[2001] ATC 4220 Reported Decision : (2001) 47 ATR 94 (2001) 105 IR 66 New South Wales Court of Appeal CITATION : J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue [2001] NSWCA 125 FILE NUMBER(S) : CA 40611/00 HEARING DATE(S) : 26/04/01 JUDGMENT DATE : 7 May 2001 PARTIES : J A & B M Bowden & Sons Pty Ltd v Chief Commissioner of State Revenue JUDGMENT OF : Giles JA at 1; Hodgson JA at 2; Ipp AJA at 3 LOWER COURT JURISDICTION : Supreme Court - Administrative Law Division LOWER COURT 30041/98 FILE NUMBER(S) : LOWER COURT Brownie AJ JUDICIAL OFFICER : COUNSEL : B J Sullivan SC/M Richmond (Appellant) R Hamilton (Respondent) SOLICITORS : Murphy & Maloney (Appellant) I V Knight (Crown Solicitor) (Respondent) CATCHWORDS : TAXATION - payroll tax - whether seasonal fruit pickers were paid a "wage" within the meaning of s 3AA(1) Pay-roll Tax Act 1971 - whether these workers were properly classified as employees - EMPLOYMENT LAW - determinants of employment relationship - control of seasonal workers - absence of mutuality of obligation to work - method of payment - facts showed workers were under constant right of conrol and threat of summary dismissal - trial judge's view that employment relationship existed and was justified task of appeal court - appeal dismissed. D LEGISLATION CITED : Pay-roll Tax Act 1971 Stevens v Brodribb Sawmilling Company Pty Limited (1986) 160 CLR 16 Vabu Pty Limited v Federal Commissioner of Taxation (1996) 96 ATC 4898 Humberstone v Northern Timber Mills (1949) 79 CLR 389 Hall (Inspector of Taxes) v Lorimer [1992] 1 WLR 939 Commissioner of Pay-roll Tax (Vic) v Mary Kay Cosmetics Pty Limited [1982] VR 871 CASES CITED: O'Kelly v Trusthouse Forte Plc [1984] QB 90 Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Victoria) (1997) 97 ATC 5070 Queensland Stations Pty Limited v Federal Commissioner of Taxation (1945) 70 CL 539 Zuijs v Wirth Brothers Pty Limited (1955) 93 CLR 561 Airfix Footwear Limited v Cope (1978) ICR 1210 Nethermere (St Neots) Limited v Gardiner [1983] ICR 319 DECISION : Appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40611/00 SC 30041/98 GILES JA HODGSON JA IPP AJA Monday 7 May 2001 J A & B M BOWDEN & SONS PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE Facts: This matter involved a dispute as to the appellant's liability to pay payroll tax on remuneration paid to seasonal workers in the appellant's orchards. At question was the respondent's determination that the appellant and the seasonal workers were in an employment relationship and whether the workers were paid "wages" within s 3AA(1) of the Pay-roll Tax Act 1971. The main issue was whether the seasonal workers were properly classified by the respondent as employees. HELD (i) (PER Ipp AJA, Giles JA and Hodgson JA agreeing): The general principles to be applied when determining if a relationship is one of employer/employee are set out in Stevens v Bodribb Sawmilling Company Pty Limited (1986) 160 CLR 16 and this decision is the starting point for any analysis. In determining the issue it is necessary to assess all of the facts and have regard to the totality of the relationship. (ii) (PER Ipp AJA, Giles JA and Hodgson JA agreeing): The trial judge's finding that there was an employment relationship was justified on the facts. The appellant possessed a constant right to intervene in the conduct of the workers, a full right of control over the workers and a right to dismiss the workers summarily. Although some other "usual" indicia of an employment relationship were not present, the facts, viewed as a whole justified the finding that the parties were engaged in an employment relationship. Legislation Pay-roll Tax Act 1971 Cases Cited: Stevens v Bodribb Sawmilling Company Pty Limited (1986) 160 CLR 16 Vabu Pty Limited v Federal Commissioner of Taxation (1996) 96 ATC 4898 Humberstone v Northern Timber Mills (1949) 79 CLR 389 Hall (Inspector of Taxes) v Lorimer [1992] 1 WLR 939 Commissioner of Pay-roll Tax (Vic) v Mary Kay Cosmetics Pty Limited [1982] VR 871 O'Kelly v Trusthouse Forte Plc [1984] QB 90 Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Victoria) (1997) 97 ATC 5070 Queensland Stations Pty Limited v Federal Commissioner of Taxation (1945) 70 CLR 539 Zuijs v Wirth Brothers Pty Limited (1955) 93 CLR 561 Airfix Footwear Limited v Cope [1978] ICR 1210 Nethermere (St Neots) Limited v Gardiner [1983] ICR 319 ORDERS 1. Appeal dismissed with costs THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40611/00 SC 30041/98 GILES JA HODGSON JA IPP AJA Monday 7 May 2001 J A & B M BOWDEN & SONS PTY LIMITED v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT 1 GILES JA: I agree with Ipp AJA. 2 HODGSON JA: I agree with the judgment of Ipp AJA. 3 IPP AJA: The dispute as to liability for payroll tax 4 The appellant is a fruit farmer. It owns three orchards on which it grows different kinds of fruit. For many years it has engaged an itinerant and seasonal work force of casual workers to pick the ripe fruit, remove undesirable fruit from the trees (a process known as "thinning") and prune the trees. 5 A dispute has arisen between the appellant and the respondent in regard to whether the remuneration paid by the appellant to these seasonal workers during the tax years 1995, 1996, and 1997 was susceptible to payroll tax under the Payroll Tax Act 1971. 6 In regard to each relevant year, the respondent determined that there was "an employer/employee relationship" between the appellant and the workers concerned and "as such, payments made under the contracts constitute wages and are liable to payroll tax". The appellant objected to these determinations on the ground that the workers were not employees, but the respondent disallowed the objections. 