ROGALSKI v PMP Print Pty Ltd
[2016] FCCA 281
•15 February 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ROGALSKI & ANOR v PMP PRINT PTY LTD | [2016] FCCA 281 |
| Catchwords: INDUSTRIAL LAW – Fair Work – no matter of principle |
| Legislation: Fair Work Act 2009 (Cth) Independent Contractors Act 2006 (Cth) |
| Cases cited: Ace Insurance Ltd. v Trifunovski [2013] FCAFC 3 Buchmueller v Allied Express Transport Pty Ltd [1999] FCA 319 Informax International Pty Ltd v Clarius Group Ltd [2012] FCAFC 165 |
| First Applicant: | ROBERT ROGALSKI |
| Second Applicant: | LOIS ROGALSKI |
| Respondent: | PMP PRINT PTY LTD |
| File Number: | MLG 938 of 2013 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 4 June 2015 |
| Date of Last Submission: | 17 July 2015 |
| Delivered at: | Melbourne |
| Delivered on: | 15 February 2016 |
REPRESENTATION
| Counsel for the Applicants: | Mr Tracey |
| Solicitors for the Applicants: | Scanlan Carroll |
| Counsel for the Respondent: | Mr Snaden |
| Solicitors for the Respondent: | Luke Connolly Workplace Law & Consulting |
ORDERS
That the Application be dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 938 of 2013
| ROBERT ROGALSKI |
First Applicant
| LOIS ROGALSKI |
Second Applicant
And
| PMP PRINT PTY LTD |
Respondent
REASONS FOR JUDGMENT
The applicants contracted with the respondent to act as distributors of printed material to be delivered to a defined area. In their roles as distributors, they were to receive the printed material (usually loaded on pallets), unpackage divide it into portions suitable for the subcontractors to deliver to letterboxes within their area and arrange for it to be delivered. The subcontractors were engaged by the applicants (referred to as “walkers”). The applicants were paid $6 per 1000 catalogues distributed and $9 per 1000 newspapers distributed. The walkers were paid directly by the respondent on behalf of the applicants in accordance with their contract rates.
The first applicant initially entered into a contract with the respondent in July 2000, which contract was varied in July 2009. The second applicant entered into a contract with the respondent in February 1992, which was replaced in 2000.
By the time of trial the applicants had retired and ceased their arrangements with the respondents. The applicants’ claim that they were employees of the Respondent and should therefore have been remunerated in accordance with the relevant award, based upon the hours they said they worked. If unsuccessful in that claim they seek orders setting aside the payment provisions of their contracts under the Independent Contractors Act 2006 on the basis that the payment clause was unfair or harsh and to pursue a quantum merit claim based upon award wage rates together with their business expenses.
Over the period from 2007 / 2008 to 2013 / 2014 the first applicant earned an around $2.473 million and after expenses declared taxable incomes on average of 117,471 per year. During the same period, the second applicant earned around $2.39 million and after expenses declared a taxable income on average of $62,429 per year. In addition, the respondent paid GST, which was remitted to the ATO.
In their tax returns, the bulk of the expenses were taken up in the tax return of the first applicant. As a result, it is necessary to look at the tax returns of both parties side by side in order to gain a clear impression of the profitability of their endeavours. For example, in the 2013/2014 year, the second applicant had a taxable income $73,862, whilst the first applicant only had a taxable income of $289. In the 2012/2013 tax year, the first applicant made a loss of $2620, whilst the second applicant had an income of $72,708. In the 2010/11 year, the first applicant earned $24,456 and the second applicant $74,170. In the 2008/2009 year, the first applicant earned $22,980 and the second applicant $41,215. AN average their combined income was around $79,900 per year.
On the whole there was little challenge to the evidence that was given, save with respect to a relative small number of matters.
With respect to the evidence of the applicants there was considerable challenge as to the amount of time that it took them to undertake the tasks of operating as a distributor to carry out the duties required of them under the agreements. They maintained that it took 10 hours per day, seven days per week most weeks, and that they had no holidays and time off.
During cross-examination, it became clear that they were not operating entirely in accordance with the recommended methodology of work provided by the respondent, which may have increased the amount of time it took to carry out their duties. The main departure was not utilising a computer generated instruction sheet for walkers as this would require, in the applicants’ view, the printing of a large number of sheets. Instead, they created their own instructions.
On balance, I accept the submissions that this was likely to have increased the amount of time that it took to carry out the duties. Whether the applicants could have carried out their obligations in a lesser time than it actually took them, had they adopted more streamlined work practices, is a difficult question. On balance, I am persuaded that their tasks could have been done more efficiently.
