Case Analysis Stevens V Brodribb Sawmilling Co Pty Ltd Essay

Introduction The Classification between an independent contractor and employee has raised a number of issues throughout the past 50 years. Failing to create an effective formality to be applied by the courts to any particular case, it has lead to commercial uncertainty through Australia. This essay will analysis Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 decision regarding the high court process in distinguishing between whether there was an relationship between the employer of employer/employee or employer/independent contractor. Facts While working for Brodribb Sawmilling Co, Stevens and Gray were employed by Sawmilling Co Pty Ltd as a trucker and snigger. During 1985, while Gray was moving a Log onto Stevens truck, the log fell off and rolled off the truck, as a result, Stevens was injured1. These truckers and sniggers used their own vehicles, worked during the time they set out, were paid by the amount of timber delivered and did not deduct income tax installments2. Both employees owned and used their own equipment and vehicles, were never guaranteed work from the Sawmill3 and were free to seek other work if factors such as the weather prevented them from working4. Issue 1. To establish whether Gray and Stevens were employees or independent contractors while employed by Sawmilling Co. Rationale Decidendi The legal principle that the High Court applied in Stevens5, in regards to employee/independent contractor, was the ‘multiple indicia test’. This test is used to identify a number of criteria that the court can use, when distinguishing between employees or contractors. In regards to Stevens, Control was weighed as the significant factor when deciding between employee/contractor during the case. Judgement and Analysis Stevens6 was held in favour of Sawmilling Co Pty Ltd, classifying the two as  independent contractors through the application of the ‘indicia’. The test was originally established in 1968 in the UK 7, recognising a number of criteria to be used when assessing relationships. The test was established in response to a collapse of the previous test, the control test, which had been found to be more suited to the social conditions of earlier times, becoming obsolete in modern society8. It was found that due to technological developments, the control test had become inconsistent with the retention of effective control9, as employees skills now exceed that of their employers 10. This meant by using the application of the ‘indicia’ test, Stevens would be able to determine the relationship between the two workers. When applying the test in Stevens, the outcome of the courts decision failed to clarify which criteria was to be used when determining future cases. Stevens had adapted its ratio from previous cases, looking at the whole relationship between the individuals, making a decision on balance11 through the application of the particular criteria; the relationship of master and servant, mode of remuneration, provision and maintenance of equipment, obligation to work, hours or work, deduction of income tax and the delegation of work by the employee12. This left a problem open for interpretation, the weight that the court applied to the different ‘indicia’ on any particular case13. Previous cases before Stevens offered little help in defining the relationship between the employer and contractor, as the legal concept remains largely undefined except in terms of the various indicia, which varies between cases 14. In modern society many employers don’t process the knowledge to be able to tell their employees what to do, failing to address distinction between the relationship between employer/employee15. Stevens’ decision used control as the significant factor when determining control, weighing the balance in favor that they were contractors. Therefore, when attempting to make a judgement between employee/contractor, it can be misleading for future cases where control isn’t the significant factor, as it is no more than a guide to the existence of the relationship between master and servant. Furthermore, Stevens was self-employed, therefore in performing his contract, he used his own tools, which indicates that he was not a servant16. However,  Stevens places too little emphasis on what defines a contractors tools, which was seen in 2001 Hollis v Vabu17. The court applied the legal principles held in Stevens18, however held that the courier was an employee, not a contractor. Although the couriers provided their own tools and