7 Essentially, the the parties joined issue on the question whether the remuneration paid to the workers was "wages" within the meaning of s 3AA(1) of the Act. That section provides: " wages means …wages, salary, commission, bonuses or allowances paid or payable (whether at piece work rates or otherwise …) to an employee as such". The appellant accepted that if the remuneration was "wages", payroll tax was properly assessed. Both parties accepted that the question whether wages as defined were paid to the workers turns on whether they were engaged pursuant to contracts of service (and not contracts for services) under the general law. Neither has altered its position in these respects. 8 The appellant appealed against the disallowance of its objections and the appeal was heard by Brownie AJ. In the hearing before his Honour, the respondent argued that it had correctly determined that the workers were employees at common law. In the alternative, the respondent argued that the workers were deemed to be employees pursuant to s 3A(1)(b) of the Act. Brownie AJ upheld the respondent's argument that the workers were employees and the remuneration paid to them was wages, as defined. His Honour, therefore, did not need to consider the alternative argument based on s 3A(1)(b). He dismissed the appeal with costs. The appellant now appeals to this Court against his Honour's decision. The legal principles applicable in determining the nature of the relationship 9 The general principles applicable in determining whether a contract is one of service or for services are set out in Stevens v Brodribb Sawmilling Company Pty Limited (1986) 160 CLR 16 and, as Sheller JA remarked in Vabu Pty Limited v Federal Commissioner of Taxation (1996) 96 ATC 4898 (at 4902), consideration of the question whether a relationship of employer and employee exists, must start with that decision. 10 In Stevens, Mason J (with whom Brennan J and Deane J - on this issue - were in general agreement) said that a significant factor is the degree of control which the person who engages another to perform work can exercise over the person so engaged. His Honour observed that "the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it". Mason J referred to the observations of Dixon J in Humberstone v Northern Timber Mills (1949) 79 CLR 389 at 404 to the effect that the question was "whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's orders and directions". 11 Mason J stated, nevertheless, that the existence of control was not the sole criterion by which to gauge whether a relationship is one of employment. He said (at 24): "The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question … Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee". 12 Wilson and Dawson JJ observed that the modern approach was to have regard to a variety of criteria, but stated (at 36): "In many, if not most, cases it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee." Their Honours accepted (at 35) that this approach was not without its difficulties "because not all of the accepted criteria provide a relevant test in all circumstances and none is conclusive" . 13 Their Honours concluded their remarks on this issue by saying (at 36-37): "The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like. Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax. None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance. Having said that, we should point out that any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant. The ultimate question will always be whether a person is acting as the servant of another or on his own behalf and the answer to that question may be indicated in ways which are not always the same and which do not always have the same significance. That is best illustrated by turning to the circumstances of this case …" 14 Inherent in the principles so expressed is the need to assess all the facts and have regard to the whole picture. As it was put by Mummery J in Hall (Inspector of Taxes) v Lorimer [1992] 1 WLR 939 at 944: "This is a not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing from a distance and by making an informed, considered qualitative appreciation of the whole. It is a matter of the overall effect of the detail, which is not necessarily the same as the sum total of the individual detail. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another". The approach of an appellate court 15 In describing the difficulties that arise in identifying whether a contract is one of employment or for services Gray J, in Commissioner of Pay-roll Tax (Vic) v Mary Kay Cosmetics Pty Limited [1982] VR 871, said (at 878): "As with most cases in this area of the law, there is a good deal which can be said on each side of the argument. A court is usually faced with a large collection of relevant facts and circumstances, some pointing this way and some the other. The resolution of the problem usually comes down to a very subjective matter of individual impression. It all depends on where the emphasis is laid". 16 In discussing the same question in O'Kelly v Trusthouse Forte Plc [1984] QB 90 Sir John Donaldson MR referred to the need to assess the facts "qualitatively and within limits, which are indefinable in the abstract". He said that, "in the familiar phrase 'it is all a question of fact and degree'". Fox LJ at 121 was of a similar view, saying: "The precise quality to be attributed to various individual facts is so much a matter of degree that it is unrealistic to regard the issue as attracting a clear 'legal' answer". 