WESTERN AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION

PARTIES PAUL VICTOR GENOVESI

APPLICANT

-v-

AFFLUENCE PTY LTD T/AS SWAN DISTRICTS REAL ESTATE

RESPONDENT

CORAM COMMISSIONER J H SMITH

DATE MONDAY, 4 APRIL 2005

FILE NO. APPL 1117 OF 2004

CITATION NO. 2005 WAIRC 00828

CatchWords Contractual benefits claim - Whether Applicant an employee or quasi-partner - Principles applied whether dispute is commercial and not an industrial matter - Whether Applicant's salary exceeded prescribed amount - Applicant not an employee - Application dismissed - Industrial Relations Act 1979 (WA) s 7, s 24AA, s 29(1)(b)(ii), s 29AA(4); Real Estate and Business Agents Act 1978 (WA) s 4, s 28 and Part VI; The Partnership Act 1895 (WA) s 7, s 8(3)(b); Industrial Relations (General) Regulations 1997 (WA) reg 5.

Result Application dismissed

Representation 

Applicant Mr D Pratt (of counsel)

Respondent Mr S Kemp (of counsel)

Reasons for Decision

1          Paul Victor Genovesi ("the Applicant") made an application under s 29(1)(b)(ii) of the Industrial Relations Act 1979 ("the Act") claiming benefits that he has not been allowed by Affluence Pty Ltd trading as Swan Districts Real Estate ("the Respondent"), not being benefits under an award or order, to which he is entitled under his contract of employment.  The Applicant claims that he is owed approximately $21,220.00 in commission and approximately $5,000.00 as income from the Respondent's rental property management business (Exhibit 4).

2          Prior to 1 July 2003, the Respondent had at all material times been solely owned by Carmelo Mezzatesta.  Mr Mezzatesta is a licensed real estate agent and the holder of a current certificate pursuant to the Real Estate and Business Agents Act 1978 ("REBA").  He was also a sole director of the Respondent.  On 1 July 2003, pursuant to an agreement between the Applicant and Mr Mezzatesta one equal share in the Respondent Company was transferred to the Applicant and the Applicant became a director of the Respondent.  Prior to the end of March 2004, the Applicant was not a licensed real estate representative. 

3          Following a conference between the parties convened under s 32 of the Act, the Commission referred for hearing two preliminary matters.  The first matter is whether the dispute between the Applicant and the Respondent raises an industrial matter so as to enliven the jurisdiction of the Commission.  The second matter is whether the Applicant was an employee of the Respondent and/or whether the claims made by the Applicant are claims arising out of a contract of employment between the Applicant and the Respondent. 

4          In relation to the preliminary matters the Respondent says in its notice of answer and counter proposal:

1. The subject matter of this application concerns a commercial dispute between the Applicant and his fellow shareholder, Mr Carmelo Mezzatesta, following the failure of a business arrangement between them and it is not an industrial matter such as to enliven the jurisdiction of the Commission.

2. The commercial dispute is the subject of proceedings brought by the Applicant against Mr Mezzatesta in the District Court of Western Australia under matter number 1828 of 2004.

3. In the circumstances, the Commission does not have jurisdiction to hear the matter.

4. Alternatively and in any event the Applicant was not an employee of the Respondent.

5. Alternatively and in any event the claims made by the Applicant are not claims arising out of a contract of employment between the Applicant and the Respondent.

6. In all the circumstances the Commission does not have jurisdiction to hear the matter.

5          The Respondent says the express terms of the agreement the Applicant made with Mr Mezzatesta were as follows:

(a) The Applicant was from 1 July 2003 to commence selling real estate under the licence held by the Respondent;

(b) Prior to so commencing to sell real estate the Applicant was to purchase one issued share in the Respondent for a purchase price of $130,000.00;

(c) The Applicant and Mr Mezzatesta would share the profit generated by the Respondent's business as follows:

(i) The Applicant and Mr Mezzatesta would each be credited with net sales commissions (after deduction of GST) earned on their own sales;

(ii) The income derived from the management of rental properties and commissions on sales negotiated by real estate agents employed by the Respondent in its business would monthly have debited against it the operating costs of the business giving a profit or loss for the business;

(iii) The Applicant and Mr Mezzatesta were each to be debited or credited monthly as the case might be with an equal share of such loss or profit figure;

(iv)            Such profit share was to be paid monthly to the Applicant and Mr Mezzatesta by the Respondent or such loss share was to be paid monthly by the Applicant and Mr Mezzatesta to the Respondent as the case might be.