equipment, it actually involved ‘little capital outlay as such tools were not only capable for use as a courier, but could be used for other general purposes’19. This provides a great example of the weight that Hollis places on another particular criteria that the test, when applied in Stevens, was able to effectively establish whether they were contractors, but left much open, leading to commercial uncertainty. Impact on Subsequent Cases The impacts that followed Stevens20 saw major changes in the Industrial Relations Act 1988, the Superannuation Guarantee Act 1992 and the liability to deduct pay as your earn installments21. Businesses started avoiding the statutory obligations owed to their employees, saving up to 17% by classifying its employees as contractors22. Consequently an entirely new industry rose, attempting to take advantage of the multi-test, structuring their business so it appeared to be one of employer to independent contractor, then employer to employee23. The consequences of this was subsequently seen in Vabu v Taxation24, having avoided lodging superannuation guarantee statements, Vabu was found guilty of avoiding the minimum level of payment of superannuation for all of its couriers25. Future and Commercial implications The commercial implications that arose form Stevens26 found large corporations using the capacity of the Multi-Test to ‘minimise social wage costs, providing legal validation for the businesses to classify employees as contractors’27. These individuals became stand-in employees, still under the control of these corporations, with the ‘formality of freedom as an illusory trap’28. Therefore this has meant, that by applying Stevens multi-factor test, more times than less, the type of worker will be classified as an independent contractor, which means they will only have limited rights under the Act 29. By wrongfully labeling employees, it can have potentially serious consequences for the employer, opening up claims  for unfair dismissal, vicarious liability, potential prosecution and financial penalties, particular in regard to company’s failure to pay tax30. The effect of Stevens has meant that many businesses are now exposed to having to pay hundreds of thousands of dollars back to the government from past taxes31. Conclusion In conclusion there seems that the Multi-Indicia test is without its faults, but it is without doubt that Stevens32 was an independent contractor. However without further legislation, further developments in regard to the employee or independent contractor will be limited to the interpretation of the test by future judges, as businesses will try and continue to avoid payments and mandatory benefits to its employee’s. Bibliography Case Law Federal Commissioner for Taxation v J Walter Thompson Pty Ltd (1944) 69 CLR 227 (at 231) Hollis V Vabu Pty Ltd (2001) 207 CLR 21 Jackson & Wilson v Monadelphous Engineering Associates Pty Ltd (1997) 42 AILR 3-658 Leichhardt Municipal Council v. Montgomery (2005) NSWCA 432 Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968) 2 QB 497 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 Translators Agency Pty Ltd v Commissioner of Taxation (2011) FCA 366 Vabu Pty Ltd v Commissioner of Taxation (1996) 81 IR 150 Vabu Pty Ltd V FC 96 ATC 4898 Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 Legislation Fair Work Act 2009 (Cth) Independent Contractors Bill 2006 (Cth) Industrial Relations Act 1988 (Cth) Superannuation Guarantee (Administration) Act 1992 (Cth) Articles/Books/Journals Carrigan, F. ‘A Blast From the Past: The Resurgence of Legal Formalism’ (2003) 27 (1) Melbourne University Law Review 186-199 Catanzanti, J. ‘Two limbed test distinguishes employees from contractors’ (2011) 49 (6) Law Society Journal 52-56 Chan, T. E. ‘Organisational Liability in a health care system’ (2010) 18 (3) Torts Law Journal, 228 Chin, D. ‘Losing Control: the Difference Between Employees and Independent Contractors after Vabu v Commissioner of Taxation’ (1996) 52 Law Society Journal 52 De Plevitz, L. ‘Dependent Contractors: can the test from Stevens v Brodribb protect workers who are quasi-employees?’ (1997) 13 Queensland University of Technology Law Journal 263-275 Franklin, G., Lilburne, R. ‘Joint Employment: Possible pitfalls with the use of labour hire in the resources industry’ (2005) Australian Mining and Petroleum Law Association Yearbook 275-299 Gava, J., ‘Another blast from the past or why the left should embrace strict legalism: a reply to Frank Carrigan’ 27 (1) (2003) Melbourne University Law Review 186-199 Jay, D. J. ‘Employees and Independent contractors, (1999) 73 Australian Law Journal Volume 30-34 Lockton, D. Employment Law (4th ed. 2005) 137 Marshall, B. ‘Working it out – Employee or independent contractor’ (2006) 12 (5) The National Legal Eagle 14-19 Nieuwenhuysen, J. ‘Towards flexibility in academic labour markets?’ (1985) 11 Australian Bulletin of Labour 271-81 Steckfuss, K. ‘The Regulation of Unpaid Superannuation Contributions: The Inspector-General of Taxation’s Review into the ATO’s Administration of the Superannuation Guarantee Charge’ (2011) 24 (3) Australian Journal of Labour Law 281-294 Stuhmcke, A. Essential Tort Law (2nd ed 2001) Terry, A. and Ginugni D. Business and the law (5th ed 2009) 819- 8-20 Vincent, R. ‘What are the tax effects of incorporating legal practises?’ (2002) The Law Society of New South Wales 45 Other Sources Australian Government, Fair Work: Independent contractors and Employees Fact Sheet (2012) at 15 May 2012 Australian Government, Facts sheets: Independent Contractors (2012) http://www.abcc.gov.au/Factsheets/Independentcontractors/Pages/AmIanIndependentContractor.aspx> at 16 May 2012 Australian Government, Independent Contractors: The Essential Handbook (2012) at 12 May 2012 [pic] 1 De Plevitz, L. ‘Dependent contractors: can the test from Stevens v Brodribb protect workers who are quasi-employees?’ (1997) 13 Queensland University of Technology Law Journal 263-275 2 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 3 Gava, J., ‘Another blast from the past or why the left should embrace strict legalism: a reply to Frank Carrigan’ 27 (1) (2003) Melbourne University Law Review 186-199 4 De Plevitz, L. ‘Dependent contractors: can the test from Stevens v Brodribb protect workers who are quasi-employees?’ (1997) 13 Queensland University of Technology Law Journal 263-275 5 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 6 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 7 Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968) 2 QB 497 8 De Plevitz, L. ‘Dependent contractors: can the test from Stevens v Brodribb protect workers 9 Carrigan, F. ‘A Blast From the Past: The Resurgence of Legal Formalism’ (2003) 27 (1) Melbourne University Law Review 186-199 10 De Plevitz, L. ‘Dependent contractors: can the test from Stevens v Brodribb protect workers who are quasi-employees?’ (1997) 13 Queensland University of Technology Law Journal 263-275 11 Australian Government, Facts sheets: Independent Contractors (2012) 12 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 13 Terry, A. and Ginugni D. Business and the law (5th ed 2009) 819- 8-20 14 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 15 Stuhmcke, A. Essential Tort Law (2nd ed 2001) 16 Franklin, G., Lilburne, R. ‘Joint Employment: Possible pitfalls with the use of labour hire in the resources industry’ (2005) Australian Mining and Petroleum Law Association Yearbook 275-299 17 Hollis V Vabu Pty Ltd (2001) 207 CLR 21 18 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 19 Franklin, G., Lilburne, R. ‘Joint Employment: Possible pitfalls with the use of labour  hire in the resources industry’ (2005) Australian Mining and Petroleum Law Association Yearbook 275-299 20 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 21 Jay, D. J. ‘Employees and Independent contractors, (1999) 73 Australian Law Journal Volume 30-34 22 De Plevitz, L. ‘Dependent contractors: can the test from Stevens v Brodribb protect workers who are quasi-employees?’ (1997) 13 Queensland University of Technology Law Journal 263-275 23 De Plevitz, L. ‘Dependent contractors: can the test from Stevens v Brodribb protect workers who are quasi-employees?’ (1997) 13 Queensland University of Technology Law Journal 263-275 24 Vabu Pty Ltd v Commissioner of Taxation (1996) 81 IR 150 25 Catanzanti, J. ‘Two limbed test distinguishes employees from contractors’ (2011) 49 (6) Law Society Journal 52-56 26 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 27 Carrigan, F. ‘A Blast From the Past: The Resurgence of Legal Formalism’ (2003) 27 (1) Melbourne University Law Review 186-199 28 Carrigan, F. ‘A Blast From the Past: The Resurgence of Legal Formalism’ (2003) 27 (1) Melbourne University Law Review 186-199 29 Catanzanti, J. ‘Two limbed test distinguishes employees from contractors’ (2011) 49 (6) Law Society Journal 52-56 30 Jackson & Wilson v Monadelphous Engineering Associates Pty Ltd (1997) 42 AILR 3-658 31 Translators Agency Pty Ltd v Commissioner of Taxation (2011) FCA 366 32 Stevens V Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16