17 The inconclusive nature of the criteria applicable has implications for the task of the appellate court when dealing with an appeal on the issue. In this regard, Winneke P in Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Victoria) (1997) 97 ATC 5070 said (at 5075): "Where views might legitimately differ, it must necessarily be more difficult for an appellant who cannot identify specific error to establish that there was any error below; for the fact that an appellate court might have reached a different decision, had it been sitting at first instance, does not of itself or without more demonstrate error. It is too late in the day now to say that error need not be shown and that this court should move immediately to a consideration of the facts with a view to expressing its own opinion …" Accordingly, before an appellate court will intervene, an appellant must show error on the part of the tribunal below. It is not enough that the appellate court might have come to a different conclusion. The nature of the appellant's work force 18 While the appellant employed permanent workers for some of the tasks on its orchards, none of its permanent staff picked fruit, or thinned or pruned trees. Work of the latter kind was essentially seasonal and was traditionally performed by an itinerant work force, that is, casual workers who arrived in the area at the season when the fruit was about to ripen or when thinning or pruning work was likely to be available. 19 The appellant's permanent work force included quality controllers, tractor drivers, leading hands, farm managers, irrigation monitors and spray operators. The quality controllers, known in the industry as "QC's", played an important role in the training and supervision of the seasonal workers. 20 Over the relevant periods, the fruit picking season lasted from December to May. Cherries were picked from December to January, apples from February to mid-May and nectarines and peaches from December to March. Thinning activities took place from the end of November and were finished generally by the first week in February. Summer pruning commenced at the end of December and usually ended by the first week in March. Winter pruning commenced by the end of April and usually finished by the first or second week in September. 21 The fruit and vegetable circuit started in Queensland in June and July, proceeded to Victoria and then on to New South Wales. Itinerant workers travelled the circuit. They generally had no business premises. They would congregate in an area where the fruit and vegetables had ripened and look for work at the local farms and orchards. Typically, they did not live in the area where they were working and many would stay in nearby caravan parks. Most had previous experience as fruit pickers. Seasonal work of this kind seems to have been a full time career for many and there was no suggestion that the appellant experienced any difficulties in obtaining sufficient workers on a day to day basis. 22 The workers were attracted to a particular farm or orchard by word of mouth. The appellant encouraged existing workers to tell others that its orchards were good places to work. Many of its seasonal workers were experienced and many had worked for it for several years. 23 Seasonal workers normally made contact with the appellant by telephone to ascertain whether contract work was available. Sometimes, however, they arrived without telephoning to look for work, unannounced. 24 Once engaged, a worker would often, but not always, stay with the appellant for the entire season. Sometimes the appellant would not have sufficient work to enable to employ all its workers continuously during the season. Mr Bowden, a director of the appellant and its operations manager, said that, in those circumstances, "we ring around and find the people work for a week at a time if we haven't got any and they go and work for another orchard … nine times out of ten they always come back". 25 While working for the appellant, some seasonal workers worked for other orchard owners, but this appears not to have been encouraged. One witness said that he started work each day at about 7.00 am and finished between 3.00 pm and 5.00 pm although he was free to leave at any time. Out of politeness to the appellant he would give some prior notice if he wanted to take a few days off. He said: "I was free to work for another orchard owner at any time. However, I would not do this unless it had been approved by the [appellant] if I wanted to come back to work at one of the [appellant's] orchards in the future. 26 As will become apparent, the appellant's ability to influence and control the conduct of the seasonal workers by the prospect of exercising its right of summary dismissal or by refusing to re-employ at another season is an important feature of the control the appellant was able to exercise over its itinerant work force. The contract of engagement 27 When a seasonal worker first arrived at one of the appellant's orchards looking for work, Mr Bowden, or another permanent employee of the appellant, asked the worker to sign a "Contract of Engagement". 28 Clause 1 of the Contract of Engagement provided: "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). All negotiated rates for each of these tasks in respect of each bin, tree, row or block are to be recorded in writing before the work on the specified bin, tree, row or block commences". 29 Clause 2 provided that the appellant would deduct tax from the worker's gross contract payments "under direction from the Australian Taxation Office". Details of the way in which the deductions would be made were set out. 30 Clause 3 provided that the worker would have to provide secateurs (which were available for purchase from the appellant at $36 per pair) and appropriate clothing and footwear, but all other equipment would be provided by the appellant. 31 Clause 4 recorded that the appellant would include, in the worker's gross remuneration, payments for worker's compensation insurance. 32 Clause 5 provided: "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 marketplace 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 attention, 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". 