Reported Decision : [2000] ATC 4596 [2000] 44 ATR 464 New South Wales Supreme Court CITATION : Bowden v State Revenue [2000] NSWSC 639 FILE NUMBER(S) : SC 30041/99 HEARING DATE(S) : 03/07/00 JUDGMENT DATE : 10 July 2000 PARTIES : J.A. & B.M. Bowden & Sons Pty Limited - Plaintiff Chief Commissioner of State Revenue - Defendant JUDGMENT OF : Brownie AJ at 1 COUNSEL : Mr B.J. Sullivan SC/Mr M. Richmond - Plaintiff Mr R.L. Hamilton - Defendant SOLICITORS : Peter Gain & Associates - Plaintiff I.V. Knight, Crown Solicitor - Defendant CATCHWORDS : The case involves the application of settled principles to particular facts. LEGISLATION CITED : Pay-roll Tax Act 1971 CASES CITED : Stevens v Brodribb Sawmilling Company Pty Limited (1986) 160 CLR 16 Vabu Pty Limited v Federal Commissioner of Taxation (1996) 96 ATC 4898 DECISION : Appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES ADMINISTRATIVE LAW DIVISION BROWNIE AJ MONDAY, 10 JULY 2000 30041/1998 - J.A. & B.M. BOWDEN & SONS PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT HIS HONOUR: 1 The plaintiff appeals from a decision of the defendant, disallowing certain objections against assessments of pay-roll tax. The plaintiff owned three orchards, and used the services of orchard hands on a casual basis. The first question for decision now is whether the money paid to the orchard hands as recompense for their work was "wages" within the meaning of the Pay-roll Tax Act 1971, that is "wages, salary, commission, bonuses or allowances paid or payable (whether at piece work rates or otherwise …) to an employee as such". It is common ground that the last five words operate to pick up the common law concept of the relationship between an employer and an employee. 2 The work done by the orchard hands varied from time to time throughout the year, but consisted either of picking fruit, or thinning or pruning fruit trees. In the main, it is sufficient to consider the fruit picking work. Typically, someone wanting work went to one of the plaintiff's orchards. If that person was acceptable to the plaintiff, that person was then asked to sign a document in the following terms:- "CONTRACT OF ENGAGEMENT - J A & B M BOWDEN & SONS PTY LTD T/AS CRESTFIELD ORCHARDS (THE COMPANY) 1. YOUR ENGAGEMENT WITH THE COMPANY IS ON A CONTRACT BASIS AND YOU WILL BE PAID CONTRACT RATES TO BE NEGOTIATED FOR ANY OF THE TASKS REQUIRED OF YOU. THESE TASKS WILL EITHER BE PICKING (RATE: $/BIN), PRUNING (RATE: $/TREE ACCORDING TO SPECIFIED ROW OR BLOCK); OR THINNING (RATE: AS FOR PRUNING). 2. UNDER DIRECTION FROM THE AUSTRALIAN TAXATION OFFICE, THE COMPANY DEDUCTS TAX FROM YOUR GROSS CONTRACT PAYMENTS AS FOLLOWS: ….. FOR THE PROCESSING OF PAYMENTS, THE WEEK STARTS ON A WEDNESDAY AND ENDS THE FOLLOWING TUESDAY. ONCE YOUR RECORD OF PRODUCTION (SEE BELOW) IS PROCESSED FOR SERVICES PERFORMED, YOUR NET PAYMENT IS MADE ON THE NEXT FRIDAY BY DIRECT CREDIT TO YOUR NOMINATED BANK ACCOUNT. IF AN ACCOUNT IS NOT SO NOMINATED, PAYMENT WILL BE BY COMPANY CHEQUE. 3. EQUIPMENT/CLOTHING YOU HAVE TO PROVIDE SECATEURS (AVAILABLE FOR PURCHASE FROM THE COMPANY AT $38/PAIR) AND APPROPRIATE CLOTHING AND FOOTWEAR BUT ALL OTHER EQUIPMENT WILL BE PROVIDED BY THE COMPANY. PICKING BAGS WILL BE ISSUED FOR SPECIFIC ORCHARDS AND ARE NOT TO BE TRANSFERRED TO OTHER ORCHARDS WITHOUT EXPRESS PERMISSION OF YOUR QUALITY CONTROLLER (QC). FOR THE SAME REASON (PLANT HYGIENE) BINS WILL BE ALLOCATED TO SPECIFIC ROWS AND BLOCKS AND ARE NOT TO BE REARRANGED BY CONTRACTORS WITHOUT AUTHORISATION FROM YOUR QC. TO ENSURE COMPLIANCE WITH ALL OCCUPATIONAL HEALTH & SAFETY REQUIREMENTS, LADDERS AND ANY OTHER EQUIPMENT NEEDED FOR YOU TO PERFORM YOUR SERVICES WILL BE PROVIDED BY THE COMPANY. 4. INSURANCE THE WORKES COMPENSATION ACT 1987 CAUSES THE COMPANY TO INCLUDE YOUR GROSS CONTRACT PAYMENTS IN OUR SCHEDULE OF PAYMENTS MADE FOR WORKERS COMPENSATION. IN THE EVENT OF A CLAIM, IF YOU HOLD YOUR OWN PERSONAL ACCIDENT AND SICKNESS INSURANCE POLICY, YOU WILL NEED TO NOTIFY BOTH THE COMPANY AND YOUR OWN INSURANCE PROVIDER. 