Togi stated that he had been terminated. After his termination Mr Pasalic requested a completed separation certificate in order to access social security payments. On 30 November 2011 Mr Togi wrote a letter to Mr Pasalic advising that he had been an independent contractor and was never an employee of Technometal.

Mr Pasalic’s Submissions

[33] Mr Pasalic filed written submissions and a written statement on 28 February 2012 and oral submissions were made on his behalf at the hearing on 9 March 2012. The written submissions and statement provide a background to events leading up to Mr Pasalic working at Technometal, the nature of the work he did and the events surrounding his termination.

[34] At the hearing, it was submitted for Mr Pasalic that he was an employee of Technometal. Mr Boghossian submitted that the following indicia, from Abdullah indicate that Mr Pasalic was an employee:

• Control: Mr Togi exercised considerable control over Mr Pasalic in relation to his hours of work and the nature of the tasks he undertook. Mr Pasalic took direction from Mr Togi and was required to consult with Mr Togi. He would also need to obtain Mr Togi’s approval for all designs and sketches that he made.



• Integration: Mr Pasalic was integrated into the organisation whereby he was supplied with a business card and email address and introduced to clients as “Technometal’s Mechanical Designer Draftsman”.



• Requirement to wear a uniform: it was agreed that Mr Pasalic did not wear a uniform but was required to wear a safety vest and helmet bearing the respondent’s name.



• Payment on a time worked or task completed basis: Mr Pasalic was paid on an hours



• worked basis and not upon task completion. Mr Pasalic was paid regularly and systematically.



• Risk: Mr Pasalic did not bear any loss or profit from the designs he created.



• Provision of tools and equipment: Technometal supplied all tools and equipment to Mr Pasalic. It was submitted therefore that the payment Mr Pasalic received was purely for his labour.



• Freedom to work for others: Mr Pasalic submitted that he only worked for Technometal and that he did not emanate to others that he provided services.



• Subcontracting and delegation: It was submitted that Mr Pasalic did not have the right to delegate or sub contract the work out to others.



• Income tax deducted: Income tax was not deducted from Mr Pasalic’s pay.



• Insurance: Technometal provided Mr Pasalic with all workers compensation and insurance as required by law.



• Leave: Mr Pasalic did not receive annual or sick leave. However it was submitted that this was also the case in other decisions which found in favour of a person being classified as an employee, including the case of ACE Insurance Ltd v Trifunovski. 4



• Classification of worker upon engagement: it was not disputed that Technometal originally had a verbal agreement with Mr Pasalic in which he was instructed to commence work as a contractor, however it was submitted that the actions of Technometal post contract negotiations indicated an employer/employee relationship.

Technometal’s submissions

[35] Mr Donovan for Technometal submitted at the hearing that Mr Pasalic was engaged by Technometal, at an hourly rate as an independent contractor, to provide the services of drafting designs for Technometal’s clients. It was submitted by Technometal that the following indicia extracted from the case of Angus v Taxi Council of Queensland Inc  5 are relevant to concluding that Mr Pasalic was a independent contractor:

• Mr Pasalic had an ABN of which he was described as a “sole trader”.



• Mr Pasalic admitted that he had a verbal agreement with Technometal, whereby he was instructed that he was engaged as a contractor.



• Mr Pasalic prepared and rendered his own invoices and he included GST.



• There was no security of tenure - he only worked the hours that were available to him and he was aware of this.



• Mr Pasalic was not entitled to overtime, annual leave or sick leave or superannuation.



• Mr Pasalic was aware that taxation was not being withheld from the monies paid to him and he also arranged and carried out his own tax obligations.

Was Mr Pasalic an employee or independent contractor?

[36] This case is an example of the cases referred to in the authorities that fall within the grey area where it is not clear whether the arrangements were that of employer and employee or principal and independent contractor. It is clear that Technometal intended the relationship to be that of independent contractor and consistently organised its affairs on the basis that it was. Taxation and leave arrangements were organised on the basis that Mr Pasalic was not an employee.

[37] It is also clear that the nature of the day to day working arrangements strongly resembled an employment relationship. Mr Pasalic presented as an employee of Technometal and worked exclusively for that company on a regular daily basis mostly from the company’s premises or on site visits to client’s premises. He was paid an hourly rate and reimbursed for other expenses. The nature of Mr Pasalic’s work was professional engineering drawing. As the work was of a professional nature, his work was not supervised in the same sense as other employees. Receiving instructions from and submitting work for approval to Mr Togi could be equally consistent with an employment relationship or an independent contractor relationship. He did not provide any services other than his professional labour. He was provided with all necessary equipment and supplies. There was no indication of any right to delegate the performance of his services to others. Mr Pasalic did not undertake any other work for other clients or employers.

[38] In my view the factors which point to the status of independent contractor primarily are those which reflect Technometal’s intention that Mr Pasalic be regarded as an independent contractor. It should be noted that Mr Pasalic has been complicit in these arrangements and in that sense the circumstances are agreed, albeit they arose from a direction from Technometal as to how their affairs were to be conducted. Mr Pasalic did not object to the arrangements, agree under protest or reserve his rights. Indeed he may have benefited from the arrangements through favourable taxation treatment. It was only on the termination of his services that he sought to access a remedy confined to the employment sphere.

[39] On the other hand, the day to day working arrangements had every appearance of an employment relationship as summarised above, although the professional nature of the duties could also be consistent with the engagement of a specialist contractor. The case is one where an objective view must be taken of all of the circumstances - not by way of a mechanical application of the various indicia - but by taking a broad overall view of the true character of the relationship.

[40] In this case I believe that the circumstances of the performance of work are more important than the formal accounting procedures put in place and the verbal agreement made upon engagement with the intent to categorise the relationship as one of independent contractor. Viewed in this manner and looking at the practical effect of the relationship the better interpretation of the circumstances is that Mr Pasalic was an employee of Technometal.

Conclusions

[41] For the reasons above I find that Mr Pasalic was an employee of Technometal and is able to seek a remedy under s. 394 of the Act arising from the termination of his employment. The jurisdictional objection raised by Technometal is dismissed.

[42] I direct that the parties participate in further conciliation prior to the matter being dealt with further.

VICE PRESIDENT WATSON

Appearances:

Mr J. Boghossian for Mr I. Pasalic.

Mr M. Donovan for Technometal Pty Limited.

Hearing details:

2012.
Sydney.
9 March.

 1   PR927971.

 2   [2011] FWAFB 8307 at [30].

 3 Ibid at [25].

 4 [2011] FCA 1204.

 5   [2011] FWA 7531.

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