Smith v Korima Pty Ltd

[1996] IRCA 532

DECISION NO:532/96

C A T C H W O R D S

INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - whether employee or contractor - CASUAL EMPLOYMENT - whether VALID REASON for termination - application dismissed.

Industrial Relations Act 1988 (Cth) Ss 170 DE (1), 170EA.
Industrial Regulations Reg 30B.

Massey v Crown Life Insurance Co [1978] 1 WLR 676.
Purvis v Chieftain Management Pty Ltd t/as Brookes Maintenance Service IRCA No 200 of 1996, Marshall J, 6 May 1996, unreported.
Quality Bakers of Australia Ltd v Goulding & Anor (1995) 60 IR 327.
Re Porter; Re Transport Workers Union of Australia (1989) 34 IR 179.
Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371.
Stevens v Brodribb Sawmilling Company Pty Limited (1986) 160 CLR 16.
Victoria v Commonwealth (1996) 138 ALR 129.

Wayne Edward SMITH -v- KORIMA PTY LTD Trading as TRENDWEST PAINTING 
WI 1068 of 1996

BEFORE:       R. D. FARRELL JR
PLACE:          PERTH
DATE:            5 November 1996

IN THE INDUSTRIAL RELATIONS    )
COURT OF AUSTRALIA                   )
WESTERN AUSTRALIA  )
DISTRICT REGISTRY  )         

No. WI 1068 of 1996

BETWEEN:  

Wayne Edward SMITH
  Applicant

AND:  

KORIMA PTY LTD
  (trading as TRENDWEST PAINTING)
  Respondent

MINUTE OF ORDERS

BEFORE:               R. D. FARRELL JR

PLACE:                  PERTH

DATE:  5 November 1996

THE COURT ORDERS THAT:

1.         The application is dismissed.

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

IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY

WI 1068 of 1996

BETWEEN:

Wayne Edward SMITH
Applicant

AND:

KORIMA PTY LTD
Trading as TRENDWEST PAINTING
Respondent

REASONS FOR DECISION

5 November 1996  R. D. FARRELL JR

1. This is an application under Section 170EA of the Industrial Relations Act 1988 for compensation arising from the alleged unlawful termination of the employment of the applicant, Wayne Edward Smith (“Mr Smith”), by the respondent, Korima Pty Ltd (“the Company”). Reinstatement was not sought, and I am satisfied that it would have been impracticable.

1. The Company conducts a painting business under the name “Trendwest Painting”. That business was chiefly engaged in painting of newly constructed premises. Mr Smith is a painter holding a trade certificate in painting and possessing some twelve years’ experience, who began working for the Company as a painter and decorator on 8 May 1995. At that time the Company was involved in painting a group of townhouses known as the “St James Estate” in the locality of Northbridge in Perth, though Mr Smith later worked for the Company at another location. Mr Smith ceased working for the Company on 21 December 1996, in circumstances which he contends amounted to an unlawful termination of his employment.

1. His application, though dated 2 January 1996, was not filed until 15 January 1996. An order granting an extension of time in which to file the application was not opposed by the Respondent. 

1. The Respondent contends that Mr Smith was not employed by the Company, but rather that he was an independent contractor. Alternatively, if the Court were to find that there was an employment relationship, the Respondent contends that Mr Smith was engaged under a contract of employment for a specific task, and was also a casual employee engaged for a short period. If the respondent is correct in any of these contentions, then the unlawful termination provisions of the Act would not apply to Mr Smith.

1. Finally, the Respondent contends that, even if the unlawful termination provisions of the Act apply to Mr Smith, his employment was terminated for a valid reason based on the operational requirements of the undertaking or service. There was, the respondent says, a genuine redundancy.

1. The applicant disputes that there was a genuine redundancy. He says the real reason for the termination was that he was raising matters relating to his work entitlements with management shortly before he was terminated.

1. As this matter was heard before the decision in Victoria v Commonwealth (1996) 138 ALR 129, the Court also heard submissions as to whether the dismissal was harsh, unjust or unreasonable. Given the High Court’s ruling that Section 170DE(2) of the Act is invalid, I have had no regard to those submissions.