6          The Applicant says that he was employed by the Respondent from 29 March 2004 until 18 June 2004.  The Applicant contends that there were three contracts entered into between the Applicant, the Respondent and/or its director, Mr Mezzatesta.  The Applicant says that those three contracts were:

(a) A contract entered into between the Applicant and Mr Mezzatesta in June 2003 pursuant to which the Applicant agreed to purchase one of the issued shares in the Respondent for the sum of $130,000.00 ("the purchase agreement").

(b) An employment agreement entered into between the Applicant and the Respondent pursuant to which the Applicant was employed by the Respondent as a real estate sales representative from 29 March 2004 until 18 June 2004 ("the employment agreement").

(c) An agreement entered into between the Applicant and Mr Mezzatesta on 18 June 2004, pursuant to which the Applicant and Mr Mezzatesta agreed that the Applicant would sell his share in the Respondent to Mr Mezzatesta for the sum of $122,000.19 ("the share sale agreement").

7          The Applicant says that the subject matter of these proceedings is a denial of contractual entitlements under the employment agreement.  Separate proceedings have been commenced by the Applicant in the District Court (CIV 1828 of 2004) against Mr Mezzatesta for a breach of the share sale agreement. 

8          At the hearing of the two preliminary matters, the Respondent also raised the issue whether the Applicant's salary exceeds the prescribed amount for the purposes of s 29AA(4)(b) of the Act. 

The Applicant's Evidence

9          The Applicant first met Mr Mezzatesta when he entered into an arrangement with Mr Mezzatesta to manage a rental property in Eden Hill.  At that time the Applicant derived an income from buying and restoring old properties and renting them out.  The Applicant subsequently purchased another property through Mr Mezzatesta and Mr Mezzatesta also managed that property.  Sometime later, the Applicant commenced employment at Murdoch University.  He later sold both properties through Mr Mezzatesta in early 2001 or 2002 and during the course of the second sale Mr Mezzatesta made overtures to the Applicant about coming to work for him.  The Applicant told him that he was not interested as he was happy working at Murdoch University.  Despite his refusal Mr Mezzatesta raised this issue again on three for four occasions.  Finally at a meeting at the Pig and Whistle Tavern in Midvale sometime in June 2003, Mr Mezzatesta put a proposition to the Application and after negotiation an agreement was reached.  The Applicant at that time had just recently been appointed as the Manager of International Student Services and was being paid $70,000.00 per annum.  The Applicant says that Mr Mezzatesta put to him that the Applicant should join him as he had a thriving prosperous business and that the Applicant could easily match his (the Applicant's) current income.  They discussed the price of purchase of a half share of the business.  Mr Mezzatesta wanted to be paid a $150,000.00 for a half share.  The Applicant says that he told Mr Mezzatesta he could not commence until March 2004 at the earliest as he had just been appointed to the new position at Murdoch and he thought that he could not leave until then.  He told Mr Mezzatesta that he did not want to obtain any income from the business until he commenced, so he would pay Mr Mezzatesta $130,000.00 in instalments over 12 months and that he (the Applicant) would join the business in March 2004.  The Applicant testified the amount of $130,000.00 was for half of the rent roll, half of the Respondent's building and goodwill.  So instead of paying $150,000.00 and obtaining income immediately, it was agreed he would pay $130,000.00 and no income until he started.  The Applicant conceded when cross-examined the entitlement to income from the rent roll solely arose from the purchase of the business.  He also agreed when cross-examined the opportunity to work in the Respondent's business was only available to him because he became an owner of the business.  The Applicant maintained in his evidence that in June 2003 there was no discussion about him being paid commissions nor was there any discussion about employment, other than it was agreed that he would work in the business.

