Jones v Reander Pty Ltd [1996] IRCA 574

DECISION NO:574/96 CATCHWORDS

INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - UNLAWFUL TERMINATION - EMPLOYMENT RELATIONSHIP - EMPLOYMENT CONTRACT - SERVICES CONTRACT - whether applicant independent contractor or employee - VALID REASON - ABANDONMENT -RESIGNATION - REMEDY - COMPENSATION.

Industrial Relations Act 1988 (Cth) ss170DB, 170DE, 170EA

Connelly v Wells (1994) 55 IR 73; Articulate Restorations and Development Pty Ltd v Crawford (1994) 57 IR 371. Vabu Pty Ltd v Commissioner of Taxation (unreported, NSW Court of Appeal, Meagher, Sheller and Beazley JJA, 6 September 1996).

JONES v REANDER PTY LTD VI96/1008

Before: MURPHY JR Place: MELBOURNE Dates of Hearing: 26 & 27 AUGUST 1996 Date of Judgment: 26 NOVEMBER 1996

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY

VI96/1008

BETWEEN:

ROSLYN ELLEN JONES Applicant

AND

REANDER PTY LTD Respondent

BEFORE: MURPHY JR PLACE: MELBOURNE DATE: 26 NOVEMBER 1996 MINUTES OF ORDERS THE COURT ORDERS AND DECLARES THAT: 1. The respondent has breached ss170DB and 170DE of the Act; 2. The respondent pay to the applicant $2,000 pursuant to s170EE(5) of the Act; 3. The respondent pay to the applicant $11,500 pursuant to s170EE(2) of the Act.

Note: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY

VI96/1008

BETWEEN:

ROSLYN ELLEN JONES Applicant

AND

REANDER PTY LTD Respondent

BEFORE: MURPHY JR PLACE: MELBOURNE DATE: 26 NOVEMBER 1996 REASONS FOR DECISION The respondent trades under the name Entre Nous and is, in common parlance, an introduction agency. The applicant was retained by the respondent from November 1994 until December 1995. She seeks a remedy under s170EA of the Industrial Relations Act 1988 (Cth) ("the Act"). The issues in the proceeding were whether the applicant was an employee, and whether the respondent had terminated her employment. In the event that she surmounted these two defences raised by the respondent, the applicant sought compensation for the respondent's unlawful conduct. The engagement. The applicant's introduction to the respondent came when she answered an advertisement for a senior sales executive position. The advertisement referred to the need for experience in selling "intangible products". The applicant has been involved in weight-loss centres and thus had the necessary experience. She had an interview with Ms Rosalind Neville, a director of the respondent, and on her evidence was engaged within about five minutes. The two negotiated working hours. The applicant was to work five days a week, 9.00 am to 5.00 pm on Monday to Wednesday, and 12.00 noon to 8.00 pm on the other two days. She was to be paid by cheque on a commission structure related to her weekly sales. The applicant's evidence was that it was made fairly clear to her that Ms Neville "wanted any staff in the sales department to be self-employed". She said she was told to "either form a company or open a bank account in a business name" because Ms Neville didn't want any responsibility "for employing people". The applicant said there was no discussion in the original interview as to whether she was to be an employee or independent contractor. In cross-examination she agreed that when she was interviewed by Ms Neville she was told she would be an independent agent and she agreed to that. In early December 1994, about two weeks after she commenced, there was a meeting of staff to discuss the nature of their employment. An agreement was produced and staff were told it was better to have the "money in our bank account than the tax man's". Those present were told to sign the agreement or they would not have a job. Ms Neville's evidence on this point was that sales consultants were given a choice as to whether they would be employees or contractors. She said that at the time she had both on her staff. Further, she arranged for her accountant to provide the advice to the consultants as to whether they would prefer to take their own tax out. The applicant admitted that a short time after she commenced she was handed an agreement and signed it. The applicant also admitted that she rendered invoices to the respondent in the name "Ros Jones - Consultancy". She registered the business name "Roslyn Jones Consultancy" in April 1995. The agreement. Ms Neville said there were two forms of agreement in use at the respondent for staff. The form in use for employees was not produced. The document signed by the applicant ("the agreement") (Exhibit A1) describes her as a "Sales Consultant" and that she agrees to be an "Independant (sic) Agent". The agreement makes reference to the "employment period" and is to take effect from 1 January 1995. It provides that the Sales Consultant is engaged in the capacity of sales consultant or "such other capacity" as the respondent may from time to time determine. It provides that the Sales Consultant will comply with all lawful directions and shall comply with the House Rules. The agreement also provides that the Sales Consultant shall devote the whole of his or her time during the hours he or she is engaged exclusively to the respondent. It provides for unpaid leave, a one month probation period, and a restrictive covenant. The applicant struck out clauses related to "other employment" (Clause 4.3), termination by reason of sick leave (8.1), and non-compensation for termination of the agreement (8.3), from her copy of the agreement. The agreement is a curious document. It appears to have originated as an employment agreement but to have been modified to purport to describe an agreement between the respondent and the applicant as an independent agent. The terms relating to control over the agent are so comprehensive that they appear to relate to that of an employee. Similarly the clauses relating to leave entitlements (Clause 7.1) and the requirement for the provision of a medical certificate for sick leave (7.3), suggest that the agreement has been the subject of a very haphazard modification. The agreement makes reference to "House Rules". A version of the House Rules was in evidence (Exhibit A3). This lays down detailed administrative rules relating to procedures within the office. It also states that leave must be requested in writing. Associated with the House Rules was a procedure that required all staff to strictly adhere to set scripts when dealing with telephone calls. The relationship in practice. The applicant's daily activities were interviewing clients to sell programs, and making sixty telephone calls a day to generate clients. She was instructed by Ms Jacki Burke, the sales manager, that staff were not allowed to go home until those calls were made. In June 1995 staff were advised that they were required to bring in $3,500 per week or their services would no longer be required. The applicant worked on a roster. She gave evidence it was mandatory. If staff wished to change their position on the roster they had to find someone else to take their place. The applicant was also asked to train new sales staff and to give pep talks to the telemarketers. In the period to June 1995 the applicant was asked to do extra shifts due to lack of staff. In June or July 1995 the applicant felt that she was under too much pressure and came to an agreement with Ms Burke that she reduce her hours to four days per week. This was agreed, provided the applicant was able to achieve the same sales figures as previously. Subsequent to that the applicant did work the odd shift when the respondent was short of staff. The applicant was very successful in her duties with the respondent. In the twelve months to December 1995 she was paid a total of $54,560. The applicant rendered invoices and was paid on a gross basis. At no stage did the applicant ask the respondent to withhold any monies for taxation purposes. She was not paid for time off. Temporary separation, abandonment or divorce? The circumstances in which the relationship between the parties ceased were the subject of the most widely divergent evidence. It was common ground that in the months October to December 1995 the business was under financial pressure. In November, in two stages, the services of the telemarketers and researchers were dispensed with. Then the service staff were asked to take leave. The result was intense pressure on the sales consultants, who had to continue without the benefit of the leads previously supplied by the telemarketers. Further, the absence of the service staff meant that the respondent was behind in matching clients. The pressure forced Ms Neville to work very long hours, to recommence smoking, and to ask sales consultants, including the applicant, to perform data entry on the computer to match clients. On about 11 December the applicant worked for one day on the computer in the operations