Tabone and Secretary, Department of Employment

[2018] AATA 2138

Tabone and Secretary, Department of Employment [2018] AATA 2138 (6 July 2018)

Division:GENERAL DIVISION

File Number:    2016/1709 

Re:Joseph Tabone  

APPLICANT

Secretary, Department of EmploymentAnd  

RESPONDENT

DECISION

Tribunal:F D O’Loughlin, Deputy President 

Date:6 July 2018  

Place:Melbourne

The Tribunal sets aside the decisions under review. For the purposes of s 6(6) of the Act[1], the Applicant was an employee of Pentridge Village[2] who had unpaid wages at the time of termination of his employment. 

[1]Fair EntitlementsGuarantee Act 2012 (Cth).

[2]Pentridge Village Pty Ltd.

........................................................................
F D O’Loughlin, Deputy President

Catchwords

EMPLOYMENT ENTITLEMENTS – Claim for advance under Fair Entitlements Guarantee Act 2012 — whether Applicant an employee or a contractor – unpaid remuneration due to insolvency event – Applicant initially engaged as contractor – relationship with employer changed over time to that of employee – change to employment relationship not reflected in formal arrangements between Applicant and employer – decision set aside

Legislation

Fair Entitlements Guarantee Act 2012 (Cth) ss 6(6), 10(1), 12

Cases

Hollis v Vabu Pty Ltd (2001) 207 CLR 21
ACE Insurance v Trifunovski [2013] FCAFC 3
On Call Interpreters and Translators Agency v Federal Commissioner of Taxation (No 3) [2011] FCA 366
Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (1997) 37 ATR 528
Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210
Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16

REASONS FOR DECISION

F D O'Loughlin, Deputy President

6 July 2018

1. This application concerns whether entitlements under the Act[3] arise in respect of the Applicant’s remuneration for services rendered to Pentridge Village that went unpaid due to insolvency of Pentridge Village.  Disposition of the application turns on whether the Applicant’s relationship with Pentridge Village was an employment relationship, and if so, whether it commenced more than six months before the earlier of the end of the relationship or the appointment of an insolvency practitioner for the employer.

   [3]Fair EntitlementsGuarantee Act 2012 (Cth).

2. The Applicant had an arrangement under which he provided services to Pentridge Village and was paid for them at an hourly rate.  He maintains that from at least late 2012 he was an employee and that that employment terminated in August 2014 whereas the Respondent contends that there is sufficient evidence in all of the circumstances to conclude that the Applicant was never an employee or if he was this only commenced in February 2014 and the six month rule excluding entitlements under the Act operates.

   Legislation

3. Central to the present application are:

   (a)s 10(1) of the Act which is in the following terms:

   SECT 10

   Conditions of eligibility for advance

   General conditions

   (1)  A person is eligible for an advance if the Secretary is satisfied of all of the following:

   (a)  the person's employment by a particular employer has ended;

   (b)  after the commencement of this section, an insolvency event happened to the employer;

   (c)  the end of the employment:

   (i)  was due to the insolvency of the employer; or

   (ii)  occurred less than 6 months before the appointment of an insolvency practitioner for the employer; or

   (iii)  occurred on or after the appointment of an insolvency practitioner for the employer;

   (d)  the person is (or would, apart from the discharge of the bankruptcy of the employer, be) owed one or more debts wholly or partly attributable to all or part of one or more employment entitlements;

   (e)  the person has taken steps, so far as reasonable, to prove those debts in the winding up or bankruptcy of the employer;

   (f)  if the person was owed any of those debts before the insolvency event happened, the person took reasonable steps before that event to be paid those debts;

   (g)  when the employment ended, the person was an Australian citizen or, under the Migration Act 1958, the holder of a permanent visa or a special category visa;

   (h)  an effective claim (see section 14) that the person is eligible for the advance has been made to the Secretary by or on behalf of the person.