1. The Court heard evidence from Mr Smith and from Mr Emilio Lucarelli (“Mr Lucarelli”), a managing director of the Company.

Whether Mr Smith is an Employee

1. Mr Smith bears the onus of proving that, as at 21 December 1995 when he ceased work, he was an employee of the Company.

1. Section 4 of the Act defines an employee as including any person whose usual occupation is that of employee. Mr Smith’s status must therefore be determined through the application of common law principles.

1. A leading statement on the correct approach to the issue of the existence or otherwise of an employment relationship is that of Mason J in the High Court decision of Stevens v Brodribb Sawmilling Company Pty Limited (1986) 160 CLR 16 at 24:

   “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...

   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... 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.”

1. The evidence is consistent that when Mr Smith was engaged at the Northbridge site he was, at least initially, a casual employee.

1. Mr Lucarelli explained in his evidence that his team of painters consisted of some employees and some independent contractors. It is notable that on almost all of the standard indicia of employment status, there was no evidence of any difference between the painters Mr Lucarelli regarded as independent contractors and those he acknowledged were employees. The Company contends that Mr Smith became an independent contractor in about June or July of 1995. There is similarly no evidence of any difference in most of the circumstances of Mr Smith’s work after he is said to have become an independent contractor.

1. Mr Smith worked throughout under the direction of Mr Lucarelli, and under the supervision of two supervisors engaged by the Company. He says he would be instructed on matters including how to apply paint, the kind of finish required, the required preparation and the required equipment and materials. Mr Lucarelli disputes that he received such detailed instructions. I am sure that Mr Smith, as a highly experienced tradesman, seldom needed much direction. However, I am satisfied that if, for example, there were a difference of opinion as to the degree of preparation required on a surface to be painted, Mr Lucarelli would have felt able to exercise the right to over-ride Mr Smith’s judgment. This is an instance where the control test is not very helpful, but I am satisfied that the extent of the Company’s control was not inconsistent with an employment relationship. It did not change after Mr Smith is said to have ceased to be an employee.

1. Mr Smith received weekly pay for work performed, calculated at a fixed hourly rate. The Company kept records of the hours worked. No invoices were presented.

1. Mr Smith worked regular hours throughout (eight hours a day from 7:30 am to 4:00 pm with a smoko break at 9:00 am and a half hour break for lunch at 12:00 pm, and at least five days a week from Monday to Friday, and often four to eight hours on a Saturday), which hours were fixed by Mr Lucarelli. Mr Lucarelli maintains that Mr Smith had a right under the contract to choose not to work at particular times, provided the Company was warned “as a courtesy” of his intended absence. “The guys could please themselves when they come in”. There was no evidence that Mr Lucarelli distinguished between his sub-contractors and his employees in this regard. They would be paid for the hours worked. Mr Smith agrees there was never any difficulty in getting time off when he wanted it, provided he got “permission” from Mr Lucarelli. Mr Smith took some time off for the birth of his child and also for Christmas. With regard to Mr Smith’s request for a break over Christmas, Mr Lucarelli says it wasn’t a problem for him, because “we had about 10 or 12 painters there. As long as most of them came in, I didn’t mind if a few wanted to take a break.” He had a deadline to meet at that time. He was not asked what he would have done had most of the painters not wanted to come in.

1. I am satisfied that Mr Smith was never aware of having an untrammelled right to determine his own work hours. He in fact worked very regular hours, and there was no evidence of any change in the position after he is said to have become an independent contractor.

1. Mr Smith did not work for anyone else and had no other source of income while he was working for the Company. Mr Lucarelli says there was no restriction on Mr Smith working for anyone else. Nor was there a restriction on Mr Smith substituting another painter to perform the work for him. Mr Smith was never told he was free to work for someone else or delegate his tasks to another. It never occurred to him and the matter was never tested.

1. It seems that the Company paid amounts into an industry superannuation fund and a so-called “redundancy” fund to Mr Smith’s benefit. I am satisfied this is an accepted practice for workers in the construction industry, whether they be subcontractors or employees.

1. The Company also assumed the obligation of paying worker’s compensation and public liability insurance for Mr Smith; Mr Lucarelli explained that his understanding was that if his contractors didn’t have workers’ compensation insurance, then he was still liable as principal contractor, so he took out the premiums to cover himself. I don’t regard the fact that the Company insured Mr Smith as decisive.