33 The Contract of Engagement did not specify whether the work to be done was picking or thinning or pruning, nor did it specify the rates for the work to be performed by the worker signing it. Moreover, it said nothing about hours of work or the duration of the engagement. These and other matters were dealt with orally once the worker signed the document. 34 It was accepted by the appellant and the workers that the appellant could terminate a worker's engagement summarily, without notice, and a worker could leave without notice. The appellant was not obliged to provide work and the worker was not obliged to perform work. 35 It was also accepted that workers were not entitled to and did not receive sick leave or annual leave. 36 Mr Bowden accepted that it would not be possible for seasonal workers to send someone else in their place to do the work. There could be no delegation of work. Nevertheless, as there was no obligation on the part of the appellant to provide work and no obligation on the part of the worker to perform work, there was no obligation to work that could be delegated. 37 At the same time as the Contract of Engagement was signed, the worker was required to sign a declaration form for PAYE tax purposes. The form of declaration was prescribed by the Australian Taxation Office and referred to the worker as an employee. 38 After the Contract of Engagement was signed, the worker would be advised of the rate for picking or doing other work, and the rate would be agreed. Each fruit picker was paid a fixed amount for each bin of fruit picked. A minimum rate was set by the appellant at the beginning of each season. This was sometimes increased depending upon the type of fruit and the level of difficulty in picking the fruit or if there was a valid objection to the rate by a picker. The rate was generally between $13 to $20 per hour. At times there was a bonus of $2 per bin of fruit filled by the picker. 39 The appellant applied a penalty of $5 per bin when bruised fruit was found in a bin, and, at the commencement of the engagement, the worker was informed of this. 40 For those who were engaged to perform thinning or pruning work, a rate was agreed for each tree that was thinned or pruned. 41 The calculation of the remuneration to which the workers were entitled was based on a set system of which each worker was advised at or about the time a Contract of Engagement was signed. 42 The QC would check the quality of the fruit picked. If the QC was satisfied that the fruit had not been bruised, that it was the correct colour, and that the stalks had been left in, then he or she would issue a two part ticket for each bin of fruit picked. 43 If the fruit in the bin had been bruised, the QC would indicate this by punching a hole in the bottom part of the ticket and sometimes would write additional information on the ticket. 44 The QC would then staple the top half of the ticket to the bin of fruit picked after initialling it and give the bottom half to the fruit picker. The fruit picker was required to hand in to the appellant the bottom part of the ticket in order to be paid. This was normally done on a weekly basis. 45 A similar system applied to those engaged to thin or prune. 46 The appellant had adopted this system for some 16 years in engaging contract workers. It is a system that is common in the horticultural industry. According to Mr Bowden, the method of remuneration encourages workers to work efficiently by rewarding them for working productively. Training and operations 47 If workers were assigned work as fruit pickers, after the signing of the Contract of Engagement and the tax declaration form, each was given a ladder, a picking bag, a bin, and various consumable materials such as string. As required by the Contract of Engagement, the fruit pickers would equip themselves with secateurs. 48 Those engaged in pruning were given whatever equipment they needed, but they were required, in addition, to equip themselves with loppers and a saw which were available for purchase from the appellant at a cost of about $120 and $40 respectively. 49 All seasonal workers were divided into groups of 12 to 20 and assigned to QC's who would monitor their performance. 50 All training took place in the field. This applied to picking, pruning and thinning. Initially, the QC's and the farm managers showed the workers how to do the work and "work along with them and try to get them going". Mr Bowden said: "We show, if we are pruning, for argument's sake, we show why we do certain cuts and how we want them and how we do them if we use a set of loppers and secateurs and basically try to explain we are trying to do this for a perfect fruit". 51 The QC's would tell fruit pickers whether they were required to do a "strip pick" (ie where all fruit is picked) or a "colour pick" (ie where only fruit of a certain colour standards is picked). The QC's instructed the fruit pickers that the fruit must not be bruised and reminded them that a penalty of $5 per bin would apply where a bin contained bruised fruit. They told the fruit pickers to ensure that stalks were kept on the fruit, not to spur the tree (ie not to break off that part of the branch of the tree to which the stalk was attached), how to use the ladder provided and where to place it, and where to put the bins. After this explanation was given, the pickers commenced work. 52 Those involved in thinning would be told that thinning involved removing fruit from the tree so that the remaining fruit would be spaced approximately 6 inches apart, and removing fruit damaged by pests or disease or weather. 53 Pruners fell into a different category. Mr Bowden said that pruning required aptitude. Some people could do it and others not. He agreed that pruning "needs careful watching". He said that the QC's "can actually put a lot of time in with the contractors to make sure they get it right". 