   Note:          Subdivision B excludes certain persons from eligibility.

   and

   (b)s 12 of the Act which is in the following terms:

   SECT 12

   Exclusion for being newly employed after working as contractor

   (1)  A person is not eligible for an advance for the person's employment by an employer that has ended if the Secretary is satisfied that all the following apply:

   (a)  the person started to be employed by the employer in the 6 months ending at the earlier of the following events:

   (i)  the end of the employment;

   (ii)  the appointment of an insolvency practitioner for the employer;

   (b)  the person was engaged by the employer, but not as an employee of the employer, before the start of the employment;

   (c)  it was reasonable to expect at the start of that employment that the employer would not be able to meet the employer's obligations under the terms and conditions of that employment for the actual duration and end of that employment.

   (2)  If the person was employed for a partnership by 2 or more of the partners, subsection (1) applies as if each reference in paragraphs (1)(a), (b) and (c) to the employer were a reference to each of the partners who employed the person.

   (3)  This section has effect despite section 10.

4. As observed by the Respondent

   The terms ‘employment’ and ‘employee’ are not defined and section 5 defines ‘employer’ only as … ‘employer includes former employer’.  … [T]aking into account the scope and purpose of the legislative scheme, there is little doubt that the term ‘employee’ refers to an employee at common law and does not extend to contractors.[4]

   [4]The Respondent’s Statement of Facts, Issues and Contentions (RSFIC) at [25].

5. Also as observed by the Respondent the distinction between employee and contractors has been the focus of attention in the Courts many times, with the following principles discernible:

   (a)the totality of the relevant relationship needs to be examined[5] with a variety of indicators to be weighed and assessed including:

   [5]RSFIC at [26] and Hollis v Vabu Pty Ltd (2001) 207 CLR 21; ACE Insurance v Trifunovski [2013] FCAFC 3. See also On Call Interpreters and Translators Agency v Federal Commissioner of Taxation (No 3) [2011] FCA 366 at [220].

   (i)the terms of the relevant contract;

   (ii)the mode of remuneration and in particular whether remuneration was to be paid for a completed job or hours worked;

   (iii)deduction of amounts on account of income tax;

   (iv)attendance to the basic steps usually associated with setting up a business such as obtaining and ABN and insurance;

   (v)the putative employer’s degree of control or right to exercise control over the work to be done, the organisation and allocation of work, the manner in which the work is to be performed, and the place and hours of work;

   (vi)any entitlement or power to delegate work to others;

   (vii)any actual work or entitlement to work for others;

   (viii)advertising of services to others;

   (ix)any exclusive service obligations;

   (x)whether the worker is presented to the public as part of the putative employer’s organisation or a representative of it;

   (xi)rights to paid holidays, superannuation and sick leave;

   (xii)whether the worker has a separate workplace;

   (xiii)whether the worker provides and maintains significant resources or equipment; and

   (xiv)whether the worker is required to bear all expenses and indemnify the putative employer against any losses;

   (b)the distinction between employee and contractor lies in the difference between a person who serves his employer in the employer’s business or pursues his or her own business;[6]

   [6]RSFIC at [27] and ACE Insurance v Trifunovski [2013] FCAFC 3.

   (c)a practical assessment is required;[7]

   [7]RSFIC at [27] and On Call Interpreters and Translators Agency v Federal Commissioner of Taxation (No 3) [2011] FCA 366.

   (d)the test identified by Bromberg J in On Call is a helpful approach to make the distinction.  His honour noted:

   Simply expressed, the question of whether a person is an independent contractor in relation to the performance of particular work, may be posed and answered as follows:

   Viewed as a “practical matter”: 

   (i) is the person performing the work an entrepreneur who owns and operates a business; and, 
   
   (ii)       in performing the work, is that person working in and for that person’s business as a representative of that business and not of the business receiving the work?