1. With regard to the provision of tools, the Company provided equipment including trestles, stepladders, rollers, brushes and paint. Mr Smith provided his own handtools, including scrapers and filling blades (but not including brushes and rollers). The position as to the supply of tools was the same for employees and independent contractors. I note that clause 32 (6) of the Building Trades (Construction) Award 1987 (W.A.) provides for employee painters to provide some tools and prescribes a tool allowance to that end.

1. Until June 1995, the Company regarded Mr Smith as an employee. I am satisfied that the multi-factorial common law test supports that conclusion. At that time, however, some other factors came into play.

1. Mr Lucarelli was by then becoming concerned that the Company was experiencing large fluctuations in the amount of work required to be done by it, so that its necessary workforce was sometimes as high as fifteen painters and some times less than five. Mr Lucarelli says he wished to ensure that his painters were all either casual employees or independent contractors so that the Company had the flexibility to readily adjust the size of its workforce to meet its requirements.

1. The Company therefore drew up a document headed “Employee Information and Employment Conditions” (“the Employment Conditions Document”). Mr Smith signed this document on 6 June 1995. There was some evidence that he believed he had no choice but to sign the document, but the evidence was insufficient to satisfy me that the document should not be given full effect.

1. The Employment Conditions Document included an acknowledgment that “my employment will be on a casual basis...” and also that “The ‘Last on - Last off’ system will not apply to this employment situation”. The language of employment is used throughout.

1. Counsel for Mr Smith sought to rely on this document. I note that in Massey v Crown Life Insurance Co. [1978] 1 W.L.R. 676 at 679, Lord Denning M.R. stated that:

“...if the parties’ relationship is ambiguous and is capable of being one or the other, 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 legal relationship between them.”

1. But, as Gray J memorably stated in Re Porter; Re Transport Workers Union of Australia (1989) 34 IR 179 at 184:

“...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 attached to it... [T]he 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.”

1. Here it is the Company, which drew up the Employment Conditions Document, which contends that the relationship which the parties called employment is in fact an independent contracting relationship. It does so because of the tax arrangements which were put in place at about that time.

1. The Employment Conditions Document, which speaks only of employment, nevertheless provides the option of “Group Tax or PPS”. In the document signed by Mr Smith on 6 June 1995, the option of Prescribed Payment System (“PPS”) tax at 20% has been selected.

1. Mr Smith and his wife, Sandra, then registered the business name “Bristile and Wool Painting Service” to carry out a painting and decorating business. The registration documents were lodged on 23 June 1995. Mr Smith says it was intended to provide him with the option of working as a sub-contractor if he ever fell out of employment.

1. From 5 July 1995, deductions of 20% PPS tax were made from Mr Smith’s pay, rather than PAYE as was previously the case.

1. Mr Smith says the change to PPS tax was Mr Lucarelli’s idea. He says he was told by Mr Lucarelli to sign the PPS form, and did so initially on 4 July 1995. Mr Smith listed the business name on the PPS form. He says this was because he believed he had to notify the Taxation Department that he had registered a business. There was a space for a business name. Mr Smith by then had a business name. He filled it in. He also later filled in the business name’s tax file number, when it came to hand.

1. Mr Lucarelli’s approach to differentiating between his employees and his sub-contractors was refreshingly clear-cut. If they had a business name, then they were independent contractors and he deducted PPS tax. If they did not, they were employees and he deducted Group or PAYE tax. I am satisfied that when Mr Smith told Mr Lucarelli that he was intending to take out a business name, Mr Lucarelli automatically went about putting the arrangements in place.  

1. In Massey v Crown Life Insurance Co. at 681, Lawton L.J. began his judgment thus:

“In the administration of justice the union of fairness, common sense and the law is a highly desirable objective. If the law allows a man to claim that he is a self-employed person in order to obtain tax advantages for himself and then allows him to deny that he is a self-employed person so that he can claim compensation, then, in my judgment, the union between fairness, common sense and the law is strained almost to breaking point.  The applicant is asking this court to adjudge that he is entitled to make claims with two different voices...”