54 Those involved in summer pruning would be told that summer pruning involved removing new season's growth and growth which shaded the fruit and prevented it from ripening. 55 Those involved in winter pruning would be told that winter pruning involved removing the vertical branches of trees and removing any horizontal branches which lapped over or drooped under other branches. In addition, they would be told to remove branches which extend into the alley way between the rows of trees and to cut the top branches off each tree back to 2 year old wood. 56 Summer pruning and winter pruning required skill at a level which not all workers possessed. Sometimes it would be found that workers given these tasks did not have the requisite aptitude and they would be re-assigned to carry out fruit picking. Others would have their contracts terminated. The control exercised over the seasonal workers 57 Each day the QC directed his or her group of workers to the part of the orchard where work was to be carried out and designated a particular row or area of trees that had to be picked. The QC would allocate the workers to a new row of trees when they finished the row to which they had been assigned. 58 The workers were required to work in the place where they were assigned. They were not allowed to wander off and work wherever they wished. 59 The QC assisted the pickers by showing them how to work more efficiently if they were having difficulty, and would show the pickers "things like correctly placing a ladder". 60 In cross-examination, Mr Bowden said that the QC looked in the bins, checked for bruises "or anything like that", made sure that the fruit was picked off the tree in accordance with instructions (such as the colour etc), made sure there was no excess fruit on the ground and made sure that the pickers were "doing the due diligence thing". By "due diligence" Mr Bowden said he meant "not endangering the person next door whatever, like that, like throwing fruit or anything like that". He said that due diligence also involved filling bins to the correct level. The QC would ensure that bins were filled correctly. A fruit picker might be asked to put more fruit in or, if the bin were to be too full, to take some out. 61 The evidence, generally, was that the QC's checked the bins to see that the fruit was not bruised, that the fruit had stalks and there were no leaves or twigs in the bin, and that all the fruit had been picked. 62 As regards thinners and pruners, during the course of the day the QC would move from one row of trees to another checking that the thinning or pruning work had been done correctly, in accordance with the instructions previously given. 63 According to Mr Bowden, the QC would not monitor the pace at which the workers operated. He said: "The people can do work as fast or slowly as they can. We have got no control". He said that "if some people are sitting under a tree we can't do anything about it". 64 Mr Bowden also said that the appellant had no control over the hours worked by the employee. He said: "Like in thinning we ask for about 8 hours but some people, that's up to them. Some people want to do more. Some people want to do less". He said that it would be up to the workers themselves when to stop for "break times" during the day, and other evidence was to similar effect. 65 Mr Bowden said that there was difficulty in overseeing the breaks because of the size of the orchards. He said: "You can't physically watch over them all the time". 66 But, on consideration of Mr Bowden's cross-examination as a whole, it is apparent that the workers did not have the freedom to work as they pleased, as some of Mr Bowden's testimony (and that of other witnesses who gave affidavit evidence on the appellant's behalf) suggested. 67 Mr Bowden explained that difficulty was experienced with "horse play and hi-jinks" particularly on Saturday mornings. For that reason, he agreed, the QC's had "to keep their eyes wide open". This answer presupposes that the QC's, having knowledge of improper behaviour, would exercise some controlling power and ability to exercise sanctions. 68 This was emphasised by the following answer given by Mr Bowden when discussing hours of work: "They can have half an hour for lunch smoko, as long as they are not clowning around. Like due diligence not endangering the other workers". This suggests that, if the workers took longer than "half an hour for lunch smoko", the appellant would apply sanctions to them. The sanctions are obvious, namely, a warning - if the infraction was a minor one - or summary dismissal, if the departure from instructions was not minor. 69 Mr Bowden, while agreeing with the proposition that a worker could "walk away" whenever he wanted to, said: "They might come to the row tomorrow and there [sic- they] will find someone else finishing off their row". 70 Mr Bowden agreed that it was within a QC's power and it was the QC's decision whether or not a particular worker would be asked to turn up for work the next day. He said that if a particular worker was not performing adequately, the QC might tell that worker not to return the next day. 71 At the end of each day's work the QC or the farm manager would ask the workers if they would be coming to work the next day and would tell those who were coming where they were to work. The appellant needed to know who would be working the next day so as to be able to keep its work force up to the requisite numbers. If any workers were leaving, new workers would be hired the next day. Generally workers would indicate if they were not returning to work, but sometimes workers "just don't turn up". They would then be replaced. 72 Workers were instructed to arrive at work each day at a particular time. Generally, they did come at that time but sometimes they did not. If that occurred, their place would be taken by another worker. As Mr Bowden said: "If they missed a day there would be other people put into the row to finish off the block". 