Counsel for the respondent, identified a number of significant reasons for doubting the evidence of the applicants as to their hours:
a)That whilst the amount of work altered from week to week, the claim as to the number of hours worked remains essentially static;
b)In July 2009 the second applicant took on a two thirds increase in the numbers of areas to which he delivered, yet there does not appear to be any change in the working hours;
c)The applicants’ attempts to explain what they did during the working day and the time that it took were less than clear. In this regard, I have paid careful attention to the reality that often administrative work takes far longer than one would imagine simply hearing the lists of tasks involved.
d)There are no records as to the time actually spent working among all the tasks done, even though the proceedings were commenced some 16 months prior to the termination of the distributorships, allowing ample time for at least some weeks of careful recording of the activities undertaken and the time that they took to demonstrate the number of hours required to perform the work.
e)The evidence then shows that at least with respect to the GPS checks the applicants substantially overestimated the time that it took them to carry out that work, in comparison to the times recorded on the computer system of the respondent.
With respect to the actual hours worked, there were no contemporaneous records kept to evidence the particular number of hours worked each day, and reliance is placed upon the oral evidence of the parties. The period involved is a particularly long period. There is no independent evidence as to the amount of time it would ordinarily take to carry out the duties involved in the agreements. There is no detailed description of the time taken for various activities each day. Ultimately I struggle to accept that the tasks required the amount of time they are said to have taken. In this respect I accept the force of the submissions of the Respondent’s counsel that the hours alleged by the applicants do not appear to alter despite large variations in the volume of materials processed from week to week.
I have had regard to the claims that the affidavits should be the subject of scepticism because there is significant content that is similar or identical in both affidavits. Where the applicants are both giving evidence of similar things and working together, it is not surprising that a solicitor may have minimised the costs of affidavit preparation by reusing material. I am not persuaded that in the context of this case that this is a reason to doubt the evidence of the applicants.
Whilst I generally accept the evidence of Mr Kerr, my impression of his demeanour in the witness box and answers was that he was particularly desirous of giving answers that would assist the respondent’s case.
On the issue of whether or not the respondent would have permitted the applicants to bill the respondent direct and pay the walkers themselves, I do not accept his evidence that this would have been permitted by the respondent. The only method by which this would be available in the system the respondent had in place would be for the applicants to insert their own names in the computer system as the walkers for the various walking routes, even though others had carried out this work. This would, in effect, require them to falsify the records as to who the walker was for a particular route. Further, it appears to me to be unlikely that the respondent would permit such arrangements that would potentially leave walkers unpaid, and potentially the respondent being dragged into disputes, when the respondent had established a computer and payment system specifically for this purpose.
The second witness for the respondent, Mr Gianfriddo, presented well in the witness box, albeit a little nervous when giving evidence. I generally accept his evidence.
It is clear from the authorities that, as Buchanan J said in Ace Insurance Ltd. v Trifunovski [2013] FCAFC 3, there is no single or unifying test to determine whether an employment relationship exists (at para 102) and it is therefore appropriate to proceed to consider the nature of the relationship and the conduct of the parties in this particular case.
The appropriate starting point is to consider the nature of the contract between the parties. The contract provided for the applicants to be responsible for the distribution of material in a defined area. Importantly, by clause 3.3 of the agreement, the applicants were entitled to:
…carry or cause to be carried out distribution of the material at such times and in such manner as the Distributor shall determine.
The contract goes on to provide that the applicants:
3.4 May contract or otherwise arrange with such other persons as the Distributor may appoint to undertake deliveries of material within the area or for causing such material to be delivered, provided that it is on the same terms and conditions as this Agreement…
…
3.6 Agrees that the Distributor is an independent contractor and not an employee and agrees that as an independent contractor the Distributor has no entitlement to annual/sick or long service or any other leave nor any other payments or allowances.
The agreement provided that the applicants were responsible for insurance (clause 3.7), and specifically identified that they would be responsible for the cost of conducting their obligations including transport, telephone and other facilities (clause 3.8). Under clause 3.10, they appointed the respondent as their agent to make payments to walkers, and authorised the respondents to deduct from the fee payable to them as distributors such amounts as were directed to be paid to the walkers. This was effected by the respondent’s computer system, which provided for the applicants as distributors to enter the details of the walkers and the amount of work they carried out each week.
