100211827

WESTERN AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

PARTIES UNITED CONSTRUCTION PTY LTD

APPELLANT

 and

 JOHN BIRIGHITTI

RESPONDENT

CORAM FULL BENCH

  HIS HONOUR THE PRESIDENT P J SHARKEY

  COMMISSIONER P E SCOTT

  COMMISSIONER S WOOD

DELIVERED MONDAY, 19 AUGUST 2002

FILE NO/S FBA 5 OF 2002 AND FBA 23 OF 2002

CITATION NO. 2002 WAIRC 06242

_______________________________________________________________________________

Decision Appeal dismissed

Appearances

Appellant Mr D Brajevic (of Counsel)

Respondent Mr G Mc Corry

_______________________________________________________________________________

Reasons for Decision

THE PRESIDENT:

INTRODUCTION

1          These were two appeals by the abovenamed appellant, United Construction Pty Ltd, against the decisions of the Industrial Court at Perth given on 10 January 2002 in matter No M120 of 2001.  The appeals were brought pursuant to s.84 of the Industrial Relations Act 1979 (as amended) (hereinafter referred to as “the Act”).

2          The decision, in the form of an order, was made on 21 March 2002 (see pages 28-29 of the appeal book (hereinafter referred to as “AB”)).

3          The Industrial Magistrate, upon applications made, under and pursuant to The Long Service Leave Act 1958 (as amended) (hereinafter referred to as “the LSL Act”) and having heard and determined the application ordered that the respondent pay to the claimant $19,221.70 plus interest fixed at $2490.08.  There was no order for costs recorded.

4          Upon the hearing of the appeals, appeal No FBA 5 of 2002 was dismissed by the Full Bench by consent.

5          The Full Bench then proceeded to hear and determine appeal No FBA 23 of 2002.

GROUNDS OF APPEAL – FBA 23 OF 2002

6          The grounds of appeal in appeal No FBA 23 of 2002 are as follows (see pages 8-12 (AB)):-

“1. The Learned Magistrate misdirected himself when he took into account the references to long service leave in sections 8 and 9 of the Long Service Leave Act in interpreting section 7(2) and, thereby, erred in his interpretation of section 7(2).

 2. The Learned Magistrate erred in interpreting section 7(2) of the Act as requiring evidence that the parties intended to enter into a scheme concerning long service leave.

 3. The Learned Magistrate erred:

(a) in interpreting section 11(1)(b) of the Act to mean that he had no discretion but to determine that the Respondent, if an employee, was not entitled to less than payment for long service leave as claimed by him;

(b) in failing to exercise a discretion to determine that the Respondent was not entitled to payment as claimed by him in light of payments received by the Respondents business, J & L Birighitti Engineering, during the relevant period.

 4. The Learned Magistrate erred in law when he misapplied the onus of proof when he evaluated the matter before him by examining whether the Respondent had made out its defence that the Claimant was a subcontractor during the relevant period instead of determining whether, despite that defence, the Claimant had proven, on the balance of probabilities, that he was an employee during the relevant period.

 5. Further and alternatively, the Learned Magistrate erred in determining that the Claimant was an employee during the relevant period when, on the evidence before him, the facts were:

(a) the scope of the Claimant’s duties changed from July1988 when Lucy Birighitti took over the bookwork previously performed by the Claimant;

(b) in addition to the bookwork, Lucy Birighitti performed other work previously undertaken by another person;

(c) the nature and scope of work thereby invoiced to the Respondent by J & L Birighitti Engineering was substantially different to that for which the Claimant was paid as an employee prior to July 1988;

(d) the Claimant and Lucy Birighitti managed themselves in the performance of such work;

(e) Lucy Birighitti worked such hours as she and the Claimant saw fit to complete the work performed by her;

(f) J & L Birighitti Engineering invoiced the Respondent for work performed by it for a period of over 4 years, and Lucy Birighitti shared the profits therefrom, even after she ceased working for the Respondent and commenced working for another person;

(g) the Claimant and Lucy Birighitti held themselves out as partners in J & L Birighitti Engineering, not employees of the Respondent, when they filed tax returns during the relevant period, that described them as subcontractors;

(h) during the relevant period, J & L Birighitti Engineering invoiced the Respondent for work done by the Claimant at a rate that was substantially more than that which the Claimant personally received as an employee prior to the relevant period;

(i) the Claimant took professional advice as to the meaning and consequences of the change in mode of remuneration from one of payment to himself directly to one of payment to J & L Birighitti Engineering; and

(j) the Claimant knowingly and actively participated in the change in the mode of remuneration and, thereby, intended to take the benefit of the consequences flowing from such change,

in respect of which facts the Learned Magistrate had no; or no proper, regard.

 6. By reason of the matters referred to in paragraph 5 above, the Learned Magistrate erred in finding that:

(a) the relationship between the parties continued on without any other change after July 1988;

(b) the Claimant continued performing the same duties he had performed for the Respondent as a Senior Supervisor;

(c) the only change in July 1988 was the introduction of the invoice system and the consequential changes to taxation status,

(d) Lucy Birighitti went to the Alcoa site in July 1999;

(e) there was no evidence that the Claimant was running a business;

(f) the Claimant was not free to work for anyone else because of his own perception to this effect;

(g) the Claimant was an integral employee in the Respondents organisation; and

(h) Lucy Birighitti was controlled by the Respondent and that she was clearly an employee.

 7. Further, the Learned Magistrate erred in finding, and taking into account, the facts that the Respondent was keen to introduce the tax minimisation scheme and that the change in the method of remuneration made in July 1988 was for the purpose of expediency on the part of the Respondent, when:

(a) there was no, or no sufficient, evidence upon which to make such a finding;

(b) he failed to have regard, or proper regard, for:

(i) the evidence of the Respondent and Anthony Carmignani that the Respondent did not prefer using subcontractors in the absence of commercial pressure by persons to be engaged as subcontractors;

(ii) the evidence of the Respondent, and concessions made on behalf of the Claimant, that the rate of pay required by the Claimant took into account the value of things to which he would have been entitled to as an employee;

(c) the reason why the parties entered into a new mode of remuneration was irrelevant in the absence of a finding that their conduct was a sham to disguise an employer — employee relationship; and

(d) the real issue for determination, which the Learned Magistrate failed to address, was whether the different mode of remuneration reflected the true intention of the parties to change the nature of the relationship from one of employer-employee to something else, which it did.