73 If a worker consistently bruised the fruit he or she was asked to leave. Mr Bowden said that the workers must meet quality standards, or "they are out", as he put it. This was indeed in accordance with cl 5 of the Contract of Engagement. 74 Plainly, the appellant used its contractual power to give immediate notice as a means of asserting its authority over the workers. That is, in the sense that if a worker did not work at the required pace or otherwise worked unsatisfactorily, the worker's engagement would be summarily terminated. This would have been a powerful incentive for workers to comply with the appellant's requirements. 75 The method of remuneration also played an important part in the appellant's ability to control the workers. 76 On the evidence, the pace at which the seasonal workers worked was, to a degree, left to them, but, as I have indicated, the appellant retained the power to exercise overriding control over the pace of work and, at times, exercised it. In the other respects that I have identified, the appellant exercised specific and close control over the workers. Has the appellant demonstrated error? The issue of control 77 Brownie AJ said: "The question of the right to control the working activities of the orchard hands is a major factor. In my judgment the [appellant] 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 QC's 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 horse play, and sometimes orchard hands were dismissed for incompetence." 78 It was submitted on the appellant's behalf that Brownie AJ failed to have regard to the fact that the most significant aspect of the control test was the degree to which the principal was entitled to exercise control over the manner in which the work was done. Mr Sullivan SC, senior counsel for the appellant, referred to Queensland Stations Pty Limited v Federal Commissioner of Taxation (1945) 70 CLR 539 where Latham CJ said at 545: "If the work to be done by one person for another is subject to the control and direction of the latter person in the manner of doing it, the person doing the work is a servant and not an independent contractor, and prima facie his reward would be wages. An independent contractor undertakes to produce a given result, but is not, in the actual execution of the work, under the order or control of the person for whom he does it". 79 Mr Sullivan submitted, in particular, that for sufficient control to be exercised to convert the relationship into one of employment the QC's would have to be in a position to exercise some direction as to the pace at which the workers performed the work. He also submitted that the appellant had no power to direct the workers how to pick, thin or prune, and this was an important factor. 80 The tasks the seasonal workers were required to perform (even pruners) were not complex. The work they did was relatively unsophisticated. In reality, the appellant's intervention where fruit was left on the trees or bruised, where stalks were not left on the fruit, where twigs and leaves were in the bins, where the picking of the fruit damaged the trees, where the bins were insufficiently or overly full, where the wrong trees were being worked on, and where behaviour was too rowdy, manifests relatively tight control over most aspects of the way in which the work was done. I have also attempted to demonstrate that, to a substantial degree, by its entitlement to dismiss the workers summarily, the appellant was able to and did exercise control over the pace with which work was done. 81 Although most of the matters I have described relate to the picking of fruit, there were similar areas of intervention and exercise of control in the thinning and pruning functions. 82 Mr Sullivan also referred to Zuijs v Wirth Brothers Pty Limited (1955) 93 CLR 561. In this case, Dixon CJ, Williams, Webb and Taylor JJ said (at 571): "The duties to be performed may depend so much on special skill or knowledge or they may be so clearly identified or the necessity of the employee acting on his own responsibility may be so evident, that little room for direction or command in detail may exist. But that is not the point. What matters is lawful authority to command so far as there is scope for it." In my view, for the reasons expressed, the appellant had lawful authority to command most aspects of the work carried out by the seasonal workers. 83 In Queensland Stations Pty Limited v Federal Commissioner of Taxation, immediately after the passage referred to by Mr Sullivan, Latham CJ said (at 545): "In Logan's case [(1927) 33 ALR 321] this court based its decision [that a contract of employment existed] upon provisions in the contract which are also to be found in the contracts now under consideration which showed that the owner had 'a constant right to intervene and full right of control,' and upon the provision with respect to 'dismissal'." In my view, the facts establish that the appellant had a constant right to intervene, a full right of control and an absolute right to dismiss workers, summarily, and without notice. These matters are of paramount importance and, in my opinion, justify Brownie AJ's decision. 84 As a collateral argument on the question of control, the appellant submitted that Brownie AJ erred in describing the deduction of $5 per bin for bruised fruit as a penalty and as "both a right to control the method of work and the existence of a disincentive for orchard hands who disobeyed instructions". 