10       The Applicant later said when cross-examined that although he had a discussion at the Pig and Whistle in June 2003 about coming to work in the Respondent's business, the first discussion they had about creating a legal relationship of employer and employee was when he signed an application to commence the REIWA sales representatives registration course.  The Applicant tended into evidence a document titled REIWA Sales Representatives Registration Course, Student Application Form.  The document was signed on 29 January 2004.  Under the employee's declaration the Applicant wrote on the form that he would be employed by Swan Districts Real Estate once he completed the sales representatives registration course.  In the part of the application form to be completed by the employing agent, Mr Mezzatesta wrote his name under the heading "Principal (employer)" and also under the heading "Name of employee's supervisor/mentor".  Mr Mezzatesta also signed the following declaration as Employing Principal as follows, "I, Charles Mezzatesta will be employing Paul Genovesi once he has successfully completed the Sales Representatives Registration Course."  The Applicant said, when he was first cross-examined about the form, that when Mr Mezzatesta completed the form it was discussed that he would be an employee and that Mr Mezzatesta would be his supervisor.  However, when further cross-examined, it became clear that Applicant simply relied on information contained in the form rather than any recollection by him of what was said by Mr Mezzatesta. 

11       The Applicant was very vague as to whether any agreement was reached with Mr Mezzatesta in relation to how he would be paid for selling real estate.  He was emphatic that no agreement was reached in June 2003.  He was then asked if some agreement was reached at a later time and he said, "Not really", but he then said it was agreed that he would be paid commission on sales and he reached this agreement with Mr Mezzatesta on the first day he went to the Respondent's business as part of his real estate training when he went into the Respondent's bookkeeper's (Jennifer Thompson's) office, with Mr Mezzatesta.  The Applicant says that Mr Mezzatesta showed him a spreadsheet which indicated that the expenses for the business were $12,000.00 per month. He told the Applicant that his (the Applicant's) share would be approximately $6,000.00 per month, which would be deducted from his (the Applicant's) commissions.  The Applicant says that he was not to be liable for Mr Mezzatesta's and Ms Thompson's personal expenses which were deducted from the business account, such as motor charge accounts, vehicle lease payments and repayments for the building.  The Applicant said that he had already paid for half share of the building so that no expenses for the cost of the building could be attributed to him.

12       The Applicant commenced the Real Estate Institute Western Australia ("REIWA") course to become a real estate representative in the beginning of March 2004.  He completed the course on 26 March 2004 and commenced work the following week.  When he commenced work he looked at the spreadsheets again with Mr Mezzatesta and at that time reached an understanding that he would be paid 100% of the commission paid by vendors in respect of his own sales and listings, less 50% of the expenses of the business.  Mr Mezzatesta was also entitled to 100% of his own sales and listings less 50% of the expenses of the business.  Further, they were both entitled 50% each of the Respondent's share of the commissions of the sales representatives who were employed by the Respondent.  When cross-examined the Applicant conceded the amounts he was to be paid for his own commissions was related to the ownership of the business and that the entitlement to 100% of his own commissions was linked to the purchase of the business.  He says that he was not an "ordinary employee" as he had purchased a half share of the business.  Further he conceded that as a shareholder he had undertaken to pay half of the expenses of the business.

13       When the Applicant commenced working in the business all his energy was spent obtaining listings and selling properties.  The Applicant worked in a cubicle in a large room with the two sales representatives who were employed by the Respondent.  He spent time preparing leaflets with Mr Mezzatesta and they carried out letter drops.  Mr Mezzatesta would do one side of the street and he would do the other.  During the first few weeks, Mr Mezzatesta took him around to view properties and the Applicant assisted Mr Mezzatesta in opening homes listed by Mr Mezzatesta.  The Applicant began to obtain his own listings and he carried out home opens for his own properties.  The Applicant sent out canvassing letters seeking clients to buy or sell houses in which he described himself as a joint director/owner of Swan Districts Real Estate.

14       The Applicant sold one of Mr Mezzatesta properties and Mr Mezzatesta only agreed to pay him 25% of the total commission in relation to the sale of that property.

15       In relation to the "rent roll" the Applicant said that there were a lot of problems with the management of properties.  When the property manager left the Respondent's employment it was decided by the Applicant and Mr Mezzatesta that Mr Mezzatesta would carry out the bulk of the property management work and the Applicant would assist.  Because of his past building experience the Applicant dealt with the majority the work related to dealing with vendors and tenants about property maintenance. 

16       The Applicant had no responsibility for the "management" of the company as he was not a signatory on any of the bank accounts or responsible for the payment of any accounts.  Nor could he sign any cheques or have any responsibility for the trust accounts of the business. 