 8. The Appellant seeks an order that the decision appealed against be quashed and the application at first instance be dismissed.”

BACKGROUND

7          Evidence was given at first instance for the respondent (the claimant at first instance) by Mr John Birighitti and Mrs Lucy Birighitti, his wife.  Mr Anthony Carmignani, the former accountant and company secretary of the appellant, also gave evidence for Mr Birighitti.

8          For the appellant, Mr Samtino Castelli, one of the “original founders of the respondent” and later a director until he left the company in 1997, gave evidence.  Evidence was also given by Mr Anthony Iannello, the general manager of processing and energy construction for the appellant and an employee of the appellant in various capacities since 1981.

9          Claim No M120 of 2001 was filed in the Industrial Magistrate’s Court at Perth on 17 July 2001.  The claim was made by Mr John Birighitti, the abovenamed respondent.

10       The appellant is a company which is carrying on business in Western Australia.

11       By the application in this matter, the respondent sought the payment of long service leave entitlements pursuant to the provisions of the LSL Act, having made application to the Industrial Magistrate’s Court by Claim No M120 of 2001 dated 15 July 2001, filed on 17 July 2001, the claim being for the sum of $19,223.68, together with interest, and, alternatively, $15,173.52 being long service leave said to be due but not paid to the claimant.

12       Mr John Birighitti, the abovenamed respondent, first started working for the appellant company in about 1981, commencing at its workshop premises in Kwinana as a foreman/supervisor in charge of the workshop and the four or five employees in it.  He is by trade a boilermaker and first-class welder.  He was then, it was not in dispute, engaged as and treated as an employee, and that is how the parties regarded themselves, namely as employer and employee.  He described the company as having four “partners”, namely Sam Castelli, John Trettel, Charlie Bontempo, and John Robino.

13       At all material times, the appellant was engaged in the business of engineering and construction.

14       Mr Birighitti was paid as an employee, and tax was taken out of his salary as if he was an employee.  He was paid the normal sort of entitlements, such as paid holiday leave, as if he were an employee.  He worked when and where he was told to work.  He did not provide his own tools or other equipment.  He worked in the appellant’s workshop until the end of 1986.  It should be said that during the period of his employment he worked at various places in Western Australia and in the Northern Territory as directed by the appellant.

15       In or about early 1988 he was transferred to the Alcoa Alumina Refinery site at Kwinana where the company had a maintenance contract and was doing other work.

16       There were discussions between Mr Birighitti and representatives of the appellant in 1988, and, as a result, commencing in July 1988, it is alleged on behalf of the appellant that the parties changed the “arrangement” between them.

17       Mr Birighitti gave evidence that, in mid-1988 the appellant, through Mr Castelli and Mr Carmignani, the company secretary and accountant, told him that he, Mr Birighitti, and his wife should be paid “like Lucy and John Birighitti” and that they should invoice the appellant for the hours which they worked.  Mrs Birighitti, who by then was working at Kwinana with him as an employee of the appellant, said that her husband told her that they would have to “go subcontractors because they more or less told him to do it that way”.

18       According to Mr Birighitti, they, meaning, it would seem, Mr Castelli and Mr Carmignani, told him that he “would have saved the money”.  He said that Mr Castelli mainly did the talking on this occasion.  He said that they told him that he would probably get more money and would come out on top.  When the arrangement was put in place, Mr Birighitti was paid no holiday pay, no sick pay, was subject to no workers’ compensation cover, and tax was not taken out of what was paid him.

19       According to Mr Castelli, the Birighitti’s had to take out their own personal accident insurance.

20       It was the appellant’s case that from this point Mr Birighitti was no longer treated as an employee but as a subcontractor.

21       In July 1988, the respondent entered into an arrangement with the appellant whereby he would be paid an hourly rate following the submission of monthly invoices.  The appellant was invoiced by J & L Birighitti Engineering, a business name registered with the Australian Securities and Investments Commission, which, according to the evidence, was a business carried on by the respondent and his wife Lucy.  The invoices presented each month, in the main, included an amount for hours worked by both the respondent and Mrs Birighitti.  At no time after the system was said to have changed was there any difference in the way Mr Birighitti did his work.  He continued to use a company utility provided for him with all the running costs paid for by the appellant.  The appellant continued to provide Mr Birighitti’s work clothes, tools and equipment.

22       Mrs Birighitti did not know whether the rate at which her husband was paid took into account the fact that he would not be paid annual leave or sick leave.  Mr Birighitti said in cross-examination that he did not understand at all that he was being paid as a contractor, and regarded himself at all times as an employee.

23       In 1989, Mr Birighitti went on a holiday to Phuket.  The holiday was paid for by his employer, and was taken in lieu of a holiday which he wished to take in January 1988, but was unable to because of work requirements.

24       Mr Carmignani’s evidence was that in June 1988 Mr Birighitti went from wages on a pay as you earn (PAYE) basis to what was called a subcontractor system where he was paid by the hour and no tax was deducted from his salary or income.  This arrangement came into existence, according to Mr Carmignani, because the directors decided to try and get some workers “onto subcontract”.  As a result, Mr Carmignani said, there was a saving for both parties.  For the appellant, there was no holiday pay, sick pay or workers’ compensation liability, and the employee had a way of minimising his tax by splitting the income with his wife.  Mr Carmignani said that when Mr Birighitti was “offered the system” he asked Mr Carmignani’s advice.  Mr Carmignani said that he told him that it was a good way of doing it and that he, Mr Birighitti, would pay less tax as well.  Mr Carmignani then registered the business name of J & L Birighitti Engineering.

25       There was no change in the work which Mr Birighitti was doing, Mr Carmignani confirmed.  He also said that they put Mrs Birighitti with Mr Birighitti because it was getting too much for one person to do the paperwork at the Kwinana Alcoa site.