Clause 4.5 provided for the provision of manuals, documents and stationery as the distributor might reasonably require for the performance of the agreement. Under clause 4.6, the distributor was required to advertise for and recruit persons in order to carry out the agreement, which primarily consisted of walkers. Under clause 5, it was open to the distributor to assign the agreement provided that they notified the respondent. Under clause 6, the parties agreed there was no obligation on the applicants to accept any particular distribution from the respondents, although on a practical level this was likely to have led to no further work.
The agreement could be terminated by either party on the giving of one month’s notice in writing under clause 7.
In the distribution manual that was provided, at clause 2.2, the respondent specifically identified that the applicants had the right to contract with any other person or organisation. It also identified that the applicants were responsible for organising the processes and work flow to satisfactorily meet the requirements of the contract.
The right to delegate all or any of the delivery process is specifically identified in the manual where it states:
You can delegate any or all of the delivery process to others including:
· family or friends assisting in accepting and sorting of material,
· an acquaintance that takes on the whole process whilst you are sick or on holidays,
· deliverers who are subcontracted by you, to deliver within certain portions of your area (S), called delivery territories (DTS).
Over the years that the parties were engaged in this agreement the applicants conducted their taxation affairs as contractors, claiming deductions for expenses such as a lease on warehouse premises (when they ceased operating from home due to the expanded volume of material) and complying with GST obligations. The compliance with GST obligations placed little onus upon the applicants in this case as arrangements were set up by the respondent to remit the GST on their behalf on the basis of recipient generated tax invoices.
The premises that they leased were located by them, and part of the premises were used by their son who stored material for his own business and allowed them to utilise his forklift when materials were delivered by the respondent. The applicants also met the associated expenses with respect to the leased premises, such as telephone, internet, water and electricity services, and rubbish removal.
Whilst the applicants engaged hundreds of walkers throughout the periods, the process of hiring the walkers was facilitated by the respondents placing advertisements and providing the contract terms and electronic payment infrastructure, as well as effecting payments as directed. However, each of the walkers was interviewed by the applicants and chosen by them and allocated work by them.
There is some dispute to whether or not the walkers would be terminated at the direction of the respondent, and it appears that on at least one occasion a walker was terminated as the applicants took the view that that was the respondent’s desired. Whilst on a pragmatic level, the applicants were in that case carrying out what they perceived to be the wishes of the respondent it does not appear to have been put to them in such a way as to be a formal direction or requirement. No doubt, as occurs in many business, the continuation of a particular walker’s services may have harmed their business relationship with the respondent whose business was printing and arranging distribution of advertising material for other companies. Whilst I accept that the applicants considered they had to terminate the particular walker, on balance I find that it was no more than strong advice from the Respondent, not a direction, nor intended to be acted upon as a direction.
The applicants’ rights to delegate performance and distribution services were taken up on one occasion by the applicants, consistently with the terms of the contract. There does not appear to have been any indirect pressure of significance on the applicants not to delegate their business or utilise an employee to carry out that part of the work that they carried out themselves.
Whilst the applicants did not contract through a body corporate, it was open to them to do so and it appears that others who engage in similar arrangements with the respondent choose to do so. It is perhaps indicative of the Respondent’s confidence that this was a contract arrangement that they did not insist upon the applicants operating through a company structure. However, the applicants do appear to have worked at least in a loose form of a joint venture or partnership, given the fact that most of the expenses appear to be claimed by the first applicant on his tax rather than the second applicant. Both undertook the work out of various households of both theirs and their sons and at the least assisted each other from time to time in the carrying out of their obligations under the contracts. Their meetings with the respondent were held jointly and their resources often jointly used. Indeed the respondent suggested that they consider a company structure for their business but did not require them to do so.
Whilst the applicants were not subject to any requirement to work exclusively for the respondent, it seems that in the industry in which they were involved, it was not practicable at the time to take work for the other major publisher. This did not prevent them undertaking smaller piecemeal work, and on one occasion they distributed material for a pizza restaurant. Whilst this was not an option taken up by them more than once, they were not prevented from seeking out work (although on a practical level it have been confined to local business due to the size of their region) to provide the delivery of pamphlets and leaflets in order to increase the breadth of their business.
It is argued by the respondent that the use of the forklift, and their investment in specialised weighing machines (to overcome the time and effort required to count the number of copies of pamphlets for walker bundles) indicates significant commercial tools of trade utilised by the applicants. Whilst a scale is not necessary in order to break large quantities of pamphlets into appropriate bundles for walkers, in order to make the engagement profitable a specialised scale would be necessary. However, the purchase of scales and office computers remain modest tools, compared to many businesses and equipment.
