Where each Respondent set up a partnership with his spouse and those partnerships executed contracts with the Appellant for provision of delivery services, were the Respondents employees of the Appellant?

ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (9 February 2022)

Intro:-

This is an appeal from the Full Court of the Federal Court of Australia.

Facts:-

Between 1977 and 2017, Mr Jamsek and Mr Whitby ("the Respondents") were engaged as truck drivers by the second appellant's predecessors in business and subsequently by the second appellant itself. That business has undergone several changes of ownership during the period of the respondents' engagements.

The respondents were initially engaged as employees of the company and drove trucks provided by the company. However, in late 1985 or early 1986, the company insisted that it would no longer employ the respondents, and would continue to use their services only if they purchased their trucks and entered into contracts to carry goods for the company. The respondents agreed to the new arrangement and each of Mr Jamsek and Mr Whitby set up a partnership with his wife. Those partnerships purchased trucks from the company and executed a written agreement with the company for the provision of delivery services. Thereafter, the respondents made deliveries as requested by the company. Each partnership invoiced the company for the delivery services provided, and was paid by it for those services. Part of the revenue earned was used to meet the partnerships' costs of operating the trucks. The net revenue earned was declared as partnership income and split between husband and wife for the purposes of income tax.

The 1993 contract and subsequent rate reviews

In 1993, Mr Whitby (for himself and on behalf of Mr Jamsek) and several other drivers approached the company and negotiated a new arrangement under which the partnerships would invoice the company on an hourly rate on the basis of a nine‑hour working day, although it was understood, and the contract provided, that actual hours worked might vary. The partnerships executed a written "Contract Carriers Arrangement" with the company in July 1993 ("the 1993 contract").

The 1993 contract included the following terms:

"1. The Contractors so named are:

a) Separate legal entities both from each other and THORN LIGHTING.

b) Able to work for other parties, providing that such work is not detrimental to either THORN LIGHTING or THORN LIGHTING customers.

c) To present an invoice for work carried out in the preceding week.

2. THORN LIGHTING and the Contractors have agreed:

1. The Contractors will:

a) Undertake carriage of goods as reasonably directed

b) Comply with all Acts, Ordinances, Regulations and By‑laws relating to the registration, third party insurance and general operation of the vehicle within New South Wales.

c) Pay all legal costs, such as tax and duty, payable in respect of the vehicle and keep the vehicle in a mechanically sound, road worthy and clean condition.

d) Be responsible for the vehicle equipment and gear, the safe loading of the vehicle and the securing and weather protection of the load.

e) Exercise all reasonable care and diligence in the carriage and safe keeping of the goods in their charge. Account for all goods by use of run sheets and return of signed delivery dockets or similar documents.

f) Hold at all times and on request produce for inspection, a current driver's licence issued in respect of a vehicle of the class of the vehicle in use and immediately notify THORN LIGHTING if the licence is suspended or cancelled.

g) Not engage or use the services of a driver for the vehicle without prior and continuing approval by THORN LIGHTING. Such driver is to be correctly licensed, suitably dressed, and in all other respects entirely to the satisfaction of THORN LIGHTING.

h) Obtain and maintain a public liability insurance policy for an amount of $2,000,000 or greater in respect of any liability incurred by the Contractor in performance of work for THORN LIGHTING.

Obtain and maintain a comprehensive motor insurance policy over the vehicle including cover for amount of $5,000,000 or greater for third party property damage in respect of one accident.

Ensure that such policies include an indemnity of THORN LIGHTING for any action of the Contractor to which the policy applies.

Produce on request a current receipted copy of such policies.

j) Immediately report any accident to the person in charge of the NSW Branch Warehouse and to attend to any legal requirements at the scene or subsequent to the accident.

k) Not offer his vehicle for sale with any guarantee of either continuity of work for THORN LIGHTING, or implied acceptance by THORN LIGHTING of the purchaser."

The agreement between the partnerships and the company was terminated in 2017. The respondents then commenced proceedings in the Federal Court of Australia seeking declarations in respect of statutory entitlements alleged to be owed to them as employees of the company pursuant to the Fair Work Act 2009 (Cth) ("the FW Act"), the Superannuation Guarantee (Administration) Act 1992 (Cth) ("the SGA Act") and the Long Service Leave Act 1955 (NSW) ("the LSL Act"). In the proceedings, a question arose as to whether the respondents were "employees" for the purposes of the FW Act and the SGA Act and/or "workers" for the purposes of the LSL Act.