17       The Applicant ceased to work in the Respondent's business on or about 18 June 2004, as a result of a disagreement with Mr Mezzatesta.  Sometime shortly thereafter an agreement was reached with Mr Mezzatesta to resell the Applicant's 50% share of the Respondent's business.  As a result of that agreement the Applicant ceased to be a director and share holder of the Respondent on 21 June 2004. 

18       The Applicant denied that he had entered into a partnership with Mr Mezzatesta.  The Applicant, however, admitted that he had sent an email to Mr Mezzatesta on 20 June 2004 titled "End of Partnership" (Exhibit A).  In the first paragraph of the email he stated, "This is to confirm with you, as per our verbal agreement and handshake, that I am leaving the 'partnership'".  In the fifth last paragraph of the email, the Applicant referred to a prior conversation he had with Mr Mezzatesta in which he (the Applicant) had said to Mr Mezzatesta that he "was not an equal partner in the business".

The Respondent's Evidence

19       Carmelo Mezzatesta testified that when he first met the Applicant, he thought that the Applicant was very hard working and very knowledgeable about real estate.  At that time he asked the Applicant if he would like to become an equal partner in the business.  Mr Mezzatesta discussed the proposal again with the Applicant in February 2003.  At that time he told the Applicant that all liabilities and income of the business would be split equally.  They had a further discussion about the purchase price of the business in May 2003 but no agreement was reached until they met at the Pig and Whistle Tavern.  Mr Mezzatesta says the terms agreed at that meeting were that the Applicant would pay him $130,000.00 for a half share of the business.  Mr Mezzatesta says that they spoke about payment of commissions at that meeting.  He said it was agreed that when the Applicant obtained his licence to sell real estate he would retain 100% of his commissions (as Mr Mezzatesta did) and they would split all other income of the business including the rent roll (Transcript page 54).  Mr Mezzatesta, however, contended when cross-examined that the Applicant was entitled to 50% of income from the business prior to the Applicant commencing work.  However, this contention was contrary to his evidence in chief.

20       Mr Mezzatesta says that there are four points of income in the Respondent's business:

(a) The rent roll;

(b) Property management fees;

(c) Letting fees and inspection fees; and

(d) Commissions on sale by the Applicant, Mr Mezzatesta and the sales representatives employed by the Respondent.

The Respondent employed two sales representatives who were paid 50% (including contributions to superannuation) of the total commission paid by each vendor.  The other 50% of the commission generated by the sales representatives was paid into the business.  The sales representatives had no rights to any payments in respect of the rent roll.  As the Applicant was a joint owner of the business he was entitled to 50% of the income from (a), (b) and (c).

21       Mr Mezzatesta maintained in his evidence that he and the Applicant were partners.  When cross-examined Mr Mezzatesta about this issue he conceded that he did not consider they were partners in a formal technical sense but he said that the Applicant was an equal partner in the business.  He pointed out that the Applicant carried out duties not related to working as a sales representative, such as property inspections. 

22       Mr Mezzatesta says that he expected the Applicant to commence work as soon as possible after they reached the agreement in June 2003.  The Applicant told him that he (the Applicant) was under a lot of pressure.  Mr Mezzatesta told the Applicant he was also under a great deal of pressure.  Mr Mezzatesta conceded that it was agreed that the Applicant did not wish to be paid until he commenced working in the business.

23       When cross-examined, Mr Mezzatesta agreed that he told the Applicant he would pay him 25% of the commission on the sale of a property sold by the Applicant and listed by him (Mr Mezzatesta).  Mr Mezzatesta said that he did not have to grant a conjunctional sale to the Applicant but he did so, on the basis that the Applicant would be paid 25% of the commission. 

24       Mr Mezzatesta conceded when cross-examined that he was paid commissions on properties listed and sold by him as "pay as you go" ("PAYG") payments for the purposes of income tax.  A PAYG payment summary for Mr Mezzatesta was tendered into evidence which states that he earned a total amount of $18,593.00 in 2003–2004.  Mr Mezzatesta says that that amount was for commissions only.  Documents were also tendered into evidence which show that payments were made on behalf of Mr Mezzatesta by the Respondent to Mr Mezzatesta's superannuation fund and that he was periodically paid commissions and deductions for PAYG income tax were made from these payments.  The documents also show that payments of superannuation were calculated on the amounts of gross commission paid to Mr Mezzatesta.