5. QUALITY AND OTHER WORK STANDARDS/TERMINATION YOU WILL BE ADVISED OF COMPANY QUALITY CONTROL POLICIES AND STANDARDS. BECAUSE THE COMPANY IS IN THE FRESH FOOD BUSINESS, THOSE STANDARDS ARE DETERMINED LARGELY BY THE MARKET PLACE AND THEY ARE THEREFORE VERY IMPORTANT. YOUR OBSERVANCE OF THESE STANDARDS WILL BE MONITORED BY A QC ASSIGNED TO YOU AND ANY BREACHES OF PRODUCTION QUALITY STANDARDS WILL INVOKE A PENALTY DOCKING TO YOUR OTHERWISE AGREED CONTRACT RATES FOR THE SPECIFIC SERVICES. ONCE A BREACH OF STANDARDS IS BROUGHT TO YOUR ATTENT, IF THE BREACH OCCURS AGAIN, YOUR CONTRACT MAY BE TERMINATED IMMEDIATELY. OTHER ACTIONS THAT CAN LEAD TO IMMEDIATE TERMINATION OF THIS CONTRACT BY THE COMPANY ARE: · THEFT OF COMPANY PROPERTY · ENDANGERING OF OTHER CONTRACTORS · INTOXICATION ON THE JOB OR BEING IN POSSESSION OF ALCOHOL OR OTHER DRUGS (OTHER THAN TOBACCO AND TOBACCO PRODUCTS) ON ORCHARD PROPERTIES. 6. VEHICLES/TRANSPORT YOU ARE TO PROVIDE YOUR OWN TRANSPORT TO THE ORCHARDS. IF YOU BRING A VEHICLE ONTO OUR PROPERTY, IT IS AT YOUR RISK. THE ORCHARD SPEED LIMIT IS 10 KMH. VEHICLES MUST GIVE WAY TO TRACTORS AND THEY MUST BE PARKED AWAY FROM THE AREAS WHERE WORK IS BEING DONE. 7. RECORD(S) OF PRODUCTION THESE WILL BE PROVIDED BY THE COMPANY FOR EACH TASK AND WILL NEED TO BE SIGNED BY YOU (AND ANY CO-WORKER INVOLVED WITH YOU IN THE PARTICULAR TASK AS WELL AS YOUR QC. WE AGREE TO BE BOUND BY THE CONDITIONS OF THIS CONTRACT OF ENGAGEMENT." 3 The document was then signed on behalf of the plaintiff, and by the orchard hand, the orchard hand signing beneath the word "Contractor". 4 The orchard hand also completed a PAYE Taxation Declaration Form. On the first day of work the orchard hand was provided with a ladder (for climbing the trees), a picking bag (worn around the waist, in which picked fruit was placed initially), and bins (into which the fruit was later placed). Unless the orchard hand was already experienced, he or she was given instructions how to pick the fruit, for example, he or she was told to take all of the fruit from each tree, to pick fruit with the stalk attached, not to bruise the fruit, not to spur (or damage) the trees, and how to use the ladders safely. 5 At the commencement of each working day, orchard hands were arranged into groups of ten to twenty, under the general supervision of an employee of the plaintiff called the Quality Controller or QC. The QC gave instructions to each orchard hand as to what fruit was to be picked that day and which row or rows of trees would be picked by each orchard hand; and either the QC specified the rate at which the orchard hands would be paid that day, per bin of fruit picked, or there would be negotiations as to what that rate would be. During the day, the QC then checked the level of the fruit in the bins, as well as the quality of the fruit picked, with particular emphasis on the fruit not being bruised. On occasions the QC exercised some degree of general supervision of the orchard hands; they were, generally speaking, itinerant workers, but many of them were young people - "big kids" - who might indulge in horseplay, such as throwing fruit at each other, unless restrained. 6 Additionally, on occasions, the QC gave instructions as to the colour of the fruit to be picked, and later in the day the QC checked to see that these instructions had been followed. 7 If an orchard hand bruised fruit, this might attract a penalty of $5 per bin, and if the conduct was repeated, the plaintiff might dismiss the orchard hand in question. 