Employee or independent contractor? 14/8/01

Cases

Employee or independent contractor? 14/8/01

A majority of the High Court has ruled that there was nothing contrary to a relationship of employment in the fact that bicycle couriers were required to bear the costs of providing their own bicycles and repairs.

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Australian Business Ltd 

 

A majority of the High Court has ruled that there was nothing contrary to a relationship of employment in the fact that bicycle couriers were required to bear the costs of providing their own bicycles and repairs. The fact that the couriers were responsible for their own bicycles reflected only that they were in a situation of employment that was more favourable to the employer. In so finding the High Court ruled that a courier company was vicariously liable for the negligence of its couriers.

The effect of the decision in Hollis v Vabu Pty Ltd, [2001] HCA 44, (9 August 2001), is significant as it appears to overturn an earlier and unrelated decision which classified all couriers who worked for Vabu as independent contractors. In this matter the High Court set aside orders made on the 5 November 1999 by the Court of Appeal of the Supreme Court of NSW. In place of those orders the High Court has ordered that the appeal be allowed and that judgement be entered into for Hollis in the sum of $176,313 with costs.

A consideration of the nature of their engagement, and the work practices imposed by Vabu, indicated to the majority of the High Court that the couriers were in fact employees. In a separate judgement, McHugh J also found Vabu vicariously liable for the injuries sustained by Hollis. However, rather than expanding the definition of employee or accepting the employee/independent contractor dichotomy his Honour considered it preferable to hold that the employers could be vicariously liable for the tortious conduct of agents who were neither employees nor independent contractors. The advantage of this approach according to McHugh J was that the doctrine of vicarious liability remained relevant in a world of rapidly changing work practices.

The majority judgement was delivered by Gleeson CJ along with Gaudron, Gummow, Kirby and Hayne JJ and focused upon the underlying nature of the relationship of employment. While McHugh J arrived at the same conclusion as that of the majority, his Honour took a different approach and focused upon the scope of the doctrine of vicarious liability. There was a dissenting judgement provided by Callinan J.

 
Background
 
Vabu Pty Ltd is a Sydney company that runs a document and parcel delivery service in the Sydney CBD. The business is run under the name 'Crisis Couriers'. The appellant, Mr Hollis on the other hand was a courier with another firm called 'Team Couriers'. On 22 December 1994, Hollis left a building in Ultimo where he was picking up a parcel. Upon taking a few steps out onto the footpath he was struck by a cyclist and knocked to the ground. The cyclist tumbled over the handlebars and landed in front of Hollis. The cyclist stood up, apologised and left the scene ignoring Hollis’ cries for help. The cyclist could only be identified by the fact that he wore a green jacket which identified him as a 'Crisis Couriers' cyclist. As a result of this accident Hollis suffered an injury to his knee, which ultimately resulted in a permanent 25 per cent disability in his knee.

 

The decision at first instance 

Hollis sued Vabu in negligence for the injuries sustained as a result of the accident. It was claimed that Vabu was vicariously liable for the negligence of the bicycle courier. At first instance the trial judge found that while the cyclist's negligent and illegal riding caused the accident, Vabu was not vicariously liable for the negligence of the bicycle courier. This was because the trial judge was of the opinion that the bicycle couriers who worked for Vabu were not servants or agents but were rather independent contractors. As such it was held that Vabu was not liable for their negligent acts.

In arriving at this decision the trial judge in the liability case was of the view that he was constrained by the earlier decision of the NSW Court of Appeal in Vabu Pty Ltd v Federal Commissioner of Taxation, (1996) 33 ATR 537 (the taxation decision). In that decision it was held that the bicycle couriers of Vabu were independent contractors and not employees of Vabu. The Court of Appeal decision was based upon findings of fact, namely that the couriers were required to provide their own bicycles and that the couriers had to bear the expense of providing and maintaining those vehicles.

The taxation decision 

The taxation decision concerned the issue of whether Vabu was an employer in respect of all of its couriers, within the meaning of the Superannuation Guarantee (Administration) Act 1992 (the Superannuation Act). The Superannuation Act requires employers to provide a prescribed minimum level of Superannuation to all employees. If an employer fails to make such a contribution then the Act requires that the shortfall be collected by way of a charge levied on the employer. Therefore, the characterisation of Vabu as an employer had consequences that may have exposed it to liability for the payments prescribed in the Superannuation Act.

In the taxation decision Vabu sought a declaration from the Supreme Court that it was not an employer within the meaning of the Superannuation Act and was accordingly not obliged to lodge a Superannuation Guarantee Statement. The Court at first instance declined to grant this relief instead finding there to be a common law relationship of employment between Vabu and all of its couriers. This decision was overturned by the Court of Appeal. The Court of Appeal considered the relationship between Vabu and its couriers within the context of the High Court Decision in Stevens v Brodribb Sawmilling Company Pty Ltd, (1986) 160 CLR 16(the Brodribb decision). In light of that decision it was held that the oldest test of 'control' was now superseded by several other considerations. Given that Vabu couriers supplied their own vehicles and had to bear the expense of providing for and maintaining those vehicles, the Court of Appeal formed the view that each courier conducted their own operation. It was concluded that the couriers would be classified at common law as independent contractors.

