29 Aug 2012

Contractor v Employee - The Cost of Getting it Wrong

ACE Insurance ("Company") had engaged the applicants as agents, in some cases for over 15 years.  The Company had legal advice early on that by engaging the people as agents, they were not employees.  However, shortly after they got that advice, one case (and then several years later another case) in the High Court dealt with the distinctions between contractors and employees. Even though the advice may have been right at the time it was given, it was no longer the case that the agents were contractors.  The consequence was that the agents accrued leave as if they were employees. 

In the matter before the Court, there were arguments that the workers had taken their annual leave.  Even if they hadn’t taken all of their leave, given that it was the practice of the business to close down for 2 weeks over the Christmas/New Year period, it was argued that that amounted to annual leave.  The question that the Court considered was whether what the workers took was "paid leave".  The workers received commissions not only on their own sales, but on the sales of other people and continued to receive income even when they weren’t working.  This was true for a period of up to 30 days, which the Company argued was consistent with being entitled to 4 weeks of paid leave a year. The Court rejected this argument and held that payment of commissions for the work of other agents was not payment for the time that these agents took off. 

The upshot of it all? Each of the workers was found to be entitled to annual leave of 4 weeks per year of service.  That meant that the worker who had over 15 years' service was entitled to over 60 weeks of annual leave.  This was despite the fact that it was clear that he had taken time off over those years.

There were arguments before the Court about the rate at which the particular workers should be paid, both for their annual leave and the long service leave that they were found to have been entitled to because of the length of their engagement by the Company.  The time at which their engagement by the Company ended was a critical factor in deciding the rate because of the application of an Award that had a provision dealing with annual leave.  This meant that for some of the workers, the rate payable for annual leave accrued was far higher than it was for others.  (This is unlikely to still be a factor in the same way given that, since that time, annual leave has gone from being an Award entitlement to an entitlement under the Australian Fair Pay and Conditions Standard and now the National Employment Standards have a specific definition for what rates should be paid during annual leave).  The consequence was that one of the agents was found to be entitled to over $300,000 in accrued leave entitlements, the remainder of the total of $500,000 being allocated between the four other agents.

Once again, the Court has given a very salutary reminder to businesses that errors that are made in determining the nature of an engagement can sometimes have massive consequences many years later.  That again means that there is no time like the present to review your existing arrangements.

For further information, contact our Workplace Relations Team in your state:

Victoria - Sam Eichenbaum
sam.eichenbaum@mk.com.au
(03) 9794 2634

New South Wales - Lesley Maclou
lesley.maclou@mk.com.au
(02) 8298 9537

Queensland - Stephan Gifford
stephan.gifford@mkqld.com.au
(07) 3235 0418

Tasmania - Audrey Mills
audrey.mills@doma.com.au
(03) 6210 0070