26       Under the new arrangement there was a prescribed payment tax deduction, but no deduction for income tax and Mr Birighitti was paid $22.00 per hour.  Mr Carmignani initially did Mr Birighitti’s (and presumably Mrs Birighitti’s) tax returns until they got the knack of it.  Mr Carmignani said in evidence that the company had doubts that the status of these employees was “pure subcontract status”, because most of them were employed individually.  It should be noted that after Mrs Birighitti left the employ of the appellant in 1991, that Mr Birighitti had such an individual arrangement.

27       Mr Castelli recalled in evidence an arrangement with what he called a company “called Birighitti Engineering”.  He said that they came to an arrangement whereby the appellant terminated the employment of John Birighitti and appointed Birighitti Engineering “made up of John and Lucy Birighitti” as contractors on site to manage the site.  Mr Castelli did say clearly that Mr and Mrs Birighitti were “reporting back to him” because he was the operations manager, but they also reported to other partners or managers.  He said that his company was generally against subcontractors, but that they had a portion of staff who were paid salary, as he called it, and a portion of who were paid as subcontractors.  Mr Castelli’s evidence was that they could not attract people readily, so that they were forced to go into subcontracting to attract persons and so as to compete with the rest of the industry for workers.

28       Mr Castelli further said that because Lucy Birighitti was working on the site at Alcoa, it was easy to engage them as subcontractors.  He also said that he was responsible for Mr Birighitti “coming back onto the books as a wages employee”.  He further expressed the view that in the middle of 1998 Mr Birighitti had been paid out all his accrued entitlements, although he had no first hand knowledge of this occurring.  Mr Castelli also said that the appellant provided workers’ compensation cover for all subcontractors, but that they did not pay sick leave or annual leave.  Further, the subcontractors did not have set starting and finishing times and were paid only for hours worked.  However, he did say in evidence that there was no difference between what managerial staff did on contract and what they did if they were paid a salary.

29       At one stage the company held a function where presentations were made to Mr Birighitti in the form of a watch and other gifts for long service to the company.  Mr Castelli said, however, that it did not matter for the purposes of that presentation, whether persons presented with gifts were subcontractors, contractors or employees.  He admitted that no-one could tell whether they were contractors or subcontractors from what people were actually doing.

30       Mr Iannello gave evidence that his understanding was that Mr Birighitti wanted to be paid for every hour that he worked, and that the reason for this was a tax advantage which a number of subcontractors requested from the company.  At the time, Mr Birighitti was again placed on an employee arrangement in 1992 because they were advised by Arthur Anderson that their subcontractors “didn’t comply with the rules”.  Mr Iannello said the company did not support subcontractors and that Mr Birighitti did not fulfil the requirement of being a subcontractor.  He said that the company did not intend to do anything which was illegal, but admitted that Mr Birighitti was not a true subcontractor.

31       The subcontract “arrangement” remained in place until October 1992.  During that time J & L Birighitti Engineering invoiced the appellant company for work done by both persons on the Alcoa site with each of them, initially, recording on the invoice recording different numbers of hours according to what each of them worked.

32       There was a charge for the hours worked by Mr John Birighitti and a separate charge for the hours worked by Mrs Lucy Birighitti.  For Mr Birighitti the rate was $22.00 per hour, and for Mrs Birighitti, $10.00 per hour.  Mr Birighitti worked 55 hours per week and Mrs Birighitti much less.  Both Mr and Mrs Birighitti said in evidence that they considered themselves to be employees.  Mrs Birighitti did not agree that she and her husband had conducted “any business in its own right”, as she put it.

33       These invoices were rendered to the company monthly.  The company then paid the Birighittis on the invoices.  The evidence was that the number of hours claimed to have been worked was not questioned.  The invoices were prepared by Mrs Birighitti, but Mr Carmignani organised it for them and showed her what to do.  In due course, invoices were presented whereby a lump sum was charged for the work of both Mr and Mrs Birighitti.  Of course, in 1991 Mrs Birighitti had obtained employment with another company and left the appellant.  On the evidence, the Birighitti’s entered into an allegedly altered agreement at the direction of the company through Mr Anthony Carmignani who was the company secretary at the time.

34       Mr Carmignani suggested that this is what the company wished to do and suggested to them that the benefit for them in entering into the new arrangements was a reduction in tax liability.  Mr Carmignani made it quite clear that the appellant would derive benefits because it would not have to pay Mr Birighitti as an employee as it had done in the past, nor would it have to pay payroll tax.

35       There was also evidence from the company that it was under pressure at the time to enter into subcontract arrangements with some individuals such as Mr Birighitti in order to try and retain their services because these people were valued people.

36       The company was, it was said, comfortable with the arrangements which were being entered into with the Birighittis.

37       During this period of time, business tax returns were filed on behalf of the business J & L Birighitti Engineering describing them as engineering subcontractors with their source of income being from the partnership and noting a share in the partnership profits as well.  The cost and expenses of the business included things like Mrs Birighitti’s motor vehicle being a cost to the partnership.  Payment to Mr Birighitti was at the rate of $22.00 per hour.

38       That arrangement continued even after the Birighittis actually left the Alcoa site and when they were each working at different sites.

39       Mrs Birighitti, in fact, returned to the main office to carry out payroll duties.

40       In 1991 she left the employ of the appellant altogether to work for another employer.  However, there were still tax returns filed in the name of J & L Birighitti Engineering and its only source of income remained the monies paid by the appellant.  The monies were paid on the invoices into their personal accounts.

41       In October 1992, the company wished to end the “subcontract” arrangements.  From that point Mr Birighitti was treated as an employee, paid as an employee, and taxes were deducted from his wages by the appellant employer.  He was called into Mr Castelli’s office and Mr Castelli told Mr Birighitti, according to Mr Birighitti’s evidence, how much he would be paid.  It was the appellant’s decision to “change the system again.  Mr Castelli told Mr Birighitti that he would go back “and be staff”, and be paid weekly with holiday pay and sick pay.  Mr Castelli also told him the figure which he would be paid.

42       According to Mr Carmignani’s evidence, this system was changed because of doubts.  The unions were questioning whether the people, including Mr Birighitti, were employees or subcontractors.   He also said the Taxation Department, was clamping down on these sorts of things.  People were “brought back” to the wages system, Mr Carmignani said.  He also said that they were just told that they were going to be paid wages again on the PAYE system.

