Polkowski v Corporate Associates Pty Ltd

[1996] IRCA 184

DECISION NO:  184/96

C A T C H W O R D S

INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - whether EMPLOYMENT CONTRACT or some other relationship.

Industrial Relations Act 1988 s170EA

CASES:Stevens v Brodribb Sawmilling Company Pty Limited (1985) 160 CLR 16

Re Porter; Re Transport Workers Union of Australia (1989) 34 IR 179

Connolly v Wells (1994) 55 IR 73

Narich Pty Limited v Commissioner of Payroll Tax (1983) 2 NSWLR 597

Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385

Climaze Holdings Pty Limited v Dyson (1995) 58 IR 260

RICK POLKOWSKI -v- CORPORATE ASSOCIATES PTY LTD

No. VI 5923 of 1995

Before:  Judicial Registrar Murphy
Place:  Melbourne
Date:  26 April 1996

INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 5923 of 1995

B E T W E E N :

RICK POLKOWSKI
Applicant

AND

CORPORATE ASSOCIATES PTY LTD
Respondent

MINUTES OF ORDERS

Judicial Registrar Murphy     26 April 1996

THE COURT ORDERS:

1. The application is dismissed.

NOTE:  Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.

INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 5923 of 1995

B E T W E E N :

RICK POLKOWSKI
Applicant

AND

CORPORATE ASSOCIATES PTY LTD
Respondent

Before:           Judicial Registrar Murphy
Place:              Melbourne
Date:              26 April 1996

EX-TEMPORE  REASONS FOR JUDGMENT

The applicant seeks a remedy pursuant to Division 3 of Part VIA of the Industrial Relations Act (“the Act”), following the termination of his relationship with the respondent on 13 November, 1995. The primary defence of the respondent was that the relationship between the parties was not one of employment. The respondent argued that it has retained the services of a company Sixty-First S.C.M. Pty Limited (“the company”) and that, therefore, the Court did not have jurisdiction. In these proceedings the applicant seeks one week's pay in lieu of notice and two weeks additional compensation for the period that it took him to obtain alternative employment after his arrangement with the respondent ceased.

The evidence in the case is not the subject of significant dispute.  The respondent advertised for a sales representative.   After a screening process was engaged in by another company, the applicant was interviewed by the directors of the respondent.  A meeting occurred on 28 April, 1995 attended by the applicant and the two directors of the respondent, Mr Hinchcliffe and Mr Goodall. 

At or prior to that meeting, the applicant had been handed a standard letter that had been sent to those short listed detailing the proposed remuneration.  It is headed, “To Jurek Polkowski (Sixty-First S.C.M. Pty Limited)”(Exhibit R1).  It sets out the proposed salary as $30,000 per annum, which is then broken down into “$577 weekly (travel and wages inclusive) for first three months."   The letter states that if the applicant was successful the salary would be increased to $35,00 per annum and "After four months we will look at providing a motor vehicle."   Proposals to pay commission are also set out.

In unchallenged evidence, Mr Hinchcliffe said that the parties discussed the $577 per week wage that was offered in that document.  The applicant had advised Mr Hinchcliffe that this wage level was too low and the respondent then proposed to increase it by $125 per week to a total of $702 per week.  That was agreed between the parties.  The applicant then asked whether there was any objection to the respondent paying his company.  Mr Hinchcliffe said, "Are you proposing that we employ your company on a consultancy basis?"  The applicant said, "yes".  Mr Goodall then said that the respondent would require a letter from the company advising the respondent that it would pay the applicant's tax and superannuation.   The applicant said this was "not a problem."  Mr Goodall then said, "How do you want us to pay you?"  The applicant replied: "I will provide an invoice each week in the company name."  It was agreed that the company would be paid each week. 

Subsequently, the applicant each week submitted to the respondent an invoice in the company name.  In evidence were the invoices (Exhibit R3) which provide a description of the services: "To Sales/Marketing services rendered, week ending 5 May, 1995, $702”.  Other invoices state, "To Sales/Marketing Consulting", "Sales/Marketing Consulting Services", "To Consulting Services/Sales and Marketing", "To Consulting Fees/Sales and Marketing."  After some months the remuneration arrangement between the parties was renegotiated so that the company was paid ten per cent of a membership fee that had been sold to various clients and collected by the applicant.

