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21 September 2011

A basic premise that flows from a principal/contractor arrangement is the proposition that a principal is not liable for the negligent acts of a contractor.1 This is not the case in relation to the negligent acts of employees for which employers are vicariously liable under statute.2 However a particular question that is often raised in Courts is whether a contractor is indeed an independent contractor or an employee. There are a number of tests the Courts apply to determine the relationship between the parties however this article focuses upon the control test.

By far the most important test in determining this question is the control test. The general rule as set out in Stevens v Brodribb Sawmilling Company Pty Ltd,3 is that the greater the control or the right of control over the individual the more likely he is to be an employee.

In that case the facts were that Stevens (S) and Gray (G) were engaged by the sawmill as bulldozer and truck drivers. Each owned their own vehicle and were engaged to load and transport logs for the sawmill. They serviced and supplied fuel for their own vehicles and were paid on the basis of the volume of logs transported. The Sawmill did not deduct tax from their payments. One suffered injury whilst working and claimed compensation as an employee.

The High Court held that they were not employees rather independent contractors since the degree of control exercised over them was minimal. The level of control was also assessed by the Court with regard to the following factors:

  1. S&G had their won equipment,
  2. They set their own working hours,
  3. They were paid by volume not by time,
  4. There was no guarantee of work,
  5. There was no tax deducted from their pay, and
  6. G had delegated work

However whilst control is the most important factor it is the totality of the relationship between the parties that will determine the nature of the relationship.4

In Hollis v Vabu Pty Ltd,5 Hollis suffered serious injury when run over by a cyclist who was contracted by Vabu. Vabu (t/as Crisis Couriers) were a courier business and argued that all its drivers/riders were contractors because they owned, operated and repaired their own bicycles or vehicles and were engaged and paid as contractors.

The High Court found that bicycle couriers performing work on behalf of Vabu were indeed employees. Despite some indicia of a principal/independent contractor relationship, the Court found the following indicia to be of enough importance to declare an employment relationship:

  1. the bicycle couriers were not providing skilled labour or labour which required special qualifications;
  2. the couriers had little control over their work. Evidence did not show whether they could delegate the work but the High Court thought not;
  3. the couriers wore Vabu’s logo;
  4. Vabu managed the couriers' finances by making deductions and the like.
  5. The couriers had no bargaining power to set the pay.

In Boylan Nominees Pty Ltd t/as Quirks Refrigeration v Sweeney,6 Mrs Sweeney was injured by a fridge door that came off its hinges whilst in a petrol station. She sued the petrol station owner and Boylan, the company that owned the fridge. However she did not sue the Mr Cominos, the contractor who Boylan sent to repair the fridge some hours before it injured Ms Sweeney.

The Court held that the injury was due to the negligent manner in which Mr Cominos performed his work. It also held the principal (Boylan) was not vicariously liable for the contractor (Cominos) for the following reasons:

  1. The principal did not exercise control over the work carried out by the contractor;
  2. There was an absence of mutuality of obligation to provide work for a particular period and to work for that period;
  3. The contractor carried out work under his own business name (incorporated);
  4. The contractor provided its own equipment and tools;
  5. The contractor bought spare parts from other suppliers;
  6. The contractor was paid on a piece work basis;
  7. The contractor provided its own workers' compensation, public liability insurance and superannuation;
  8. The contractor did not wear a uniform of the principal;
  9. The contractor conducted its own business, drove a business-owned and branded vehicle.

In Massey v Crown Life Insurance Company,7 Mr Massey was employed by Crown Life as a branch manager from 1971 to 1973. In 1973 by consent he was employed as a contractor however his duties and responsibilities remained unchanged. In 1975 he was terminated and he commenced proceedings arguing that he was an employee. In that case Lord Denning MR stated:

…if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it....

In determining whether a person is an employee or a contractor the courts consider the totality of the relationship between the parties and not just the labels and definitions given to the relationship by the parties. In Re Porter: Ex Parte TWU,8 Justice Gray in determining whether truck drivers who supplied their own vehicles were contractors or employees eloquently stated:

The parties cannot create something which has every feature of a rooster but call it a duck and insist that everybody else recognise it as a duck.

Some Indicative Features/Questions

  1. Is the worker entitled to control the work accepted?
  2. Is the worker entitled to control the manner in which the work is performed?
  3. Is the worker required to supply his own tools and equipment?
  4. Is the worker paid on completion of the task?
  5. Is the worker paid by the hour?
  6. Is the worker taking commercial risk in performing the work?
  7. Is tax and superannuation deducted from the workers' pay?
  8. Is the worker paid holiday and sick pay?
  9. Does the worker have his own insurances?
  10. Does the worker wear his own uniform?
  11. Is the worker able to simultaneously work for others?
  12. Is the worker permitted to subcontract work?
  13. Does the worker employ staff?

1 Quarman v Burnett (1840) 151 ER 509.
2 Law Reform (Vicarious Liabillity Act) 1983 (NSW).
3 (1986) 160 CLR16.
4 Zujis v Wirth Brothers Pty Ltd (1995) 93 CLR 561, 571.
5 (2001) 207 CLR 21.
6 [2005] NSWCA 8.
7 (1978) 1 WLR 676.
(1989) 34 IR 179, 184.