43       Mr Carmignani said that from July 1988 to October 1992, no employee entitlements had been granted or requested.  There was no paid leave, sick leave or holiday pay.  However, Mr Birighitti having become “an employee” again from October 1992 until the termination of his employment in early 2000 was paid employee entitlements.  Mr Birighitti worked for no-one else at any time from 1981 to 2000 and received his income at all times from what was paid to him by the appellant for his work.  He was told that he would save money from the original arrangement and said somewhat hesitatingly that he did understand that there would be a savings on tax.  The only source of income for the so-called partnership of Mr Birighitti and his wife was the appellant’s payments for the work done by them.

44       This matter became the subject of dispute upon his dismissal when Mr Birighitti claimed long service leave entitlements based on his also claiming to have completed nineteen continuous years of service as an employee.

45       It was not in dispute that the respondent, Mr Birighitti, was employed by the appellant from July 1982 until the termination of his employment in May 2000.

46       It was the case for the appellant that, from July 1988 until about October 1992, Mr Birighitti was employed as a subcontractor, and that that period of employment was not a qualifying period for the purposes of long service leave entitlements.

47       The question which arose is whether the respondent was an employee or subcontractor for the period during which he was paid as a result of the submission of invoices.

48       It was not in dispute that before July 1988 and after October 1992 the respondent was paid wages or a salary and received all the normal entitlements of an employee, including paid leave, and received a group certificate for each financial year and was, in fact an employee.

49       During the disputed period the respondent did not receive the normal leave entitlements, was paid at an hourly rate on the invoices, and had no tax deducted under the Prescribed Payment System and lodged Partnership Income Tax Returns.  He received no group certificates, nor would it seem did his wife.  On those returns the partnership business was described as “Engineering Subcontractors”.  Mr Carmignani, who acted as their accountant, prepared the tax returns.

50       It is quite clear, on Mr Birighitti’s evidence, that he worked for no-one except the appellant during the 19 years of his employment until his position was made redundant and he was retrenched, in 2000.  It was after that, of course, that he claimed long service leave payments and liability was denied on behalf of the appellant.  He insisted that he was always an employee, no matter how he was paid.

FINDINGS AT FIRST INSTANCE

51       The Industrial Magistrate referred to WABLPPU v R B Exclusive Pools Pty Ltd t/a Florida Exclusive Pools (1997) 77 WAIG 4 (FB).

52       The Industrial Magistrate observed that the evidence before him generally was that the relationship between the parties continued on without any other change after July 1988 and that the respondent continued performing the same duties he had performed for the appellant as a senior supervisor.

53       In 1987, Mr Birighitti had been sent to the Alcoa site by the appellant as site supervisor, initially with four or five builder welders.  He said in evidence that the site became busier and the number of employees increased.  The only change in July 1988 was the introduction of the invoice system and the consequential changes to his taxation status.

54       In July 1989, his wife, Lucy was transferred to Alcoa to look after the site office.

55       Mr Samtino Castelli, a director of the appellant, gave evidence that he was a founder and director of the appellant company and that he employed the respondent and sent him to the Alcoa site in 1987 as the site supervisor.  In cross-examination, he admitted that there was no changes in the respondent’s duties while on the Alcoa site apart from the general increase in work.  He then directed the respondent to other sites including the Rankin A oil rig after the work at the Alcoa site and then to Gove, before he sent him to the Worsley Alumina site as construction manager.  Mr Birighitti then returned to the appellant’s workshop until he was made redundant.

56       The Industrial Magistrate found as follows:-

(a)             There was no evidence that the respondent was running a business.

(b)            There was no evidence that he was free to work for anyone else without resigning from the appellant company.

(c)             He never contemplated working for anyone else.

(d)            His tools and work clothing were provided by the appellant as was a motor vehicle.

(e)             He was an integral employee in the appellant’s organisation.

(f)              Mrs Lucy Birighitti was controlled by the appellant, was not a subcontractor, and was an employee.

(g)            In May 1998, she was employed as a courier, having telephoned Mr Castelli seeking employment.

(h)            Mr Castelli sent her to the Alcoa work site where she did office work in the charge of the respondent, Mr Birighitti, as site supervisor.

(i)              In 1990, she was transferred to the company stores office where she worked as a computer operator.

(j)              She later worked in the pay office.

(k)            She was clearly an employee and that weakened the appellant’s case that the respondent was a subcontractor.

(l)              The appellant, on the evidence of Mr Anthony Carmignani, was keen to introduce the tax minimisation scheme.  There was no doubt that it was the appellant who ceased the arrangement in 1992 after receiving legal advice

(m)          If the respondent was truly a subcontractor the appellant could not have unilaterally made him an employee.

(n)            The method of payment made in July 1988 was for the purpose of expediency on the part of the appellant and for tax minimisation on the part of the respondent, and although the respondent was for that purpose described as a subcontractor, he remained, in fact, an employee and was so for the duration of his employment with the appellant.

(o)            He was therefore entitled to long service leave pursuant to the Act.

ISSUES AND CONCLUSIONS

57       Let me first say that it was not in issue that if Mr Birighitti had worked as an employee for fifteen years continuously in the employment of the appellant then he was entitled to be paid the long service leave benefits which he claimed.

58       An employee is defined in the LSL Act, in its relevant parts, which is paragraph (a) of the definition of employee in s.4, as follows:-

““employee” means, subject to subsection (3) - 

(a) any person employed by an employer to do work for hire or reward including an apprentice or industrial trainee;”

59       An employer is defined in the LSL Act, in its relevant parts, which is paragraph (a) of the definition of employer in s.4, as follows:-

““employer” includes - 

(a) persons, firms, companies and corporations; and”

60       There was not any major conflict in the evidence in these proceedings.  It was common ground that Mr Birighitti was an employee of the respondent for that period of his employment from 1981 to 30 June 1988, and from 1992 to 2000.

61       Mr Birighitti was paid as an employee, worked where he was told to work, as an employee, when he should work, and on the sites where he was told to work, and was subject to direction and control, was paid a wage, and, further, was entitled to holiday pay, sick leave and workers’ compensation cover.  In addition, he was provided with transport in the form of a company utility at all times, and both his work clothes and tools were provided.  This continued even during the “subcontract” period 1988 to 1992, and it was open to so find that that is what occurred, and those were the conditions of his employment.