At the commencement of the relationship, the applicant did not provide the letter from his company as requested.  The matter was raised by Mr Hinchcliffe at a meeting on 11 September 1995 when the question of the performance of the current service provided by the company was raised.  In response, a month later the applicant produced a copy of a certificate of incorporation of the company, together with a “with compliments” slip dated 10 October 1995 from a firm of chartered accountants (Exhibit R2).  The common seal of the company was affixed to the slip with the words, "To Corporate Associates P/L;  J. Polkowski is responsible for his own tax and superannuation."   It is signed by the applicant. 

The applicant agreed in his evidence that at no stage did he seek to alter the arrangement between himself and the respondent set at the commencement of their relationship.   He also said he had previously worked as a consultant.  The explanation he gave why he wanted the money paid to a company was that the company had some tax losses that he wished to avail and he also had a private superannuation scheme or fund.  In his evidence, Mr Goodall said he was aware that the applicant was involved with another organisation known as Amway and also had been involved in some sale of art.  The applicant's counsel did not challenge this evidence.  The applicant, in his evidence, said that his wife was responsible for the Amway business and that the art business did not get off the ground.  The applicant also gave evidence that when he commenced employment he was finalising, for the first couple of weeks that he was engaged by the respondent, some other work involving kitchen design.

The applicant's duties with the respondent involved canvassing for new business by phone calls, seeking interviews and then selling the services of the respondent.  The applicant would report his success or otherwise to the respondent on a daily basis.  The respondent's evidence was that it did not impose any working hours on the applicant.  His evidence was that he would generally work business hours and for as long as it took him to do the duties.  At times the applicant was involved in planning meetings within the respondent and made various suggestions to the directors in relation to their marketing.  As a result of a suggestion of the applicant, the respondent engaged two extra salesmen.  The applicant was involved in recruiting those salesmen and also in some training for them.

In October and early November, 1995 the number of new clients obtained by the applicant decreased substantially.  A conversation occurred between himself and Mr Hinchcliffe on 10 November, 1995 about the fact that the company was not providing the service required.  The services of the company were dispensed with on Monday 13 November.

Was there a contract of employment here?
The first question that must be determined is whether there was a contract of employment between the parties.  There are a number of authorities on this issue since the leading authority of Stevens v Brodribb Sawmilling Company Pty Limited, (1985) 160 CLR 16. Since that decision the Court is required to have regard to a variety of indicia as to the relationship between the parties. It has also been said by Gray J in Re Porter;  Re The Transport Workers Union of Australia (1989) 34 IR 179, 184, that the result “may be a matter of impression." 

In deciding this case, the Court must first consider what was the contract between the parties.  In the recent decision, Connolly v Wells (1994) 55 IR 73, the court was dealing with an informal arrangement between a person and another individual in the cropping industry. At 74 Gleeson CJ said:

“Where the relationship between two persons is founded in contract, the character of the relationship depends upon the meaning and effect of the contract.  In the absence of a suggestion that a contract was varied after it was originally made, its meaning and effect must be determined as at the time it was entered into.  If the contract is in writing, then the court which is considering the nature of the relationship between the parties is directed to an examination of the terms of the written agreement in the light of the circumstances surrounding its making.  (Narich Pty Ltd v Commissioner of Pay-Roll Tax [1983] 2 NSWLR 597 at 601.)

In some cases, of which the present is an example, the contract may be entered into without writing and in circumstances of considerable informality.  This may mean that it is more difficult to reach a conclusion as to when the contract was entered into, and as to the terms of the agreement which the parties made.  The conduct of the parties may need to be examined for the purpose of reaching a conclusion as to their common intention as to the terms and conditions on which they are contracting with one another.  However, the basic principles remain the same. 

Sometimes the parties to an agreement declare an intention as to whether their relationship is to be that of employer and employee, or principal and independent contractor.  The effect to be given to such a declaration of common intention is considered, for example, in Narich Pty Ltd, at 601.”

In Narich (above) the court referred with approval to another decision Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385 and at 601 said:

“(That case) is authority for three principles of law applicable to a case of the present kind.  The first principle is that, subject of one exception, where there is a written contract between the parties whose relationship is in issue, a court is confined, in determining the nature of that relationship, to a consideration of the terms, express or implied, of that contract in the light of the circumstances surrounding the making of it;  and it is not entitled to consider also the manner in which the parties subsequently acted in pursuance of such contract.  The one exception to that rule is that, where the subsequent conduct of the parties can be shown to have amounted to an agreed addition to, or modification of, the original written contract, such conduct may be considered and taken into account by the court.