The payment rates were based upon the number of pamphlets and, therefore, it left open to the applicants to improve the profitability of their undertaking if they could improve the efficiency of the undertaking. The argument that the undertaking would have to be carried out in the most efficient way possible for the applicants to make a reasonable income from their duties, does not distinguish this case from many involving businesses that have small profit margins. Indeed some businesses require significant capital infrastructure to create sufficient efficiency to be able to profitably carry on a business.
The tax affairs of the parties were arranged on the basis of the applicants operating a small business, although with considerable support from the respondent.
The applicants did not have responsibility to accept work from the respondents, although on a practical level were in a position where if they declined to accept work, they may not continue to receive work from the respondents.
The applicants argue that the central feature of the case was that the applicants were not operating a business on their own account but were part of the business operation of the respondents. It is difficult to accept the argument that the applicants were effectively part of the business of the respondents. The business operations were conceptually not dissimilar to a supply distribution centre carrying out the distribution requirements of an online retailer. One would not consider such a situation leading comfortably to the notion that a distribution centre or the particular carriers or couriers were necessarily the employees of the retailer. Similarly, in this case, whilst there may be some argument as to whether or not the walkers were in fact employees of the applicants, the applicants were carrying out the business of effecting distribution of the material.
The fact that the applicants did not generate their own saleable assets is not a significant factor, given that a very large proportion of businesses in Australia’s economy are no longer in the manufacturing sector.
Whether or not goodwill was generated in a form that would be saleable depends largely on the arrangements that the parties had made. If the efficiency of the business and the payment rates from the respondent were such as to demonstrate considerable profitability, the applicants’ business undertakings were potentially saleable, albeit for a small sum given the limited period of notice that would be required under the contract. Had the applicants generated a large number of smaller customers, it is quite conceivable that their business would have had goodwill.
It is most unfortunate for the applicants that at the end of their undertaking, after so many years, they have so little to show for all their efforts. However, the same is often seen of shopkeepers who do not renew their lease in order to retire and are unable to find a buyer for the particular store. This, of itself, does not indicate that the parties were in an employer/employee relationship.
In argument considerable weight was placed upon the extent of the control of the respondents over the applicants’ performance of their obligations. Control of the manner of the execution of the tasks required is a significant factor in cases such as these. However, control must also been seen in the context of modern business arrangements. For example, in many franchise agreements the extent of control by the franchisor of the manner in which the franchisee must conduct their business descends to incredible levels of minutiae. Indeed, it is only by an extensive level of control that in some franchise arrangements, the level of uniformity that is a central part of the business model is achieved: for example, in fast food Restaurants.
The respondents provided the applicants with a detailed manual as referred to above. This manual runs to 47 pages and contains considerable detail with respect to the operation of the arrangement. Given the nature of the respondent’s business, it’s not surprising that there are considerable requirements with respect to the timelines for performance of the distribution of the materials, and systems for audits to ensure material is delivered (which today utilises GPS technology on mobile phones) and processes for complaints that material has not been delivered.
A computer system had been created by the respondents to provide for instructions to walkers, which included, according to the manual, the capacity to include “newsletter” items for walkers. The manual is replete with recommendations as to efficiencies that can be achieved at various steps in the process, including many boxed areas of text headed “Best Practice Guideline”.
Reading the manual as a whole leads to the clear impression that it is recommendations and guidelines as to the best practices that could be adopted in undertaking of the tasks, as well as containing requirements that are necessary in order to enable the respondent to meet its obligations to its own clients.
That the respondents took considerable interest in the detail of the business operation of their distributors is, in one sense, indicative of an employer and employee relationship, but also indicative of the practical difficulties that businesses confront if a contractor is not complying with relevant regulations, and in some cases even if they are not operating ethically. It is not at all unrealistic to consider that large retailers, such supermarkets, would be wary of risking their standing in the community by dealing with a contractor or subcontractor who was not in compliance with relevant regulations.
When considering the relationship as a whole, I am not persuaded that the nature of the relationship in this case is properly characterised as one of employer and employee, rather than, that of contractor.
As I am not persuaded that the applicants have established that the nature of their arrangement was an employment arrangement, I am not persuaded that there is any adjustment owing to them.
If I were to be wrong in relation to the categorisation of the arrangement, I am nonetheless not persuaded that they worked 70 hours per week as claimed for the reasons set out above. In the circumstances, there is little evidence before me from which I can form any clear view as to the likely number of hours that the applicants worked, nor what would be a reasonable number of hours for the particular tasks to be carried out. I am therefore unable to make specific findings as to the hours actually worked or reasonably required for the tasks.