62       In June 1988, the appellant company decided that it was to its advantage to change the terms of the engagement of Mr Birighitti.  Whether the agreement changed from or was replaced by a contract of employment to what was called a subcontract arrangement is another matter.

63       Mr Carmignani, the accountant, secretary and chief financial officer of the appellant, said that the company benefited from such arrangement because it did not have to pay except for work actually done, and that it did not have to pay for workers’ compensation cover, for holiday pay, for annual leave and for superannuation (if that applied).  Mr Castelli saw the benefit as being that subcontract arrangements would attract employees whom it was otherwise found hard to attract to work for the appellant.  Mr Castelli also said that there was workers compensation cover provided for subcontractors.  However, Mr Carmignani said that Mr and Mrs Birighitti had to provide their own personal accident cover.  Mr Carmignani saw the arrangement as forwarding tax minimisation benefits to Mr Birighitti and his wife.  It is quite clear that all of this arose because the employer saw it as being in its interests to change the arrangement and that this was done at its initiative, and primarily for its benefits.

64       The matter was put to Mr Birighitti as what should occur and he was told that he would enjoy a tax minimisation benefit.  This arrangement coincided with the approximate time of Mrs Birighitti commencing to work with him at the Alcoa site as a bookkeeper/clerk and employee of the appellant.

65       Mr Carmignani gave Mr Birighitti clear advice that he ought to accept the proposal, assisted him to register the business name, prepared the earlier invoices for them until Mrs Birighitti knew how to do it, and prepared the “partnership” tax return.

66       It is clear from their evidence that Mr and Mrs Birighitti regarded themselves always as employees.  It is the fact that as employees or “subcontractors” Mr Birighitti’s sole income was at all times derived from the work which he did for the appellant.  He did no work for anyone else at any time for gain.  During the period of the “subcontract”, on all of the evidence, even Mr Castelli’s partly equivocal evidence, the work which he did, did not change.  Mrs Birighitti’s work, too, remained, on the evidence, the work of a bookkeeper/clerk until she left the employ of the appellant in 1991.  When she left, the so-called subcontract arrangement with the appellant continued with Mr Birighitti the sole party to it.  The only changes which occurred in the actual performance of the agreement between the parties between July 1988 and August 1992 were these:-

(a)             There were no amounts paid for annual leave, sick leave or other benefits which might be paid to an employee.

(b)            An annual hourly rate of $22.00 was paid to Mr Birighitti for every hour worked and an amount was paid to Mrs Birighitti.

(c)             The amounts paid were paid monthly on an invoice issued in the name of Birighitti Engineering.

(d)            There was no workers’ compensation insurance cover if Mr Carmignani’s evidence was to be accepted.

(e)             The monies for the work performed were paid to the private account of Mrs Birighitti and not to any partnership account, in any event.

(f)              The monies were not paid in the normal manner in which wages would be paid on a regular periodic basis.

67       In 1992, the appellant unilaterally informed Mr Birighitti that he was being returned to the “employer/employee arrangement”, and it is not in dispute that he did so.  This was clearly done because the appellant’s advisers and some of its officers did not regard the “subcontract” arrangement, including that with Mr and Mrs Birighitti, and then with Mr Birighitti alone, as a true subcontract arrangement.

68       The first question to be determined on this appeal is whether for the period 1988 to1992, when he was said to be a subcontractor to the appellant, Mr Birighitti was a subcontractor or was in fact the appellant’s employee ((ie) was there an employment relationship which ended and an independent contractor relationship which took its place for that period of approximately four years)?

69       If Mr Birighitti were an employee he was entitled to the long service leave which he claimed, but subject to the other grounds of appeal.

Principles

70       First it is necessary to refer to a number of principles which govern the determination of the question of whether he was an employee as defined in the LSL Act (op cit).

(a) Whether a worker is an employee is a mixed question of fact and law.

(b) Ascertaining the terms of the contract and the correct inferences to be drawn from those terms, are questions of fact.  Whether or not the relationship arising from those terms is an employment relationship is a question of law (see Commissioner of Taxation (Cth) v J Walter Thompson (Australia) Pty Ltd [1944] 69 CLR 227 and Marshall v Whittakers Building Supply Co [1963] 109 CLR 210 at 216-217 per Windeyer J and also Australian Timber Workers’ Union v Monaro Sawmills Pty Ltd (1980) 29 ALR 322 (FC) per J B Sweeney and Evatt JJ at pages 323-324).

(c) (i) The nature of a contract of employment is to be ascertained from its terms, except when those terms are ambiguous or perhaps when they are a sham.

(ii) The nature of the relationship between an employer and a worker is determined by a proper characterisation of the contract between them.

(iii) Evidence relating to the subsequent conduct of the parties is admissible for the purpose of determining if the contract has been varied (see Australia Mutual Providence Society v Allan (1978) 52 ALJR 407 (PC) which was followed in Narich Pty Ltd v Commissioner of Payroll Tax (1983) 58 ALJR 30 (PC)).

(d) As many contracts to perform work are informal or not reduced to writing, it is often necessary to consider the totality of the relationship to ascertain the true nature of the contract (see Connelly v Wells (1994) 55 IR 73 (CA) per Gleeson CJ at pages 74-75).

(e) If the true parties to the contract are the employer and either a partnership or an employee corporation then it is very unlikely that the contract is an employment contract (see Australia Mutual Providence Society v Allan (op cit) (PC) at pages 410-411).

However, if the alleged partnership (or the attempted “incorporation” of the worker) is a sham or was divorced from the reality of the relationship then it will not be a bar to a finding of an employment contract (see Cam & Sons Ltd v Sargent (1940) 14 ALJR 162).

Remuneration of a worker need not be paid to the worker directly (see BWIU v Odco Pty Ltd (1991) AILR 239).

(f) An express term in a contract indicating the nature of the relationship created by it will carry weight in determining whether the relationship is one of employment (see Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 and Australia Mutual Providence Society v Allan (op cit) (PC)).

This is especially true if the contract and relationship are otherwise ambiguous (see Australia Mutual Providence Society v Allan (op cit) (PC) and Narich Pty Ltd v Commissioner of Payroll Tax (op cit) (PC)).

