Contractor or employee – the debate continues on a much larger scale
Almost 17 years after the High Court handed down its seminal judgment in Hollis v Vabu, the debate regarding the distinction between contractor and employee continues. This time, however, the debate has taken the form of a Federal Court of Australia class action in Bywater v Appco Group Pty Ltd  FCA 707.
In discussing Bywater, this article looks at class actions as a mechanism for workers to collectively pursue employers for underpayment, sham contracting and other breaches of the Fair Work Act 2009 (Cth) and the effect such a phenomenon may have if it takes off.
For a period of about two years, Jacob Bywater engaged in marketing and selling merchandise to the public on behalf of various charities and organisations. Mr Bywater provided these services pursuant to an agreement he entered with Onshore Sports Group Pty Limited and, later, Bay Marketing Group Pty Limited. Both agreements provided that Mr Bywater was engaged as an “Independent Contractor”. Mr Bywater, however, claimed that he was in fact engaged as an employee of Appco Group Australia Pty Limited (Appco). Appco is one of the world’s largest sales and marketing organisations, conducting face-to-face marketing and fundraising on behalf of its clients.
On 8 December 2016, Mr Bywater commenced representative (class action) proceedings pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) (Act). Mr Bywater, as the representative party, claims that Appco failed to pay him and each other class member ordinary rates of pay, overtime, termination payments, superannuation and allowances pursuant to the Fair Work Act and applicable modern awards.
Mr Bywater asserted that he had been misclassified as an independent contractor, when he was in fact an employee, and that, as such, he was owed in the vicinity of $130,000 in employment entitlements. Mr Bywater further asserted that Appco had established a “standardised system” for engaging people to undertake work in a manner that had the appearance of an independent contractor, but was in fact an employment relationship.
Appco, rather than filing a defence, filed an interlocutory application seeking a declaration that the proceedings were not properly commenced as representative proceedings. Specifically, that the proceedings did not give rise to any substantial common issue of law as between class member, as required by section 33C(I)(c) of the Act, because the Court would be required to consider the totality of the relationship between Appco and Mr Bywater, as well as each other class member, to determine if that individual was in fact an employee or contractor. This could only be done by the Court looking at each individual engagement with Appco.
The Court referred to the decision of Hollis v Vabu, which provides that the “relevant factors” to be considered to determine the nature of the work relationship are very broad and the weight given to any one factor may vary from case to case, with no one factor or list of factors being determinative. Considering this, the Court needed to determine whether the alleged “standardised system” represented the totality of the relationship between Appco and the class members.
In the alternative, Appco sought an order pursuant to section 33N(I) of the Act that the proceedings no longer continue as representative proceedings, as it could not materially assist in resolving the claims of each class member. The Court held that such a position was premature and could not be made out at such an early stage of the proceedings.
Common issue of law or fact
Mr Bywater proposed six questions he said were common to the claims of the class members. These six questions, put simply, all centred on whether it was possible or open for the Court to determine whether all class members were independent contractors or employees based on the alleged “standardised system”.
The Court turned to the pleadings in order to make its determination given “it’s the pleading which has precedence over any other evidentiary assertions”. In other words, the Court held that a conclusion that the proceedings do not give rise to a common question cannot be reached by reference to the evidence to be given, but only on the pleadings before it.
The Court found that Mr Bywater’s pleadings established a “standardised system” for the engagement of class members to undertake Appco’s sales and marketing business, and that there were seven key elements to the “standardised system”:
- Appco arranged for the incorporation of “Marketing Companies” such as Onshore Sports Group Pty Limited and Bay Marketing Group Pty Limited;
- the Marketing Companies were required to enter into arrangements with Appco which included a requirement that they conduct their business in a certain way;
- the Marketing Companies were required to provide the face to face marketing services exclusively to Appco’s clients or campaigns;
- the Marketing Companies entered into “Independent Contractor Agreements” with the class members. These agreements were standard from and prepared by or for Appco for the use by every Marketing Company;
- the “Independent Contractor” was required to engage in face to face selling and marketing in a manner determined by Appco, including, wearing photo identification identifying them as a representative of Appco, and on the terms and remuneration determined by Appco;
- Independent Contractors progressed through various positions during the course of their engagement. At each position the duties and remuneration were fixed and determined by Appco; and
- all Independent Contractors could be terminated, or disciplined, in accordance with a scheme imposed by Appco.
Although the Court acknowledged that the test to determine whether an individual is an employee or an independent contractor is multifaceted, with individual circumstances to be taken into account, it would not hypothesise or speculate about what evidence may or may not be adduced at the hearing. The Court held that Mr Bywater may very well fail to establish the “standardised system” was “invariable” or “highly prescriptive”, which would cause the proceedings as framed to fail, but that it need only need find, and in fact did find, that the pleadings before it give rise to a substantial common issue of law as required by section 33C(I)(c) of the Act.
Appco’s interlocutory application was dismissed.
The ramifications of getting the distinction between independent contractor and employee, as well as other breaches of the Fair Work Act have always been an expensive mistake for employers. Considering the decision in Bywater, that mistake appears to have become significantly more expensive. There are now said to be more than 1,400 participants in the proceedings, with a claim value of $85 million.
Traditionally underpayment claims and other Fair Work claims are commenced on an individual basis, and usually settled early to avoid incurring large and unrecoverable defence costs. Bywater has paved the way for employees, some of which may have not in the past had the ability, resources or know-how, to commence or be a part of litigation. With collective support and litigation funders, the barriers to litigation are no longer as high as they once were for the lone employee.
As has also been reported in the media, Caltex is potentially facing two class actions, one by franchisors and one by employees alleging systemic underpayment and exploitation of workers at over 1,800 service stations around Australia.
The ramifications can extend to unfavourable media attention and public backlash, from which it can be extremely difficult for a business to recover. We saw this with underpayment claims against 7-Eleven.
For employers, when deciding what method of engagement suits your business and in fact the method currently adopted by your business, it is important to consider the totality of the relationship in the circumstances. Consider the following:
- how much control does your business have over the worker?
- does your business set a system or practice under which the worker is required to work?
- is the worker entitled to engage others to do his/her work or must the worker perform personal service?
- is the worker’s remuneration dictated by the business?
Whilst this list is by no means exhaustive, it contains important questions that should be asked by any business which engages or is seeking to engage an individual as an independent contractor.
4 September 2018