Independent contractors deemed employees

On 25 October 2011, Justice Perram of the Federal Court of Australia (Court), decided that five insurance agents, engaged as independent contractors by ACE Insurance Ltd, were really employees, and as such, were entitled to annual and long service leave (ACE Insurance Ltd v Trifunovski [2011] FCA 1204).

The agents were paid commission, used their own vehicle, did not have income tax deducted from their earnings, issued tax invoices for their services, and had executed contracts reflecting their agreement to be engaged as independent contractors.

However, the tax invoices were generated by the company, and issued to itself; the agents accrued no goodwill in their own businesses; were unable to work for any other insurer; sold only the company’s policies to company customers; and were trained by the company on business systems developed and maintained by the company. In the circumstances, the Court found, “[having] no good will, they [agents] had no business which could be sold. In real terms...they [agents] were...under [the company’s] practical control”.

The hierarchical structure, specialised training and opportunity for advancement were seen as key factors in finding that the agents were in fact employees and not independent contractors. The Court found, “...there was only one business being conducted and that was [the company’s] business of renewing the policies of its existing customers and chasing up those which had lapsed or cancelled”.

Key Points: It is very important that the “label” given to the relationship reflects the true nature of the relationship...that is, if it walks like a duck and quacks like a duck – it’s a duck, and you must treat it as such. No matter whether the parties agree the relationship was a contractor/principal relationship, the Court can find the relationship was an employment one, if the evidence points to this.