The primary judge (Thawley J) concluded that the respondents were not employees of the company, and instead were independent contractors. The Full Court of the Federal Court of Australia (Perram, Wigney and Anderson JJ) allowed the respondents' appeal, holding that the respondents were employees of the company.

The reasons of the Full Court suffered from two errors of approach. The first was the significant attention devoted by that Court (and indeed the primary judge) to the manner in which the parties actually conducted themselves over the decades of their relationship. That was thought to be necessary because those courts took the view that a proper characterisation of the totality of the relationship required a consideration of how the parties' contract played out in practice. The second was the Full Court's reasoning that the disparity in bargaining power between the parties affected the contract pursuant to which the partnerships were engaged, so that the "reality" of the relationship between the company and each respondent was one of employment.

The reasoning of the Full Court cannot be sustained. The respondents were not employed by the company. They were members of partnerships which carried on the business of providing delivery services to the company. The appeal to this Court must be allowed.

This appeal was heard together with the appeal in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd ("CFMMEU v Personnel Contracting"). In the present case, as in CFMMEU v Personnel Contracting, there was no suggestion that the contract between the parties was a sham or had been varied or otherwise displaced by conduct of the parties. There was no claim by the respondents to set aside the contract either under statute or pursuant to equitable doctrines such as those relating to unconscionable conduct. In these circumstances, and for the reasons given in CFMMEU v Personnel Contracting, the character of the relationship between the parties in this case was to be determined by reference to the rights and duties created by the written agreement which comprehensively regulated that relationship. The circumstance that entry into the contract between the company and the partnerships may have been brought about by the exercise of superior bargaining power by the company did not alter the meaning and effect of the contract.

Issue:-

Were the Respondents employees of the Appellant pursuant to Fair Work Act 2009 (Cth) ("the FW Act"), the Superannuation Guarantee (Administration) Act 1992 (Cth) ("the SGA Act") and the Long Service Leave Act 1955 (NSW) ("the LSL Act")?

Consideration:-

The appellants emphasised the finding of the primary judge that the respondents, as members of their partnerships, were engaged in the conduct of their own businesses. That finding was clearly correct. Given that there is no basis for holding that the respondents were otherwise associated with the company, there is no basis for concluding that the respondents were employed by the company. The only relationship between the respondents and the company was that the respondents were members of partnerships that had agreed to make deliveries for the company.

On the orthodox approach to the interpretation of contracts, regard may be had to the circumstances surrounding the making of a contract[94]. The 1986 contract between the partnerships and the company came to be made because of the company's insistence that the only ongoing relationship between the respondents and the company would be that established by the 1986 contract and that the partnerships would own and operate the trucks which would transport the company's deliveries. Given that the genesis of the contract was the company's refusal to continue to employ the respondents as drivers, and the respondents' evident acceptance of that refusal, it is difficult to see how there could be any doubt that the respondents were thereafter no longer employees of the company.

The circumstance that this state of affairs was brought about by the exercise of superior bargaining power by the company weighed heavily with the Full Court; but that circumstance has no bearing on the meaning and effect of the bargains that were struck between the partnerships and the company. To say this is not to suggest that disparities in bargaining power may not give rise to injustices that call for a legal remedy. The law in Australia does provide remedies for such injustices under both the general law and statute. Those remedies were not invoked in this case. As has been noted earlier, the respondents did not claim that the contracts with the partnerships were shams. Nor did they seek to make a claim under statute or otherwise to challenge the validity of the contracts that were made by the partnerships. In Australia, claims of sham cannot be made by stealth under the obscurantist guise of a search for the "reality" of the situation[95].

Even if this disguised submission of sham were to be countenanced, the reality of the situation is that the partnerships, and not the respondents individually, owned and operated the trucks. The partnerships contracted with the company and invoiced the company for delivery services provided by the operation of the trucks. The partnerships earned income from the company, incurred expenses associated with the ownership and operation of the trucks, and took advantage of tax benefits of the structure. It is not possible to square the contention that the respondents were not conducting a business of their own as partners with the circumstance that, for many years, they enjoyed the advantages of splitting the income generated by the business conducted by the partnerships with their fellow partners.

Conclusion:-

The appeal should be allowed, and the orders made by the Full Court on 16 July 2020 be set aside.