(g) However, a statement in a contract categorising the relationship as either one of employment or not does not determine the issue (see Cam & Sons Pty Ltd v Sargent (op cit)).

(h) If the expressed intention of the parties are a sham, or the evidence clearly establishes that the term categorising the relationship is misleading and contrary to the established facts then the term will be ineffectual (see Cam & Sons Pty Ltd v Sargent (op cit) at page 162 and also Neale v Atlas Products Pty Ltd [1955] 94 CLR 419 and also see Australia Mutual Providence Society v Allan (op cit) (PC)).

(i) The parties cannot alter the substance or true nature of their relationship by such an express term (see Cam & Sons Pty Ltd v Sargent (op cit)).

(j) An employee can arrange for remuneration to be paid by the employer to a partnership or a corporation without such arrangement affecting the nature of the relationship between the employee and the employee (see Burke v Reander Pty Ltd (1996) 69 IR 346 and Ellis v Saks Design Pty Ltd (1997) AILR 2963).

(k) (i) In determining whether an employment relationship exists there is no single test to be applied.

(ii) The correct approach is to consider a wide range of indicia, none of which is determinative by itself (see Stevens v Brodribb Sawmilling Co Pty Ltd (op cit) per Mason CJ, Brennan J, Wilson and Dawson JJ and Deane J) (see also Hollis v Vabu Pty Ltd (Trading as Crisis Couriers) (2001) 181 ALR 263 (HC)) (see also Augustyn v Vistadale Pty Ltd as trustee for the Ranger Family Trust trading as Ranger Contracting (2002) 82 WAIG 939 (FB)).

(iii) A considerable amount of discretion is left in the hands of the court determining the issue (see Articulate Restorations and Development Pty Ltd v Crawford (1994) 57 IR 371).

(iv) It is fair to say that the courts engage in balancing a number of factors (see Stevens v Brodribb Sawmilling Co Pty Ltd (op cit)).

(l) In ascertaining whether an employment relationship exists, the control test is “significant” and “remains the surest guide” (see again Stevens v Brodribb Sawmilling Co Pty Ltd (op cit)).  That test, however, is not the sole criteria and is not in itself sufficient to conclusively determine the nature of the relationship (see Queensland Stations Pty Ltd v Commissioner of Taxation (Cth) [1945] 70 CLR 539).

(m) The mode of remuneration is one of the factors to be taken into account when determining if an employment relationship exists, but it is not alone determinative of that fact (see Stevens v Brodribb Sawmilling Co Pty Ltd (op cit) at pages 24 and 37, and see Queensland Stations Pty Ltd v Commissioner of Taxation (Cth) (op cit) also).

(n) The provision of benefits commonly provided to an employee is relevant in determining if an employment relationship exists ((eg) holiday pay, long service leave, PAYE tax, etc).

(o) Whether or not a worker is in business on his or her own account is irrelevant indicium in determining whether an employment relationship exists (see Marshall v Whittakers Building Supply Co (op cit)).

(p) Whether or not a worker is “part and parcel” of an organisation is a factor to be taken into account when determining if an employment relationship exists (see Commissioner of Taxation (Cth) v Barrett [1973] 129 CLR 395).

Put another way the question is whether the worker is an integral part of the business of he employer (see Commissioner of Taxation (Cth) v Barrett (op cit)).

(q) Whether tax deductions are or are not made from the remuneration paid to a worker and the type of tax that is deducted from that remuneration is relevant in determining whether an employment relationship exists (see Stevens v Brodribb Sawmilling Co Pty Ltd (op cit) and Climaze Holdings Pty Ltd v Dyson (1995) 13 WAR 487).

(r) These factors are not determinative ((ie) whether tax is deducted on a PAYE basis or not) (see Stevens v Brodribb Sawmilling Co Pty Ltd (op cit) per Wilson and Dawson JJ).

(s) In certain circumstances it has been held that the weight given to those factors is slight (see Connelly v Wells (op cit) (CA) and see Re Porter; Transport Workers’ Union (1989) 34 IR 179 per Gray J, and see also Australian Timber Workers’ Union v Monaro Sawmills Pty Ltd (op cit)).

For example, if the parties have adopted a particular tax position based on advice from others, and if weight is to be placed on this indicium, then the court is assuming that the parties are complying with the laws (see Australian Timber Workers’ Union v Monaro Sawmills Pty Ltd (op cit) at pages 378-379).

(t) Given the uncertainty of that assumption, heavy reliance should not be placed on those factors (see Re Porter; Transport Workers’ Union (op cit) per Gray J).

On the other hand courts have been critical of workers who seek to claim the benefits of income tax laws by representing themselves as independent contractors yet who represent themselves as employees for the purpose of claiming a statutory or other benefits (see Barro Group Pty Ltd v Fraser [1985] VR 577 at 180, but see also Jennings Industries Ltd v Negri (1982) 44 ACTR 9 per Kelly J).

CONCLUSIONS

71       First, in considering this question, it must be said that there is no single test, on the above authorities, to be applied.  It is necessary to consider a wide range of indicia, however, the control test is significant and remains the soundest guide.  The control test, however, is not to be the sole criterion.

72       In this case, there was no written contract to express the intention of the parties.  The parties, on the above authorities, cannot alter the substance or nature of the relationship by an express term.  There was no such express term here, in any event.  Further, even if such an express term does purport to change the nature of the contract, it cannot do so contrary to the established facts.  The alleged new contract, called a subcontract, was informal and not reduced to writing.  Accordingly, it is necessary to consider the totality of the contract to ascertain its true nature (see Connelly v Wells (op cit) (CA)).

73       In this case, on the established facts, the following indicia should be considered:-

(a)          From 1988 to 1992 the respondent was subject to the control of the appellant doing what he was directed to do when he was directed to do it, as was the case before 1988 and after 1992.  That is very significant.

(b)          At no time was he required to provide any of his own tools or equipment during the whole of the 19 years during which he worked for the appellant.

(c)          At all times, he did nothing but provide his own services during those 19 years.

(d)          He was manifestly a part of the appellant’s organisation at all times.

(e)          He did no work for any other person as an employee or as a contractor, on the evidence.