85 Mr Sullivan submitted that the deduction for bruised fruit was not a penalty but a "differential remuneration rate". He said that if the workers did the job properly they were paid one rate but if they did the job badly by bruising the fruit they were paid at a lower rate. He submitted that the differential payment was a demonstration of the lack of control because it showed that the appellant needed to introduce a financial disincentive to encourage the workers to perform in a satisfactory manner. He submitted that the control exercised de facto by a disincentive penalty arrangement is not control for the purposes of determining whether the contract was one of employment. 86 The fact that a disincentive to work in an unsatisfactory way is financial makes it no less powerful and no less an instrument by which control may be exercised. In my view the deduction for bruised fruit was a means of exercising control and there is no reason why it should not be taken into account in the overall scheme of things when considering whether the contracts were of service or for services. Mutuality of obligation 87 Mr Sullivan relied heavily on the fact that the hours of work were entirely within the workers' discretion. They had the right to come and go as they pleased. They had the right to stop work whenever they wished. The appellant had no obligation to provide work and the workers gave no undertaking to work. Mr Sullivan submitted that these matters were fundamentally incompatible with an employment relationship. 88 Mutuality of obligation to provide work for a particular period and to work for that period is a usual ingredient of the employer/employee relationship. The importance of this aspect was recognised in Commissioner of Pay-roll Tax (Vic) v Mary Kay Cosmetics Pty Limited [1982] VR 871, where the fact that the beauty consultants engaged by the respondent in that case could work whenever they wished was held to be of importance in showing that the degree of control required for an employment relationship was lacking. 89 On the other hand, mutuality of obligation was held not to be conclusive in Roy Morgan Research Centre Pty Limited v Commissioner of State Revenue (Vic), Airfix Footwear Limited v Cope [1978] ICR 1210 and Nethermere (St Neots) Limited v Gardiner [1983] ICR 319. 90 Like virtually all factors relevant to the existence of an employment relationship, absence of mutuality of obligation cannot be looked at in isolation. It has to be seen in context and the context will colour any inferences to be drawn from the fact that a worker is entitled to work whenever he or she wishes. 91 In Commissioner of Pay-roll Tax (Vic) v Mary Kay Cosmetics Pty Limited the overriding factor was the finding (referred to at 875) that the beauty consultants "enjoyed a degree of independence which was quite inconsistent with a contract of service". The beauty consultants were "subjected to very little control in the relevant sense" (at 879). The lack of control in Mary Kay Cosmetics Pty Limited is to be contrasted with the extensive control afforded to and exercised by the appellant in this case. 92 An examination of Roy Morgan Research Centre Pty Limited v Commissioner of State Revenue (Vic) is instructive. The taxpayer carried on the business of conducting opinion surveys and contracted with interviewers to conduct its surveys. The interviewers were expected to work about two weekends a month and required a degree of independence because they worked from and at home. The interviewers were part of a pool available to be drawn on by the taxpayer; they were not entitled to insist upon an assignment and were entitled to decline an assignment for any reason. On appeal, the taxpayer argued that the fact that the interviewers could work when and where they wished and had no obligation to work at all, was significant. In this regard, Winneke P (with whom Phillips and Kenny JJA agreed) said (at 5, 078 to 5,079): "The fact that the interviewers had a discretion as to whether they would accept an assignment, and a limited discretion as to when such assignment would be carried out does not detract from the view which I have formed that the degree of control exercised by the appellant was so extensive that it strongly points to the conclusion that they were, in truth, engaged in the business of the appellant. The circumstances that the appellant provided for the interviewers such equipment as they needed, that the appellant paid expenses, that the interviewers were not permitted to delegate the task assigned and that the interviewers had no responsibility for capital investment or management and had limited financial risk, only confirm my conclusion that the interviewers were engaged in the business of the appellant and were not engaged in business on their own account". 93 In the present case I am not persuaded by the fact that, in theory, the seasonal workers could work whenever they wished, to conclude that they were engaged as independent contractors. In my view, the degree of control the appellant was entitled to and did, in practice, exercise, over the work of the seasonal workers is a powerful indicator that they were engaged as employees. Although they could walk off the job whenever they wished, and work whatever hours they wished, the ultimate authority over the performance of the work rested in the appellant so that they were subject to the instructions of its QC's and other permanent employees: see Humberstone v Northern Timber Mills at 404. The method of payment 94 The appellant contended that the method of remunerating the workers indicated that the workers had undertaken to produce a given result (presumably, a full basket of fruit or a thinned or pruned tree) and were not being paid wages for their work. 95 Brownie AJ dealt with this argument as follows: "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". In my view, Brownie AJ was entirely correct in these remarks. 96 Mr Sullivan submitted that if the remuneration was properly regarded as having been paid on a piecework basis, that, too, supported the appellant's argument. He referred in this regard to Queensland Stations Pty Limited v Federal Commissioner of Taxation and Vabu Pty Limited v Federal Commissioner of Taxation (where payment had been made in a like manner). 