8 Generally speaking, orchard hands were free to work on whatever days they chose, at whatever hours they chose and at whatever pace they chose, but in a practical sense, an orchard hand who did not arrive for work when expected, or who did not work for the generally expected number of hours or at an acceptable pace was likely to find him or her self replaced by another orchard hand who had arrived, ready to work. The QC completed a two part card, recording how much fruit was picked by each orchard hand. The QC stapled one part of this card to the bin in question, and gave the other part to the orchard hand. The orchard hand delivered his or her piece of these cards to the plaintiff's pay office, where arrangements were made for the appropriate amount, net of income tax, to be paid direct into the bank account of the orchard hand concerned, on a weekly basis. The orchard hands did not render to the plaintiff anything in the nature of an invoice: they simply delivered back to the plaintiff's pay office the halves of the cards, delivered to them by the plaintiff's QCs. 9 The work of thinning and pruning was generally similar, except that, instead of the pair of secateurs, an orchard hand needed a pair of loppers, and a saw, items which cost about $120 and $40 respectively, and the orchard hands were paid, not by the number of bins of fruit picked, but by the number of trees thinned or pruned. Additionally the work seems to have required either a knack or some degree of skill so that, sometimes, an orchard hand's services had to be terminated because he or she could not do the work, without damaging the trees. 10 The defendant asserts that the orchard hands were employees: each of them was paid "wages … to an employee as such". The plaintiff asserts that they were independent contractors, working under contracts to provide services, or to produce results, that is either bins of fruit picked, or thinned or pruned trees. The plaintiff says they were not working under contracts of service. 11 There is really no dispute that the law is now more flexible than it was in times gone by, and that it is necessary to take into account a number of indicia: see generally Stevens v Brodribb Sawmilling Company Pty Limited (1986) 160 CLR 16 and Vabu Pty Limited v Federal Commissioner of Taxation (1996) 96 ATC 4898. 12 The question of the right to control the working activities of the orchard hands is a major factor. In my judgment, the plaintiff did have this right. It is true that the right to control, was at times, difficult to exercise, and that it was not exercised frequently, but it did exist and it was exercised from time to time, as is demonstrated by the fact that the QCs checked not just the level of the fruit in the bins, a matter which went to the amount to be paid, but also that the fruit was not bruised, that pieces of fruit had their stalks attached, and, when appropriate, the colour of the fruit picked. Additionally, on occasions, they acted to prevent horseplay, and sometimes orchard hands were dismissed for incompetence. 13 The plaintiff contended that the fact that a penalty was sometimes exacted for bruising fruit demonstrated the difficulty of its controlling the work force, but it seems to me that the proper view is that this system pointed to their being both a right to control the method of work, and the existence of a disincentive for orchard hands who disobeyed instructions. 14 The fact that someone is paid on a piece work basis is sometimes a powerful indication that that person is not an employee, but in the circumstances of this case, I do not think that this factor is particularly important. It is of course one of the factors to be examined. Other factors, emphasised by the plaintiff, relate to the fact that the orchard hands could choose their days and hour of work, and their pace of work, but as the evidence makes clear, these liberties, whilst substantial in theory, need to be viewed against the need likely to be felt by most people working as orchard hands, to be paid a wage sufficient to support themselves, and when appropriate, their families. 15 The plaintiff also pointed to the fact that it deducted income tax from the moneys paid to the orchard hands, and that the orchard hands were covered by workers compensation insurance. However, so far as the evidence shows, taxation was deducted because the Commissioner required it, and nobody thought to examine whether this was justified or not; and workers compensation cover seems to have been provided on a generally similar basis. 