Unfair contract claim
The applicants also bring an alternative claim pursuant to the Independent Contractors Act 2006, seeking a review of their contracts pursuant to s.12 of the Act. Section 12 provides:
12. [Court may review services contract] (1) An application may be made to the Court to review a services contract on either or both of the following grounds:
(a) the contract is unfair;
(b) the contract is harsh.
(2) An application under subsection (1) may be made only by a party to the services contract.
(3) In reviewing a services contract, the Court must only have regard to:
(a) the terms of the contract when it was made; and
(b) to the extent that this Part allows the Court to consider other matters--other matters as existing at the time when the contract was made.
(4) For the purposes of this Part, services contract includes a contract to vary a services contract.
Section 12 must be read in conjunction with sections 15 and 16, which provide:
15. [Powers of Court] (1) In reviewing a services contract in relation to which an application has been made under subsection 12(1), the Court may have regard to:
(a) the relative strengths of the bargaining positions of the parties to the contract and, if applicable, any persons acting on behalf of the parties; and
(b) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, a party to the contract; and
(c) whether the contract provides total remuneration that is, or is likely to be, less than that of an employee performing similar work; and
(d) any other matter that the Court thinks is relevant.
…
(3) If the Court forms the opinion that a ground referred to in subsection 12(1) is established in relation to the whole or a part of the services contract, the Court must record its opinion, stating whether the opinion relates to the whole or a specified part of the contract.
(4) The Court may form the opinion that a ground referred to in subsection 12(1) is established in relation to the whole or a part of the services contract even if the ground was not canvassed in the application.
16. [Orders that Court may make] (1) If the Court records an opinion under section 15 in relation to a services contract, the Court may make one or more of the following orders in relation to the opinion:
(a) an order setting aside the whole or a part of the contract;
(b) an order varying the contract.
(2) An order may only be made for the purpose of placing the parties to the services contract as nearly as practicable on such a footing that the ground on which the opinion is based no longer applies.
(3) If an application under this Part is pending, the Court may make an interim order if it considers it is desirable to do so to preserve the position of a party to the services contract.
(4) An order takes effect on the date of the order or a later date specified in the order.
(5) A party to the services contract may apply to the Court to enforce an order by injunction or otherwise as the Court considers appropriate.
(6) Subject to section 14, this section does not limit any other rights of a party to the services contract.
This is not a case where the unfairness alleged with respect to the contract relates to a termination condition nor a restraint of trade, or other ancillary provision in the contract. The case is put a similar basis the basis of that in Buchmueller v Allied Express Transport Pty Ltd [1999] FCA 319, to the effect that applicants were paid substantially less for their work than that which they would have been entitled had they simply been working as employees, in circumstances where there were no significant attractions to justify the financial disadvantage. It was argued this leads to a finding that the rates set out in the contract were unfair and harsh. The case is thus put on the basis that if the provisions of the contract are set aside, then a claim could be pursued on a quantum merit basis, that the award provides a good basis for assessing the reasonable remuneration that should be paid.
I take into account that the time for determining whether or not a contract for services is unfair or harsh is at the time of making the contract: see Informax International Pty Ltd v Clarius Group Ltd [2012] FCAFC 165 at [48].
Whilst there may have been some argument with respect to the fairness of the termination clauses of the contract (particularly if a leased warehouse was required to do the work), this leads to no benefit to the applicants in this case, given that they have now ceased to carry out the work by their choice, not on the termination of the respondents.
In some cases, the benefits of working as a contractor are attractive, and compensate for the difference in earnings compared to working in employment, such as the flexibility of working hours, potentially longer term financial benefits (such as obtaining additional work from persons other than the respondent), and the ability to work autonomously and not in a workplace where a supervisor or boss is directing one’s activities.
Importantly, if a person in the position of the applicants does not in fact have the skills to make a business profitable, where others may have been able to profitably operate, this does not necessarily show that the contract is harsh or unfair (although is some circumstances may show unfairness if known to the other party).
In circumstances where I am unable to make a finding as to the number of hours per week that were realistically required to carry out the work the subject of this contract it is not possible to make the type of comparison contemplated in Buchmueller v Allied Express Transport Pty Ltd. Nor is this a case where the amounts earned by the applicants operating the business in the manner in which they did, are so low as to demonstrate, of themselves, that the contract could not be carried out at the level of profitability commensurate with employment (if the work did not require fulltime engagement).
As a result, on the material before me, I am not able to find on the balance of probabilities that the contract in this case is unjust or harsh within the meaning of the Act.
In the circumstances, I therefore dismiss the application.
I certify that the preceding fifty six (56) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Date: 15 February 2016
Correction
Certification date amended to delivery date.
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