The liability case  

It is worth noting that the present matter was distinct from the taxation decision, in which leave to appeal to the High Court was refused. As mentioned above, the trial judge in the liability matter felt constrained by the outcome in the taxation decision to characterise the relationship between the bicycle couriers and Vabu as one of principal and independent contractor. Likewise the Court of Appeal addressed the vicarious liability issue on the footing that in the taxation decision the bicycle couriers were held to be independent contractors.

Vicarious liability  

The majority decision of the High Court briefly addressed the issue of what constituted vicarious liability. It was noted that it had long been accepted as a general rule that an employer was vicariously liable for the tortious actions of an employee but that a principal was not liable for the tortious actions of an independent contractor. The decision of Dixon J in Colonial Mutual Life Assurance Society Limited v Producers and Citizens Co-operative Assurance Company of Australia Ltd, (1931) 46 CLR 41 (the CML decision) examined the dichotomy between the relationships of employer and employee, and principal and independent contractor. In that decision it was found that work done at the principal's request and for the principal's benefit was considered as the independent function of the person who undertook the work. Essentially, the decision indicated that employees and independent contractors performed work for the benefit of their employers and principals respectively. Thus, by itself the fact that a party was set to benefit by the work activities of another person was not of itself sufficient indication that this other person was an employee.

Consideration of the majority 

It was the opinion of the majority of the High Court that in classifying the bicycle couriers as independent contractors, the Court of Appeal in the liability matter erred in making too much of the circumstances that the couriers owned their own bicycles, bore the expenses of running them and supplied many of their own accessories. Viewed as a practical matter, the majority believed that the bicycle couriers had little control over the manner in which work was performed, could not refuse work, were required to wear Vabu's uniforms, were not running their own business or enterprise and did not have independence in the conduct of their operations. A consideration of the nature of their engagement, and the work practices imposed by Vabu, indicated to the High Court that the couriers were in fact employees.

In relation to the situation with respect to tools and equipment, the majority of the High Court found that this situation favoured the conclusion that the couriers were employees. Providing their own bicycles and being responsible for the cost of repairs, the couriers were also required to bear the cost of replacing or repairing any equipment of Vabu that was lost or damaged. This included radios and uniforms. The majority of the High Court noted that although a more beneficent employer might have provided bicycles for the employees and undertaken the cost of relevant repairs. There was nothing contrary to a relationship of employment in the fact that the employees were required to bear these costs. Further it was noted by the High Court that the capital outlay imposed upon the employees was relatively small and that the bicycles were not tools that were capable of use exclusively for work, but also provided a means of personal transport or even a means of recreation out of work time. The fact that the couriers were responsible for their own bicycles reflected only that they were in a situation of employment that was more favourable to the employer.

It was upon this basis that the relationship between Vabu and the bicycle courier who struck down Hollis was held to be that of employer and employee. The High Court therefore held that Vabu was vicariously liable for the consequences of the courier's negligent performance of his work. The appeal was allowed with costs and the orders of the Court of Appeal of 5 November 1999 were set aside. Judgement was entered for Hollis in the sum of $176,313.

The decision of McHugh J  

In his decision McHugh J noted that the case essentially revealed the difficulties that existed in applying traditional rules of liability to new and evolving employment practices. His Honour agreed with the majority of the High Court that the bicycle courier was not an independent contractor exercising independent discretion in carrying out tasks for his own business interests. However, his Honour disagreed with the majority that the relationship between the couriers and Vabu was one of employment. To find or create an employment relationship would in his Honour's opinion unsettle many established business arrangements and have far reaching consequences for industrial relations, workers compensation law, superannuation, and tax deductions. It would according to his Honour probably make employers retrospectively guilty of a number of statutory offences. His Honour also noted that consideration of the courier as an employee would in essence require overruling the taxation decision of the Court of Appeal.

Rather than attempting to force new types of work arrangements into the so-called employee/independent contractor dichotomy, his Honour considered it a better approach to develop the principles concerning vicarious liability in a way that gave effect to modern social conditions. It was the view of McHugh J that the law in the area of liability would be sufficiently flexible to adapt to changing social conditions.

His Honour referred to the CML decision in which the High Court held that a principal would be liable when conduct occurs while the agent is carrying out a task for the benefit of the principal as his or her representative. As such, the CML decision was deemed by McHugh J to offer an appropriate solution for the liability matter. In applying the principals of CML, the courier would be considered as an agent for whose negligence Vabu was responsible. His Honour concluded that if the law of vicarious liability was to remain relevant in the contemporary world it needed to be developed and applied in a way that would accommodate the changing nature of employment relationships. Rather than expanding the definition of employee or accepting the employee/independent contractor dichotomy his Honour considered the preferable course to be to hold that the employers could be vicariously liable for the tortious conduct of agents who were neither employees nor independent contractors. The advantage of this approach according to McHugh J was that the doctrine of vicarious liability remained relevant in a world of rapidly changing work practices.

Applying the principles laid down in CML, McHugh J held that Vabu was liable for the negligence of the courier because:-

  • The courier performed the duty for the economic benefit of Vabu.

  • The courier was the representative of Vabu.

     

      It was upon this basis that McHugh J held that the appeal ought to be allowed and judgement entered into for Hollis.

       

     

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