16 The orchard hands were required to provide some equipment: in the case of an orchard hand who worked over a period of time, secateurs, loppers and a saw, but the entirety of this equipment would cost only about $200; and the plaintiff provided all other equipment needed. (I do not overlook that one witness Ms Williams, provided her own picking bag, but it is not clear how this came about.) All comparisons are odious, and each case needs to be tested by reference to its own set of facts, viewed as a whole, but the contrast between the equipment provided here, and the equipment provided in cases such as Stevens and Vabu seems significant. 17 The plaintiff contended that, to the extent that there was any contracts between the plaintiff and any given orchard hand, that was a contract, not to do work, but to produce a result. In the context of this case, this does not seem to me to be correct. The arrangement required the worker to pick fruit, or to thin or prune trees. But the arrangement did not require the orchard hand to produce any given quantity of picked fruit, or to thin or prune any fixed number of trees. It seems more realistic to merely note that the orchard hands were paid on a piece work basis. Their freedom to work at their own pace, and for as long or as short a time as they chose, is relevant in this context. To say that they were employed to produce a given result may be contrasted with, for example, an arrangement to make a pair of shoes, or to draw a will, or to drive a passenger in a taxi from point A to point B, or to prepare an income tax return, or to deliver a parcel to a named person. 18 In a practical sense, the floating population of orchard hands formed an integral part of the plaintiff's work force; and it seems quite artificial to say that any one orchard hand was conducting his or her own business. In truth, they provided labour, of a scarcely skilled kind, and that was practically all that they provided. 19 On the hearing, a good deal of time was taken up with a debate as to whether the orchard hands were contractually bound to do anything, and if so what, having regard to the terms of the Contract of Engagement. The plaintiff contended that this did not bind any orchard hand to do anything. I do not see any profit in entering into this debate. What seems important now is that, after any given orchard hand had done any work, the plaintiff paid the orchard hand for that work, and the defendant says that pay-roll tax is payable in respect of the payment for that work. Whatever the position might have been at earlier times, at the moment when each orchard hand was paid for the work that had been performed, that payment represented payment for work done; that work had been done pursuant to a contract; and the terms of that contract included those recorded in the Contract of Engagement. 20 Whatever the position might be as to when the contract was formed, it had been formed before the wages were paid. 21 There was also some discussion as to whether an orchard hand had a right to sub-contract the work out. The evidence as to this is thin, but it seems likely that, on any given day, after a QC told an orchard hand to pick fruit from the trees in a particular row, the plaintiff would not have permitted that orchard hand to "sub-contract" that work out, at least without the substituted orchard hand first signing the Contract of Engagement document, that is, without the substituted orchard hand effectively entering into a new contract with the plaintiff. 22 Weighing all these matters up, it seems to me that the money paid to the orchard hands did constitute wages, paid as such to the orchard hands as employees. Of the various factors debated, the "control" factor seems the most significant. 23 I dismiss the appeal with costs, without needing to consider the alternative case argued by the defendant, concerning s.3A of the statute. 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