room. At the end of that day the applicant complained to Ms Neville that the radiation from the computer screens and the smoke emanating from Ms Neville's office were making her sick. Ms Neville said that the applicant would not have to do data entry herself. She proposed to the applicant that she telephone through to her for introductions. It was the applicant's evidence that this happened for a couple of days but Ms Neville's line was always busy. On Thursday 14 December the applicant started work at midday. Although the applicant had previously spoken to Ms Neville about the smoke in the office, Ms Neville continued to smoke. On that day the applicant's evidence was that after a few minutes she felt she could not continue. At 3.00 pm she made a decision that she could not continue seeing clients through until the completion of her shift. She arranged for two other consultants to take her appointments. She tried to advise Ms Neville that she was going home, but Ms Neville was unavailable. When the applicant arrived home she telephoned on three separate occasions and left messages for Ms Neville. The respondent called Ms Kari Treloar, who at the time was a sales consultant. Her evidence was that on 14 December the applicant said to anybody within earshot that "basically that she was leaving..... she was unhappy with the working conditions." Ms Treloar said the applicant handed out appointments and follow-up matters to other consultants and left. The respondent was unable to point to any statement by the applicant to anyone in authority on 14 December wherein the applicant indicated that she was leaving the employment permanently. The applicant at that stage was not working Fridays and gave evidence that she was not rostered for work on the Saturday. At 8.50 am on Monday 18 December the applicant arrived to commence work. Prior to that the applicant's pay cheque, which was usually left in her desk drawer, was retained by Ms Neville. When the applicant arrived she was asked to see Ms Neville. The applicant's account of the conversation was that Ms Neville asked why she had gone home early on the previous Thursday. The applicant mentioned the smoke in the building and that she was ill. Ms Neville then said that she had thought about the matter over the weekend and "I've decided I no longer wish to be responsible for your health, I'd like you to finish up now". Ms Neville's account was that she agreed with the first part of the conversation. Ms Neville admitted she said she didn't want to be responsible for the applicant's health. The applicant had then replied "No, you don't have to worry about that anymore, I've come to hand in my resignation". In cross-examination Ms Neville said she also implored the applicant not to leave. This was not put to the applicant. Ms Neville also said she asked the applicant why she had not returned a message she had left for her on Thursday afternoon. Ms Fritha Keeble, a secretary employed at the time, gave evidence that she was told by another member of staff on the Thursday and Friday prior to 18 December, that the applicant had left the office and wasn't coming back. On 18 December Ms Keeble said she was expecting the applicant in "because we were so short staffed we expected everyone in". On that day Ms Neville was in possession of the applicant's cheque and told Ms Keeble that "she wasn't going to let her continue working. She was going to ask her to leave". A sales consultant, Ms Lilian Baggiere, gave evidence that on 18 December Ms Neville told her when she arrived at the office at about 9.00 am "I've just sacked (the applicant), she's sick". By this time the applicant had left. Ms Neville denied making the statement. Findings on December events. I prefer the applicant's account of the events of 14 and 18 December. I am satisfied that the applicant's health was affected by the smoking of Ms Neville in the days prior to 14 December. In response to this the applicant left the office early on 14 December. I am satisfied however that she did not indicate that she was leaving permanently but rather going home for the day. She left a message for Ms Neville who did not contact her. She did not abandon or resign her employment that day. I prefer the applicant's version of events on 18 December. She attended for work and I am satisfied that Ms Neville was in fact expecting her to do just that. Ms Neville, however, decided to terminate the applicant's services that morning. The applicant's account is more credible given her evidence that she had significant financial commitments and no other position lined up at that stage. Further, there was an inherent unlikelihood that she would attend at 8.50 am just in order to resign. She could have done that on Friday or Saturday. Also the respondent, according to the evidence of Ms Keeble, was expecting the applicant to attend for work, and Ms Baggiere was "dumbfounded" when she was told by Ms Neville that she had just sacked the applicant. Although the applicant was Ms Neville's most successful sales consultant, and on that basis it could be said to be unlikely that Ms Neville would terminate her services, Ms Neville gave the reason why this occurred when she said she did not want the responsibility for the applicant's health. That was the reason the engagement ended. It did so at the respondent's initiative. Findings on the nature of the engagement. In characterising the relationship between the parties here in order to determine whether the Act applies, I am satisfied that this is a case where the real nature of the relationship between the parties only emerged over time and was not determined at its commencement. I first note that the respondent sought in a variety of ways to label and treat the relationship between the parties as other than that of employer and employee. Ms Neville advised the applicant that sales consultants were to be self-employed. She encouraged them to register a business or company name. Invoices had to be rendered. The agreement refers to "independant (sic) agent". No taxation was deducted. While these matters cannot be ignored they have every appearance of an attempt to affix a label on the relationship which in reality it could not support. First the applicant cannot, in any traditional sense, be said to be carrying on any business. She had no tools of trade and could not generate any goodwill. She was not risking her capital. Her engagement was of a continuing and exclusive nature and not an engagement as part of a trade, profession or business. Next the agreement uses the nomenclature "independant (sic) agent" when, on any view, the applicant was neither independent nor acting as an agent in any real sense. She was supplying her services as a sales consultant. She used the respondent's facilities, had the clients referred by the telemarketers and followed scripts set by the respondent. She did not hold herself out as any sort of agent for the respondent. Further, the agreement's own provisions provided such control over the applicant as to belie its own description of the applicant as an independent agent. I am satisfied that in fact the agreement bears all the hallmarks of an employment contract which has been clumsily modified to substitute the term "independant (sic) agent" for the term "employee". When the detailed controls provided for in the agreement are combined with the provisions of the House Rules, and the set scripts, there was little scope for