Submissions in relation to whether the Applicant was an employee or whether the matter in dispute raises an industrial matter.

25       Counsel on behalf of the Applicant pointed out that there is no bar at law to a director also being an employee of a company (see Koivisto v Barrett Koivisto Scatena Pty Ltd (1994) 74 WAIG 867 and Lee v Lee's Air Farming Ltd [1961] AC 12). 

26       The Applicant says that the evidence establishes that:

(a) Control was able to be exercised by the Respondent, which was clearly unrelated to the Applicant's role as a director of the Respondent;

(b) The nature of the work performed by the Applicant was clearly unrelated to his role as a director of the Respondent;

(c) The work performed by the Applicant was integral rather than ancillary to the Respondent's business;

(d) The fact that the work to be performed by the Applicant was to be undertaken by him personally and could not be delegated; and

(e) The payment of a wage, income tax and superannuation was paid to the co-director, Mr Mezzatesta,

The Applicant says that when all these matters are considered it must be concluded that the Applicant was an employee of the Respondent (see Worthington v Falkirk Nominees Pty Ltd T/A Ross Hughes and Company and Australian Property Consultants (2002) 82 WAIG 667).

27       As to the argument raised by the Respondent that the matter in dispute is a "commercial dispute" and not an "industrial matter" within the meaning of s 7 of the Act, counsel for the Applicant makes two points.  Firstly, it is contended that the Respondent fails to distinguish between the action for breach of the share sale agreement (which is the subject of the District Court proceedings), and the action for denial of contractual entitlements under the employment agreement, which is the subject of these proceedings.  Secondly, it is contended that there is no general category of "commercial dispute" in relation to which the Commission does not have jurisdiction.  The Applicant says that whilst the Commission does not have jurisdiction to entertain claims for damages in lieu of performance of some types of non-monetary entitlements such as the issue of shares and options (see HotCopper Australia Ltd v Saab (2002) 82 WAIG 2020).  However,  as Pullin J said in Matthews v Cool or Cosy Pty Ltd & Anor [2004] WASCA 114 at [44]; (2004) 84 WAIG 2152 at 2158:

"By implication, the Commission must be able to 'deal with' a claim that there 'has not been allowed' a 'benefit' under a contract of employment, at least by ordering payment of that entitlement if the entitlement is a sum of money."

The Applicant says his claim is for money in debt for a liquidated sum for past wages and other entitlements earned by the Applicant.

28       The Applicant contends that he was not a partner of Mr Mezzatesta and says they were not in a relationship which can be described as a quasi-partnership.  The Applicant says that he and Mr Mezzatesta cannot carry on a business in common when they are carrying on the business via the Respondent (see s 7 The Partnership Act 1895).  Furthermore, the entitlement of the Applicant to be remunerated by a share of the profits of the Respondent does not of itself make him a partner (see s 8(3)(b) The Partnership Act 1895).  Counsel for the Applicant submits that whilst reference is made to "quasi-partnerships" from time to time in cases involving corporations, the notion of quasi-partnership is not used in such cases in a manner that is in any way contradictory with the notion that a director may be an employee (see Koivisto v Barrett Koivisto Scatena Pty Ltd (op cit) and Lee v Lee's Air Farming Ltd (op cit).  Further, it is submitted that any such findings would be contrary to the finding of the Commission on almost identical facts in Worthington v Falkirk Nominees Pty Ltd T/A Ross Hughes and Company and Australian Property Consultants (op cit).

29       The Respondent points out the Applicant bears the onus to prove that the Commission does have jurisdiction (see Clarke v Stirling Skills Training Inc T/A Jobwest (2002) 82 WAIG 621 and Springdale Comfort Pty Ltd v Building Trades Association and Ors (1987) 67 WAIG 466 (FB)).