.......

The third principle relates to cases where the parties have, as in the present case, included in their written contract an express provision purporting to define the status of the parties engaged under it, either as that of employee on the one hand, or that of independent contractor on the other.   With regard to a clause of this kind Lord Fraser of Tullybelton said in the AMP case (at 389):

“Clearly cl 3, which, if it stood alone, would be conclusive in favour of the Society, cannot receive effect according to its terms if they contradict the effect of the agreement as a whole.  Nevertheless, their Lordships attach importance to cl 3, and they consider that the following statement by Lord Denning MR in Massey v Crown Life Insurance Co [1978] 1 WLR 676 correctly states the way in which it can properly be used : ‘The law, as I see it, is this: if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it... On the other hand, if their relationship is ambiguous and is capable of being one or the other, [ie, either service or agency], then the parties can remove that ambiguity, by the very agreement itself which they make with one another. The agreement itself then becomes the best material from which to gather the true relationship between them.’

In the present case, where there is no reason to think that the clause is a sham, or that it is not a genuine statement of the parties’ intentions, it must be given its proper weight in relation to other clauses in the agreement.”

These cases are authority for the principle that an express agreement to label the relationship between the parties must be given weight.  In particular, the Court must consider whether it is a sham, and if not, if the rest of the contract is ambiguous, then it can be decisive in the characterisation of the contract. 

Here, I am satisfied that the parties genuinely agreed that the agreement would be between the respondent and the company.  Their conduct after that is consistent with that agreement.  Further, that agreement involved the payment of a gross remuneration that included amounts that earlier were described as wages and travel. 

The other provisions of the agreement between the parties are ambiguous as to whether the relationship was of an employee or of a consultant.  There was some control exercised over the applicant.  It is significant, however, that the applicant did take his contact list when he left the respondent. 

There are some similarities between this case and the AMP case (above) where that agreement allowed incorporation by the insurance agent.  Here, the applicant was, in fact, incorporated.  Another recent decision,  Climaze Holdings Pty Limited v Dyson (1995) 58 IR 260, dealt with a roofing plumber who sustained an injury. He sued the employer, but the plumber himself was engaged in a partnership with his son, and they had been rendering invoices on a regular basis to the employer. He claimed that he was employed and at 267 Steytler J said:

“There appears, as I have said, to be no doubt that a partnership was in truth created between the first respondent and his son.  The partnership rendered tax returns, and it invoiced the appellant for the work performed by it. 

It seems to me that the whole concept of rendering invoices for work done (more particularly by a partnership comprising two persons trading under a business name), is quite foreign to an ordinary employment relationship.  Equally, the deduction from the invoiced amounts, of payments made pursuant to the Prescribed Payments System rather than the deduction of PAYE instalments, points strongly towards the existence of a sub-contract relationship.”...

And in that case he went to say that while there were some other indicia pointing to the existence of the employment relationship, the factors just mentioned outweighed those.

Here, to find that the applicant was an employee would mean that the invoices (Exhibit R3) and the statement made on 10 October, 1995 (Exhibit R1), are to be treated as a sham.  It would require the Court to ignore the statement and request of the applicant that the  company be retained rather than himself.  I am not prepared to do that.  I am satisfied that the parties agreed that the applicant would not be an employee, but his services would be delivered through a company. 

The applicant had good reason why he wanted this arrangement and all the parties operated on that basis from the commencement of the agreement.  While there are some aspects of the relationship between the parties that are consistent with an employer/employee relationship, when the arrangement between the parties is considered as a whole, I am satisfied that the arrangement was between the company and the respondent and not between the applicant and the respondent.  On this basis, I propose to dismiss the application.

MINUTES OF ORDERS

THE COURT ORDERS:

1. That the application is dismissed.

NOTE:  Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.

I certify that this and the preceding seven (7) pages are a true copy of the reasons for judgment of Judicial Registrar Murphy.

Associate:                   
Dated:  26 April 1996

Solicitors for the Applicant:               George Z Conrad
Appearing for the Applicant:             Mr George Conrad

Solicitors for the Respondent:  Mark G Bramich
Counsel for the Respondent:             Mr Alan Marshall

Date of hearing:  26 April 1996
Date of judgment:  26 April 1996