   If the answer to that question is yes, in the performance of that particular work, the person is likely to be an independent contractor. If no, then the person is likely to be an employee.[8]

   [8]On Call Interpreters and Translators Agency v Federal Commissioner of Taxation (No 3) [2011] FCA 366 [208].

   and

   A genuine independent contractor providing personal services will typically be: autonomous rather than subservient in its decision-making; financially self-reliant rather than economically dependent upon the business of another; and, (as I have said), chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided.[9]

   (e)formulaic consideration of the various indicators to determine whether a contract is a contract of employment or a contract for services requires care. In Roy Morgan Research Centre[10] the Victorian Court of Appeal said:

   Where, as here, the terms of engagement are not to be found in a written contract but are to be derived from a contract which is partly oral and partly to be implied, the legal character of the relationship created will depend upon the total effect of the terms as they are found to be.  The exercise is not, as Tadgell, JA observed in Green v Victorian Workcover Authority [1997] 1 VR 364 at 375 “a mechanical one”.  Rather it is a matter of obtaining the overall picture from the accumulation of detail.  Tadgell JA described the exercise by citing, with approval, a passage from the judgment of Mummery J in the case of Hall (Inspector of Taxes) v Lorimer [1992] 1 WLR 939 at 944 where his Lordship said of a determination whether a person was a servant or independent contractor:

   “This 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 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.”

   (f)all relevant factors must be weighed in applying the required multi-factorial approach, and, although there may not be a single or unifying test the High Court has emphasised the importance of distinguishing between a person who is an employee in the service of his employer's business, and a person who carries on a business of his own.[11]

   [9]On Call Interpreters and Translators Agency v Federal Commissioner of Taxation (No 3) [2011] FCA 366 at [214].

   [10]Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (1997) 37 ATR 528 at 533, Victorian Court of Appeal (Winneke P, Phillips and Kenny JJA).

   [11]See Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at [40] (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ.); Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210 at 217 (Windeyer J); Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16 at 35 (Wilson and Dawson JJ).

6. There is no error in these principles as advanced by the Respondent.  These principles might be supplemented by the remarks (without citations) of M M Gordon:[12]

   The law has been and remains clear:  it is not what you call something that counts, it is “what it really is” that matters.  A mere label is not sufficient and never will be. 

   In Commissioner of Taxation v BHP, the Full Federal Court said:

   “The true position is that the label that a party uses to characterise payment, in the present case the word “interest”, will not be determinative, although it may have some relevance: cf NM Superannuation Pty Ltd v Young (1993) 41 FCR 182 at 198-9, referred to by the learned trial Judge in this context.  What that relevance may be will depend on the particular circumstances of the case.  A licence does not become a lease because the parties chose to call it one, if it is in truth a licence: Radaich v Smith (1959) 101 CLR 209.  A person does not cease to be an employee and become an independent contractor because the parties use the latter description: Hannan & Allen v Australian Mutual Provident Society (unreported, Supreme Court of Victoria, 15 November 1996).  …..

   [12]M M Gordon (as her Honour was), Principles of Deductibility of Interest, 2003, The Tax Institute,  referring to Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation (1953) 89 CLR 428, Hallstroms Pty Ltd v Commissioner of Taxation (1946) 72 CLR 634, Sun Newspapers Ltd & Association Newspapers Ltd v Commissioner of Taxation (1938) 61 CLR 337 and Radaich v Smith (1959) 101 CLR 209, Australia and New Zealand Savings Bank Ltd v Federal Commissioner of Taxation [1993] ATC 4370 at 4390 and the citation of NM Superannuation Pty Ltd v Young, (1993) 41 FCR 182, and Commissioner of Taxation v BHP [2000] ATC 4659.

   Facts

7. In 2007 or 2008 Mr Tabone bought a Hire a Hubby franchise business and registered a business name in connection with that business.

8. Mr Tabone commenced his engagement with Pentridge Village as a sub-contractor in about 2009.  Pentridge Village was a developer undertaking a residential development project at the former Pentridge Prison site.  The arrangement he entered for remuneration was that he was to be paid $70 per hour and that was to compensate for holidays and entitlements including superannuation.

9. Over time Pentridge Village work grew and a Mr Chiavaroli, who was a director of Pentridge Village at some time before 2012 had represented to Mr Tabone that there were 10 to 15 years of work ahead for him as part of the project.

10. In June 2012 Mr Tabone registered the business name JT Property and Real Estate Solutions when he understood that he had handed the Hire a Hubby business name back to the Hire a Hubby franchisor.