1. In that case, and in Purvis v Chiefton Management Pty Ltd (unreported, IRCA, Marshall J, 6 May 1996, No. 200 of 1996) individuals deliberately arranged their affairs so that they obtained the tax advantages of independent contractor status. The Courts have quite rightly held that applicants cannot have it both ways.

1. The situation here is somewhat different.

1. Mr Smith says he did not regard himself as yet being in business with his wife. That was something he had set up for the future. The fact that Mr Smith allowed his registration with the Painters Registration Board to lapse on 6 February 1995, in the belief that he would not be operating a business, and allowed it to remain lapsed in the months after July 1995 lends support to the proposition that he did not consider himself to be in business at that time.

1. Mr Lucarelli took the initiative in putting the tax arrangements in place. I accept that Mr Smith did not appreciate the implications of providing his business name details to the Taxation Department at that time. Mr Smith described himself alone as the Payee for the purposes of the PPS form - not the partnership with his wife.

1. From 5 July 1995, the payslips for Mr Smith’s work were paid out to Bristile and Wool Painting Service. However, there was no evidence, as in the Purvis case, that the money was paid into an account in the business name, or even into a joint account with his wife. In fact, Mr Smith was paid in cash.

1. The timing is such that Mr Smith had never filed a tax return for the relevant period. He says he has since received advice from his accountant that he must pay tax at a PAYE rate. Certainly Mr Smith could hardly do otherwise now, given his submissions in this case.

1. Rather than having it both ways, therefore, it seems Mr Smith is in danger of missing out altogether.

1. I accept Mr Smith’s contention that he did not consider himself to be conducting a business and that he went along with setting up the PPS taxation arrangements without realising the implications.

1. I have some misgivings with the proposition that signed documents as obviously important as taxation forms should not be given full effect. However, I am concerned finally with the reality of the relationship between the Company and Mr Smith. If something flows from his misleading completion of the taxation forms then that is a matter for the Taxation Department.

1. I am satisfied that Mr Smith will not benefit from the taxation arrangements that were set up. I therefore see no reason, in the circumstances of this case, for regarding the completion of the PPS forms as changing his status from that of employee to independent contractor.

1. I therefore find that Mr Smith was at all times an employee.

Whether Mr Smith Was Engaged Under a Contract of Employment for a Specific Task

1. Regulation 30B(1)(b) of the Industrial Relations Regulations excludes an employee engaged under a contract for a specific task from the protection of the unlawful termination provisions of the Act.

1. I am satisfied Mr Smith was not such an employee. He worked for the Company first in Northbridge, then briefly in Fremantle and then on another job in Northbridge. There was no renegotiation of the contract between locations. The so-called “redundancy pay” was not paid out when each “job” was completed.

Whether Mr Smith was a Casual Employee Engaged for a Short Period.

1. Regulation 30B(1)(d) also excludes a casual employee engaged for a short period from the protection of the unlawful termination provisions of the Act.

1. Subregulation 30B(3) provides that a casual employee is to be taken to be engaged for a short period unless:

(a)           the employee is engaged by a particular employer on a regular and systematic      basis for a sequence of periods of employment during a period of at least 6      months; and

(b)           the employee has, or but for a decision by the employer to terminate the     employee’s employment, would have had, a reasonable expectation of     continuing employment by the employer.

1. I am satisfied that Mr Smith’s employment was of a casual nature. It was conceded that he was first employed on that basis. The casual nature of his employment was reaffirmed when he signed the Employment Conditions Document. He was never paid and never claimed annual leave or sick leave. He did not work the week commencing Monday 24 July 1995 when there was no work for him. He was not paid and did not claim pay for that week. He also did not work for most of the week commencing Thursday 7 September 1995 when his wife was having his child, though on any view that could be explained as leave without pay. There was nothing other than the effluxion of time to point to any change in the nature of Mr Smith’s employment, and the very terms of Regulation 30B contemplate the possibility of casual employment relationships extending beyond six months.

1. The total length of Mr Smith’s employment relationship with the Company extended from early May 1995 to late December 1995; in excess of six months. He certainly worked on a regular and systematic basis while he was working. He had the breaks to which I have referred above, so that there were three periods of employment over the course of the employment relationship.