independent action by the applicant. Further, in the execution of the contract the respondent exercised extensive control, particularly over duties, the hours of work, leave, the roster, the quantity of telephone calls, and sales targets. There are many legal authorities on the characterisation of legal relationships as that of employee or contractor. The relevant test that has been expounded has developed from the traditional right to control to encompass a flexible approach that has regard to a variety of indicia and to the totality of the relationship: see, eg, Connelly v Wells (1994) 55 IR 73; Articulate Restorations and Development Pty Ltd v Crawford (1994) 57 IR 371; and Vabu Pty Ltd v Commissioner of Taxation (unreported, NSW Court of Appeal, Meagher, Sheller and Beazley JJA, 6 September 1996). Here the application of the traditional control test would lead unquestionably to the conclusion that the applicant was an employee. Both in terms of the agreement and the House Rules, and in the way the respondent executed the contract, the applicant was bound hand and foot to the respondent. She was the subject of fixed hours of work, a roster, was required to perform duties as directed, and was unable to take leave except with difficulty. The respondent explicitly reserved the right to control the applicant, and asserted that right. The applicant was fully integrated into the business of the respondent. Although she had registered a business name, she provided no capital equipment, could not generate any goodwill, and there was no provision to delegate her duties. The considerations against the conclusion that the applicant was an employee include the mode of remuneration. The applicant was not paid a sum certain each week. She invoiced for and was paid her weekly commission. There was no deduction for taxation. The applicant clearly derived a benefit from that arrangement, although arguably taxation applicable to contractors should have been deducted. She was not entitled to paid leave, although any unpaid leave had to be taken by agreement. There is an incomplete provision (Cl.7.3) requiring the provision of medical certificates for sick leave, the extent of which is not described. Conclusion on characterisation. Here the characterisation of the relationship requires the Court to balance the factors such as invoices, taxation, mode of remuneration, and the nomenclature used, against matters such as the reservation and exercise of control, and the integration of the applicant into the operation of the respondent's business. Two matters lead me firmly to the conclusion that the relationship here was one of employment. The first is the overall impression of the relationship. The trappings of the relationship point to one of employment. The invoices the applicant rendered were from pre-printed general office stationary. She was told to render them. They were not part of any business she had previously carried on. The House Rules and set scripts gave little scope for initiative by the applicant. The structure of the respondent's business did not allow for the applicant to have any business of her own. The continuing nature of her duties within the structure of the respondent's business does not sit easily with those of someone who is self-employed. She was not retained on a single task but on a continuing basis as part of the team of consultants under the day to day control of a sales manager and Ms Neville herself. The second matter that is decisive is the agreement itself. As I have found it appears to be a badly modified employment contract. The fact is that the respondent retained, in the agreement upon which it relies to categorise the applicant as an independent contractor, all the rights that it would have over an employee. In that sense the terms of agreement cannot be given effect to. The recital seeks to apply a label that the relationship as a whole cannot bear. This is not a case where the overall relationship is ambiguous and the description used by the parties becomes decisive for its characterisation. This is a case where the indicia point firmly towards a relationship of employment and the label applied by the parties cannot displace that true nature. The applicant was employed by the respondent. The employment relationship was terminated at the initiative of the respondent. The respondent did not assert, nor could it, that it had a valid reason to terminate the applicant's employment. There has been a breach of ss170DB (notice) and 170DE(1) (valid reason) of the Act. Remedy. The applicant sought compensation for the losses she has sustained as a result of the loss of her position with the respondent. It was common ground that reinstatement was impracticable. She tried to obtain other employment but her earnings in those endeavours were relatively unsuccessful. Six months after the termination of her employment she obtained a position that shows all the prospects of allowing her to earn well in excess of the amounts she had been receiving from the respondent. The respondent attacked the applicant's evidence of her efforts to obtain other employment. It asserted that she had failed to mitigate her losses and/or had in fact received more than was disclosed by the banking and other records she tendered. I reject the attack by the respondent on the applicant's efforts to mitigate her losses. I accept her evidence that she joined two organisations in the financial services industry, trained with each, but was unable to earn any income due to business changes after her training. With one of those organisations she was paid $300 per week for two months as a retainer, a total of approximately $2,700. She also earned $150 with an advertising agency and $238 with another introduction agency. I am satisfied that her earnings in the six months after her dismissal total $3,088. Her other income over that period was from a government benefit. The limit of compensation under s170EE(2) of the Act is six months remuneration. The applicant earned approximately $26,000 in the six months to December 1995. On the assumption that she would have earned at the same rate, and deducting her earnings, the applicant's loss of remuneration as a result of the termination is approximately $23,000. Whether she would have continued to earn at the same rate as previously or even remain employed by the respondent but for the termination, is a matter the subject of a number of contingencies. The respondent was under significant pressure in December. Staff were being shed and the management structure modified to respond to the financial squeeze. This was impacting on the way sales consultants were operating and putting pressure on the applicant. Although I have rejected the respondent's submission that these pressures led to the applicant to abandon her employment or tender her resignation, I cannot ignore the possibility that in due course, on her own terms, the applicant and the respondent may have gone their separate ways. I assess that contingency at fifty per cent within the six months following her termination. I propose to order that the respondent pay the applicant as compensation one half of her losses of $23,000, namely $11,500. The respondent will also be ordered to pay the applicant $2,000 damages, being two weeks wages in lieu of notice, under s170EE(5). I certify that this and the preceding twelve (12) pages are a true copy of the reasons for decision of Judicial Registrar Murphy.