11. By the end of 2012 or the start of 2013, Mr Tabone was working fulltime at Pentridge Village reporting to and taking directions from Mr Chiavaroli.  Mr Tabone was assigned tasks to do on a daily basis in response to emails coming in.  They ranged from maintenance tasks, opening and closing buildings, facilitating inspections and town planning matters.  His role expanded as other people left the organisation.  From early 2013 his role had extended to cover tasks previously undertaken by site foreman, the OH&S officer, the gate keeper and others.  Those tasks allowed entry to and supervision of subcontractors, supervision of tradespeople, utility company contractors, prospective financiers, valuers, council staff, and others.  These positions had become vacant through lack of project funding.  Although not always getting paid, he was asked by Mr Chiavaroli not to leave Pentridge Village and not to commit anywhere else. 

12. Mr Chiavaroli thought Mr Tabone’s role had changed to that of an employee in late 2012 and that his terms of engagement had changed to an employee in early 2014.  His evidence was that financiers had limited what expenses could be paid and that there were budgeted funds available under the item of wages so Mr Tabone was formally made an employee so that he could be paid as such.  His earlier recollection is consistent with Mr Tabone’s evidence, which was that Mr Tabone’s role had expanded and involved taking over duties previously performed by others and being engaged full time on tasks as directed by Mr Chiavaroli.  There may have been further duties added after January 2014 but by that time Mr Tabone’s activities were many and varied as an integral part of the Pentridge Village business at the direction of a controller of that business.

13. From at least as early as 2012, Mr Tabone completed time attendance documents that, according to Mr Chiavaroli, related to his employment activities, billed for his time and itemised the tasks he worked on in his invoices.  He incurred minor expenses on behalf of Pentridge Village on the basis that he would be reimbursed for the expenditure.

14. Mr Tabone was supplied with tools and equipment for his duties, had an office behind the administration staff and was integral to the operations of the Pentridge Village business and regarded as one of the team.  Mr Tabone was not responsible for remedying defective work nor was he responsible for his own insurance.

15. As to formal matters, Mr Tabone had a business name, had an ABN, used the ABN and business name and issued invoices and prepared taxation returns on the basis that his income was subcontract income and not employee income.  He was not paid for holidays or sick leave and pay as you go tax was not deducted from his earnings when they were paid.  Naturally, given the formal arrangements, there would not be any records of Mr Tabone as an employee of Pentridge Village at any government agency.

    Contentions

16. The Respondent contends that both before and after January 2014 Mr Tabone was an independent contractor and the formalities that changed then did not change the substance of the arrangements between the parties.  The Respondent relies heavily on the formal aspects of the arrangements between Mr Tabone and Pentridge Village.

    The facts and the Act

17. The Act calls for determination of whether the relevant person is an employee.  A holistic examination is required.  In undertaking this examination various factors, some suggesting independence as a contractor need to be balanced against other suggesting engagement in an integrated way as an employee. 

18. In the present case all of the factors that suggest independence as a contractor are formal matters that can be put in place independently of the reality of what happens on a day to day basis.  The formal or documentary matters can be put in place to mask what is otherwise an employment relationship or in circumstances that do not reflect anything other than an employee relationship because these matters do not necessarily reflect the reality of what happens on a day to day basis.  Similarly, they can be put in place to reflect what might start as a genuine, or even a borderline, independent contractor relationship and be left in place as the relationship evolves.  Because they are matters not strictly tied to what happens on a day to day basis, they are to be afforded less weight in the total circumstance analysis required.

19. Here the day to day realities are such that they point to an employee relationship from at least as early as early 2012.

20. The conclusion that ought be reached is that Mr Tabone began his relationship with Pentridge village as an independent contractor undertaking maintenance tasks consistent with the terms of the formal arrangements between Mr Tabone and Pentridge Village, and that that relationship had morphed into one of an employee over time and had by 2012 become an arrangement that had changed in substance without the form and formalities changing to reflect the substance.

    Decision

1. The Tribunal sets aside the decision under review. 

22.     I certify that the preceding 21 (twenty-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President F D O'Loughlin

....................[sgd]....................................

Associate

Dated 6 July 2018

Date of hearing	29 June 2017
Date of final submissions	3 August 2017
Applicant:	In person
Advocate for the Respondent	Mr C Sibley
Solicitors for the Respondent	Clayton Utz