(f)           A business name was registered for the appellant and his wife.  That was said to evidence a so-called partnership, but the partnership produced no income by way of profit.  The only income which was produced being by wage or salary payments or payments in the nature of wages and salary made by the appellant.  The only income of the so-called partnership was the payment of amounts in the nature of wages and salaries for hours worked by the two individuals.  There was no business as such conducted by which any profit might be derived.  There was no provision of anything by the two so-called partners, except their individual labour.

(g)          The only remuneration paid into the accounts was for the hours worked.

(h)          There is no evidence that Mr and Mrs Birighitti conducted any business on their own account.

(i)            There was no provision of “normal” employment benefits, except a payment which had some of the characteristics of a wage.

(j)            There was no real partnership as such.

(k)          There was no evidence of partnership books.

(l)            The evidence was that the monies paid on the invoices were paid to Mrs Birighitti’s personal account, and there was no evidence that there existed any partnership account.

(m)        There was no evidence of a partnership business being carried on.  The only business of the partnership was the provision of the personal services of Mr and Mrs Birighitti in the same manner as they had done when they were characterised as employees.

(n)          The alleged partnership was either a sham or one so divorced from the reality of the relationship that it could be no bar to a finding of an employment contract, and that I think is very clear.  (It should be emphasised that Mr and Mrs Birighitti considered themselves to be employees at all times and that the appellant in the end was not certain that they were not).

(o)          Even if remuneration were not paid to a worker direct, it is not determinative, in any event, of the relationship (see Burke v Reander Pty Ltd (op cit)).  In this case there was evidence that the monies were paid to Mr and Mrs Birighitti direct from 1988 – 1992.  Even if that were not the case and they were paid to a partnership, and it was a genuine partnership, it would not necessarily be determinative.

(p) (i) It is, of course, relevant to determine whether tax is deducted on a PAYE basis or not.  In this case, such a deduction was not made.  In this case, the tax position adopted by both parties was a direct consequence of and arose only because the employer decided that it was to its advantage to create what it designated as a subcontract.  The respondent entered into the new arrangement on the advice and with the assistance of an expert, who was a senior officer of the appellant, namely Mr Carmignani.

On the evidence of both Mr Birighitti and Mrs Birighitti, it was fair to infer, that they did not understand the full implications of the matter, did not understand that they were entering into a subcontract, and neither accepted that they were not employees at all times.  In adopting the position as to tax claims which they did, they acted on the advice of and with the assistance of a senior officer of the appellant, Mr Carmignani.  Further, when the “arrangement” was unilaterally terminated at a time when it affected Mr Birighitti only, and not his wife and himself, and when the employer itself had strong doubts that it was not an employer/employee relationship then Mr Birighitti again did not oppose the unilateral decision to characterise the relationship as an employer/employee relationship.  As a result, he permitted the employer to pay him as if he were an employee, even though it brought with it a different form of tax liability.

(ii) In the circumstances, little weight can be attached to the tax arrangements made in determining the matter.  In particular, the sort of approach that was taken in Massey v Crown Life Insurance Co [1978] 2 All ER 576 (CA) cannot be taken in this case.  In that case, a man who might have been a Commission agent and not an employee entered a new contract specifically to obtain tax benefits.  In this case, a man specifically employed as an employee, as was his wife, acting on the advice and at the behest of his employer, and because of an initiative taken by his employer to further its own advantage, entered into an agreement which it was not admitted by Mr Birighitti was anything but a contract of employment.  The employer, who later doubted the true nature of the agreement, unilaterally recharacterised it as a contract of employment shorn of tax benefits.  (I favour the approach taken by Gray J in Re Porter; Transport Workers’ Union (op cit)).

74       What then was it open to the Industrial Magistrate to find, having regard to those factors?  It was open to find that in 1988 the employees, Mr and Mrs Birighitti, entered into an employment contract without what would have been described as normal employment benefits.  They did this on the advice, at the initiative of, and with the assistance of their employer.  They registered a business name for a business said to be conducted in their names, the sole activity of which was to provide their services to the employer.  They provided the same services as they had provided as employees, the only difference being that they were paid at an hourly rate, and were not paid “normal” employment benefits.  Their services were still paid for and they were the same services which were recorded merely by invoices and not by a time and wages record.  When Mrs Birighitti ceased to be an employee the same arrangement applied to Mr Birighitti until it no longer suited the employer.

75       Certainly, Mr and Mrs Birighitti claimed tax as if they were conducting their own business and filed returns to that effect, and they did so on advice from their employer’s accountant.  However, apart from that nothing had changed.  There was no partnership which derived any income, except the income previously paid by way of wages.

76       Mr Birighitti worked where and when he was told by the employer.  He was subject to his employer’s direction and control at all times, and it was never asserted otherwise.  He did not provide any tools or equipment.  He was provided with a utility and clothes by his employer, as he had been when the arrangement between the appellant and himself was characterised as an employment arrangement.  He worked for no-one else.  He conducted no business apart from the provision of his services.  He readily acquiesced when his employer changed the “arrangement” in 1992.  Remuneration was still paid and not paid to any partnership account, but to Mrs Birighitti personally, on her evidence, and one might infer to Mr Birighitti.  There was, in fact, no partnership and no partnership of business as such.  There was, in substance, a contract to provide on the totality of all the facts the personal services of Mr and Mrs Birighitti as employees.

77       For the reasons which I have referred to above, those factors, such as the different tax claims, the mere registering of a business name, the non-payment of the usual contractual benefits and the payment on invoice, are not determinative, having regard to all of the other factors and criteria, and having regard to the total circumstances surrounding the 1988-1992 arrangement.

78       It is noteworthy, too, that, on all of the evidence, Mr Birighitti remained an integral part of the appellant’s organisation at all times, as did Mrs Birighitti whilst she was so employed.

79       It was therefore open to the Industrial Magistrate to find, and it was correct for him to find that Mr Birighitti at all times and continuously from 1981 to 2000 remained an employee of the appellant, and that he was continually employed pursuant to a contract of employment, and that the “subcontractor arrangement” was a sham or alternatively the characterisation of the arrangement as a subcontractor was misleading and contrary to the established facts.

80       It was further open to find, and the Industrial Magistrate was correct to find, that he was entitled to long service leave in relation to a period in excess of 15 years continuous service, in fact 19 years, pursuant to the LSL Act.  That is because he had been employed by one and the same employer within the meaning of the LSL Act for that period of almost 19 years.