1. The third period of employment came to an end when Mr Smith asked for a break over Christmas. He also asked to be paid out his “redundancy” money. It seems clear the entitlement to this money was not strictly limited to circumstances where a worker’s employment had been terminated.

1. Towards the end of the year, there was no particular reason for Mr Smith to expect that there would not be a continuing relationship at the conclusion of that job, whereby he would move on to work for the Company on the next job, albeit perhaps after a short break.

Whether There was a Termination of Employment

1. When Mr Lucarelli found in late December that the Company would have no work for Mr Smith at the time of his scheduled return, Mr Lucarelli wrote to Mr Smith in the following terms:

“Dear Wayne,

Due to lack of work I am sorry to have to advise you that as of today your services as a contractor to Trendwest Painting are no longer required. If circumstances change I will contact you to see if you are available for more work.

As you are aware you were paid up in full before Christmas break so no money is outstanding to you. I would like to advise you however that the adjustment to your Superannuation is being worked out and the extra contribution amounting to $50.00 per week from 10th October, 1995 will be made in the next payment to Jacques Martin for C-BUS. You will be able to see this on your statement from them.

Thank you for your work to date and I wish you well with your contracting.

Yours faithfully,

(signed)

Emilio Lucarelli

Managing Director”

1. Mr Lucarelli explained that he assumed Mr Smith would need some such letter in order to qualify for Social Security payments.

1. I am satisfied that the provision of the letter and, to a lesser extent, the payment of the redundancy money, brought the employment relationship to an end in a way that the taking of the earlier breaks had not.

Whether There was a Valid Reason for Termination

1. Section 170EDA(1)(a) confers the onus on the employer to prove that there was a valid reason for the termination of the employee’s employment connected with the employee’s capacity or conduct or based on the operational requirements of the undertaking, establishment or service.

1. Mr Lucarelli explained that, while Mr Smith was away on his Christmas break, the Company met its deadline to complete work on the buildings that Mr Smith had been working on when he left. The next buildings to be begun were not ready, and required a smaller team than that engaged when Mr Smith had been working.

1. Mr Lucarelli had adopted a policy of rotating his workforce to share the work around. Mr Smith had been kept on almost continually since May 1995, including a period when he was given work in Fremantle when many other painters had been put off. In Mr Lucarelli’s view it was Mr Smith’s turn to have some time off.

1. I accept that Mr Lucarelli intended the Employment Conditions Document to be an express disavowal of any principle of seniority in the allocation of available work. I am conscious that the “rotation” policy would have the effect of reducing the likelihood of long-term employment relationships. However, it has other justifications. It is, in terms of Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371, sound, defensible and well founded, rather than capricious, fanciful, spiteful or prejudiced. Like the seniority system, it is capable of objective application.

1. The applicant did not contend that it was not necessary for anyone to be put off, nor that Mr Smith was not, under the policy, the appropriate person to be selected.

1. Mr Lucarelli’s evidence on these matters was not exhaustive. However, in the absence of contradiction, I find it sufficient.

1. The only remaining issues pertain to the consequences of the Company’s failure to consult and give notice: Quality Bakers v Goulding (1995) 60 IR 327.

1. The law pertaining to those requirements developed before the High Court struck down Subsection 170DE(2). The extent to which it is still applicable, if at all, is now doubtful.

1. In any event, it was always inappropriate to apply those principles which developed in the context of large, stable workforces, in an unconsidered manner to smaller workforces such as this, where the prospect of a shortage of work was always a possibility, if not necessarily an expectation.  

1. I do not find any failure to consult or give notice sufficient in these circumstances to render the termination invalid.

Conclusion

1. Accordingly, the application is dismissed.

   I certify that this and the preceding 15 pages
   are a true copy of the reasons for decision of
   Judicial Registrar R.D. Farrell.

   Associate:
   Dated:  5 November 1996

   APPEARANCES

   Counsel appearing for the applicant:  Mr R. Castiglione

   Solicitors for the applicant:                 Dwyer Durack

   Counsel appearing for the respondent:    Mr K.A. Reid

   Solicitors for the respondent:              Ilbery Barblett

   Date of Hearing:  3 May 1996

   Date of Judgment:  5 November 1996