Case Updates:  In this article we take a look at two recent employment law cases, one which deals with whether an individual was engaged as an independent contractor or an employee and one where an Employer has sought to reduce redundancy pay owing to five former employees.  

Employee vs Independent Contractor

Chiodo v Silk Contract Logistics [2023] FCA 1047

In this recent Federal Court case the court was once again tasked with determining whether a truck driver was an employee of the Respondent or whether they were operating as an independent contractor. 

In this matter the truck driver sought to be declared as an employee of the Respondent from July 1997 until the date of the application, claiming that he was owed approximately $480,000 of superannuation, annual leave and long service leave. The truck driver was primarily engaged through the use of corporate structures pursuant to various oral and implied contracts to provide cartage services to a business that was eventually taken over by the Respondent.  

If that sounds familiar, it is because it shares a similar factual background to the significant High Court Case of ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek) which was heard in conjunction with Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting). It was in these decisions handed down last year, that the High Court emphasised that where the rights and duties of an employment relationship are contained in a written contract (and that contract is not a sham) that the obligations established by that contract are decisive of the character of the relationship. In other words it will be the contract between the parties that is determinative of whether the relationship is one of employment or independent contract. 

These cases overturned the previous approach of the court looking at the totality of the relationship between the parties. In the post Jamsek and Personnel Contracting era it is the contractual rights that are established between the parties that are determinative of their relationship. Where there is no written contract between the parties, the identification of the parties contractual rights must proceed somewhat differently but the fundamental task is the same: the parties’ contractual rights and obligations are to be ascertained and characterised. The question that must be determined therefore is what were the legal rights between the parties and not how the parties behaved in the performance of their conduct.  However where there is no written contract, the parties conduct must necessarily be considered in order to draw inferences as to whether a contract has been created and what the obligations under that contract are. 

In determining that the truck driver was an independent contractor in Chiodo v Silk Contract Logistics [2023] FCA 1047,  the Federal Court emphasised that by working the hours that he pleased and not having to seek permission to leave early or take time off granted Mr Chiodo significant control over his work. Drawing reference to Jamsek (which involved a partnership) the Court highlighted that the truck driver had benefited from the use of a corporate structure which resulted in significant tax benefits throughout his engagement. Other pertinent factors included that the various companies operated by the Applicant owned the truck he drove, that he was paid significantly above (approximately 300%) the Respondents’ other truck drivers and ultimately that there was no relationship between the Applicant (personally) and the Respondent for the majority of the engagement as he had operated under a corporate structure.  

The court remarked that it was clear that the Applicant was never an employee of the Respondent, and noted that although the court proceedings had not involved the previous company which had engaged the Applicant the same conclusion would have been reached if it were required to make that determination. 

This decision further highlights approaches courts will take following the decisions in Personnel Contracting and Jamsek and provides further guidance on the employee or independent contractor test. We note that the proposed Closing Loopholes Bill seeks to introduce a definition of ‘employee’ and ‘employer’ which would require their ordinary meaning be determined by reference to “the true nature of the relationship” and would mark a return to the multi-factorial test that was used prior to Personnel Contracting and Jamsek. 

Can an Employer reduce an Employee’s Redundancy Pay?

RingIR Pty Ltd [2023] FWC 2023 (4 September 2023)

In this matter before the Fair Work Commission (FWC) the Applicant RingIR Pty Ltd had made an application to reduce the redundancy pay payable to five former employees to nil on the basis that it could not afford to pay the amounts. Section 120 of the Fair Work Act 2009 (Cth) allows an employer to apply to reduce (or avoid) paying redundancy pay when it cannot afford to do so, or where it has found employees other acceptable employment.

The question before the FWC was whether the amounts owing to the employees should be reduced, and if so by how much? 

As part of the proceedings the Applicant also sought to argue that it was a small business employer (less than 15 employees) and should therefore be exempt from paying any redundancy payments. In rejecting this argument the FWC identified that the Applicant’s US parent company RingIR Inc. was an associated entity as defined under the Corporations Act 2001 (Cth) as it was the sole shareholder and had significant control over RingIR Pty Ltd. Between the two entities there were 17 employees at the time of making the Respondents redundant so therefore the Applicant was not a small business employer.  

The FWC was ultimately unconvinced that the Applicant could not afford to pay the five employees redundancy pay and found that it would be inappropriate to reduce the amount owing to them. In making this decision the FWC evaluated the financial position of the company including its cash flow, current and future loans and significant tax credits it was to receive from its research and development.  The decision of the FWC was ultimately underscored by the Applicant’s decision to give its new CEO a pay rise of $110,000 after they had  met their undisclosed targets in early July 2023.  The FWC found that there was no reason that the CEO and the Applicant could not agree in good faith to delay the pay rise to ease the financial pressure on the business especially in the circumstances where the entitlements owing to the five employees equalled $106,673.08. 

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