The Long Service Leave Act 1958 - Entitlements

81       S.7(2) of the LSL Act reads as follows:-

“Any leave, in the nature of long service leave or, as the case may be, payment in lieu thereof, granted, whether before or after the coming into operation of this Act, under any long service leave scheme and irrespective of this Act to an employee in respect of any period of continuous employment with his employer, shall be taken into account in the calculation of the employee’s entitlement to long service leave under this Act as if it were long service leave taken under this Act, or, as the case may be, payment in lieu of long service leave under this Act and to be satisfaction to the extent thereof of any entitlement of the employee under this Act.”

82       That section was referred to by the appellant both at first instance and on appeal as the basis for an argument that the claimant was not entitled to any further payment for long service leave under the Act because during the period of the so-called subcontract between July 1988 and October 1992, Mr Birighitti was paid well above his entitlement as an employee, and had therefore in effect been paid his long service leave entitlement.

83       There was, as a matter of fact, no evidence as to what his entitlement as an employee was, and how much he was paid above it; nor is it at all clear that Mr Birighitti was paid well above his entitlement as an employee.  There was no evidence as to the quantum of what his entitlements were by way of long service leave, if, in fact, that were quantifiable at that time.  He was paid an amount of $22.00 per hour.

84       Further, there was no evidence that this was a contract which specifically compensated for the loss of long service leave entitlements, if loss there was going to be.  This was a contract which it was said, was entered into with a subcontractor by the appellant, at rates applicable to a subcontract and fully intended to be so, even if it were not a subcontract, which I would find it was not.  In other words, it was no part of the contract that the amount to be paid was any substitute for the amount to be paid to Mr Birighitti when his employer accounted him an employee.  Further, of course, his entitlement to long service leave could not be a matter the subject of weekly instalment payments.  A period of long service leave which he was eligible to take in accordance with the eligibility provisions of the LSL Act was his entitlement, subject to the pro-rata provisions of the Act which were not applicable to this argument, only when he had served the required 15 years.  Any leave in the nature of long service leave or payment in lieu thereof, whether before or after the coming into operation of the LSL Act “under any long service leave scheme”, in respect of any period of continuous employment with the employer certainly must be taken into account in the calculation of the employee’s entitlement to long service leave as if it were long service leave taken under the Act.  However, there is no definition of “scheme” in the LSL Act.  I would say, however, that Dixon CJ in another context (see Australian Consolidated Press Ltd v Australian Newsprint Mill Holdings PtyLtd [1960] 105 CLR 473 at 479) said this:-

“…“Scheme” is a vague and elastic word.  Doubtless it connotes a plan or purpose which is coherent and has some unity of conception.”

85       Most appositely, the Macquarie Dictionary contains this definition:-

“a policy or plan officially adopted by a company; business etc, as for pension loans etc”

86       There was within the meaning of those definitions, no scheme, no plan, no purpose, or no policy officially adopted to provide for long service leave or long service leave entitlements, and, as His Worship correctly found, no evidence that the parties even turned their minds to long service leave when the “arrangement” of 1998 was entered into or any time in the course of the existence of the arrangement.  Indeed, there is no evidence that they turned their minds to it until the time of the dismissal.

87       Long service leave is a benefit, as His Worship correctly found, to which the employee does not become entitled until he or she has completed 15 years of service.

88       A scheme requires the parties to come up with a coherent plan, and there was none.  There was no agreement about it, and there was no scheme within the meaning of s.7(2) of the LSL Act.

89       His Worship, for those reasons, was right to so find and right to find that there was no leave or payment in lieu thereof which might be taken into account.

90       Next, it was submitted that s.11(1)(b) of the LSL Act conferred on His Worship a discretion to deny the claim at first instance.  S.11(1)(b), as it is produced in the reasons for decision of His Worship (see page 26 (AB)), reads relevantly as follows:-

“whether and when and to what extent an employee is or has become entitled to long service leave, or payment in lieu of long service leave”

91       First, there is no evidence that the respondent received payments equivalent to or in excess of what he would have received as an employee in any long service scheme.  Further, there was no scheme.

92       Second, there was no evidence that he was paid benefits, or, if he were, what the quantum of those benefits ought to be in order that they might be taken into account.  Of course, they could not be taken into account properly.

93       Third, the jurisdiction conferred on the Industrial Magistrates Court does not confer a discretionary jurisdiction on it in relation to this question.  In its ordinary meaning, the section confers jurisdiction on the court to hear and determine questions and disputes in relation to rights and liabilities under the Act and those questions including whether and when and to what extent an employee is or has become entitled to long service leave or a payment in lieu of long service leave.  That is one of the classes of questions or disputes which it can hear or determine, and it is not a matter for the exercise of the discretion.  Those words cannot be read as conferring a discretion of the type submitted to have been conferred, and they do not do so.

FINALLY

94       For those reasons, it is clear that the Industrial Court did not err as alleged in the grounds of appeal, and that no ground of appeal is made out.  For those reasons I would dismiss the appeal.

COMMISSIONER P E SCOTT:

95       I have had the benefit of reading the Reasons for Decision of His Honour, the President. I agree that there was no error in the findings of the learned Industrial Magistrate that the respondent was an employee of the appellant and remained so notwithstanding the arrangement between the parties from July 1988 until October 1992. I agree that the respondent was entitled to long service leave in relation to the 19 year’s service with the appellant, pursuant to the Long Service Leave Act 1958.

96       Further, I agree that there was no evidence that the respondent was in some way paid in lieu of that entitlement. There was no scheme, as envisaged by the Long Service Leave Act 1958, entered into by the parties which provided for long service leave entitlements.

97       I also agree that there was no discretion in the Industrial Magistrate to take into account any payments, even if there was evidence of such payments, which should be taken as offsets against the entitlement.

98       Accordingly, I agree that there was no error as alleged in the grounds of the appeal and I too would dismiss the appeal.

COMMISSIONER S WOOD:

99       I have read the reasons for decision of His Honour the President.  I agree with those reasons and have nothing to add.

THE PRESIDENT:

100    For these reasons, the appeal is dismissed.

Order accordingly