97 Brownie AJ said that payment on a piece work basis was "sometimes a powerful indication that that person is not an employee". However, his Honour said that "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". He did not give his reasons for considering that in this case, payment for piece work was unimportant, and the appellant submitted that he was wrong in this regard. 98 The fact that the appellant was paid on a piece work basis also has to be seen in context. A good example of the way in which the context determines the implications of piece work remuneration appears from Vabu Pty Limited v Federal Commissioner of Taxation. In that case Meagher JA regarded a very important indicator as being that the couriers, in that case, received no wage or salary. But the differences between this case and Vabu are vast. The couriers were required to supply their own vehicles, they had to bear the expense of providing for and maintaining the vehicles, and their expenses were regarded as being "very considerable". The chance of profit and the risk of loss in the business was borne by them. They were entitled to use a business name or corporate name. These were strong considerations that the couriers were independent contractors and it was so held. Facts of this kind are not present in this case. 99 In Queensland Stations Pty Limited v Federal Commissioner of Taxation Dixon J (at 551) referred to a drover's contract whereby the owners of the stock agreed to pay the stipulated rate per head for all cattle delivered at the destination. In order to carry out his agreement the drover was required to employ men and provide horses, hobbles, saddlery, a wagonette with horses and harness, camping and cooking gear, and other equipment, and rations for himself and his men. Dixon J said: "I should not have thought that such a contract created the relation of master and servant, or employer and employee, between the cattle owners and the drover. It appears rather to be a contract for the performance of a service for one party by another who is to employ men and plant for the purpose and is to be paid according to the result". True it is that that the drover was paid "per head of cattle", but the other factors I have mentioned were probably the most significant in the decision that the drover was conducting his own business. 100 In Roy Morgan Research Centre Pty Limited v Commissioner of State Revenue (Vic), the interviewers were remunerated on a "success basis" equivalent to a piece work rate. The court held that the fact that the interviewers were paid on results was a factor pointing away from the relationship of employer/employee, but it was not conclusive and regard needed to be had to the whole of the evidence. That was the approach of Brownie AJ with which I agree. In my view, it cannot be said that his Honour erred in this respect. Other matters 101 Brownie AJ said: "In a practical sense, the floating population of orchard hands formed an integral part of the [appellant'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". 102 The appellant submitted that the reference to the integral part of the appellant's work force indicated that his Honour was applying what has been described as the "integration" test. It was submitted that such a test has not been recognised as a separate test for determining whether a particular contract is one of employment. In my view, however, Brownie AJ was merely saying that the individual orchard hands were not conducting their own businesses but rather, their work formed part of the appellant's business. That is, the intention was not to enter into a contract for services but a contract of service. In my view his Honour's reasoning in this respect is unexceptionable. I do not think that his Honour erred as submitted. 103 Mr Sullivan drew attention to cl 1 of the Contract of Engagement which recorded that the worker's engagement was "on a contract basis". It was submitted, in essence, that the parties could have referred to employee and employment but did not. This, it was said, should have been weighed in the balance by Brownie AJ. In my view, however, this argument carries very little weight. An employee is normally employed on a contract basis. In my view, the wording of cl 1 of the contract is substantially neutral. 104 Brownie AJ pointed out that the entirety of the equipment would cost only about $200 and the appellant would provide all other equipment. His Honour said that all comparisons were "odious" and "each case need to be tested by reference to its own set of facts" but noted that the contrast between the equipment provided by the appellant and that provided in cases such as Stevens and Vabu "seem significant". The appellant attempted to criticise his Honour for this reasoning, but in my view it is entirely justified. Brownie AJ did not regard the provision of equipment as a conclusive factor but simply a relevant indication that the contract was one of service. 105 The appellant pointed to the fact that the seasonal workers were not entitled to holiday pay, sick leave, superannuation or other benefits normally associated with employee status. These are relevant factors but not conclusive. In the end, this case falls to be determined by the control exercised over the workers by the appellant. Conclusion 106 In my view the appellant has failed to demonstrate any error on the part of Brownie AJ. 107 In any event, for my part, were I to consider the question afresh, for the reasons I have set out I would come to the same conclusion as his Honour. 108 In the circumstances, it is unnecessary for me to deal with the alternative argument based on s 3A(1)(b) of the Act. 109 I would dismiss the appeal with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.