30       The Respondent says to constitute an employment relationship, the parties must have the intention, judged objectively from the surrounding circumstances rather than on the subjective intention of the parties, of creating a legally binding contract of employment (see Douglas v Minetti T/A Collier Smash Repairs & Anor (2002) 82 WAIG 2505 and Halvorson v Caz Unit Trust T/A Caz Software (2004) 84 WAIG 914).  The Respondent says that it is clear from the evidence that the Applicant purchased a half share in the business on the basis that the income of the business would be shared between Mr Mezzatesta and the Applicant.  The income was to be split on the basis that each person would received 100% of their own commissions and 50% of all other income of the business and in turn be responsible for 50% of the operating costs of the business.  The Respondent says that this arrangement cannot be described as employment as it is clearly a partnership.  Further, the Respondent says that neither party intended to create an employment relationship. 

31       The Respondent says the evidence clearly establishes the Applicant was a partner in the business run by Mr Mezzatesta and conducted under the Respondent's corporate entity.  In particular, the essential relationship of partners is not removed if the business is conducted under a corporate entity in which they are the only shareholders.  It is submitted that this type of relationship has been recognised as a quasi-partnership and the parties treated as if they were partners (see for example Benjamin Corporation Pty Ltd v Smith Martis Cork & Rajan Pty Ltd [2003] FCA 1471).

32       The Respondent says the Applicant was a poor witness who gave his evidence reluctantly, was evasive and tried not to make concessions on the grounds of semantics.  Further, it is contended on behalf of the Respondent that where an owner of a business takes money out of the business by paying an income to themself and treat that as personal income for tax purposes does not mean that an employment relationship has been created.  It is also contended that the Applicant's evidence establishes that there are not three agreements between the parties but one, whereby the whole dispute between the parties could be litigated as one action in the District Court.

33       The Respondent says that the Applicant is attempting to unpick a commercial relationship by bringing two actions.  It is argued that the action brought in the Commission does not have a sufficient industrial relations complexion as contemplated by the Industrial Appeal Court by HotCopper Australia Ltd v Saab (op cit).  The Respondent says that matters raised in the application are private claims of a commercial nature which lack any ingredient or complexion of industrial relations and the claims made by the Applicant are not claims for a benefit due under a contract of employment.  The Respondent points out to determine the dispute the Commission will be required to consider and review extensively the books of the business over the entire period of ownership by the Applicant to determine what were the expenses of the business including the income the Respondent received on commissions from the sales representatives employed by the Respondent.  It is submitted that to conduct a comprehensive review of the business of the Respondent takes the application outside the scope and purpose of the Act.

Findings of Fact

34      Having heard the evidence given by the Applicant and Mr Mezzatesta and observed both of them carefully whilst they gave their evidence, I prefer the evidence of Mr Mezzatesta to the Applicant where their evidence departs.  I did not find the Applicant's evidence satisfactory in relation to two important issues.  Firstly, the Applicant attempted to semantically construct from Exhibit 2 evidence of a concession from Mr Mezzatesta on behalf of the Respondent that the parties had expressly discussed creating an employment relationship.  Secondly, the Applicant was very vague about when the terms of payment of commissions were discussed.  However, as set out below I did not accept all of Mr Mezzatesta's evidence.  Notwithstanding these findings there is little dispute in respect of most of the terms of the agreement to purchase the business.  In light of these findings I make the following findings of fact:

(a)                The Applicant agreed to pay Mr Mezzatesta $130,000.00 for a half share of the Respondent's business which included a half share in the rent roll and half of the building;

(b)               After the Applicant obtained his real estate representatives licence the Applicant was entitled to 50% of all income of the business including half of the income from the rent roll, 100% of his commissions, less 50% of the operating costs of the business.  The income was also to include income from any commissions paid by vendors on sales by sales representatives employed by the Respondent.  I do not accept the contention made by Mr Mezzatesta that it was agreed that the Applicant was entitled to 50% of the business (and thus liable for 50% of the operating costs) from 1 July 2003.  This contention does not accord with Mr Mezzatesta's evidence in chief about the agreement reached in June 2003 (see paragraph [19] of these reasons for decision).

Conclusion

35       It is not for the Respondent to show that the Applicant was not an employee but for the Applicant to show, on the balance of probabilities, that he was an employee (The Western Australian Builders' Labourers, Painters and Plasterers Union of Workers v R B Exclusive Pools Pty Ltd t/as Florida Exclusive Pools (1996) 77 WAIG 4 at 8 per Fielding SC).

36       I observed in Howe v Intercorp Services Pty Ltd trading as West Vision Painting Company [2001] WAIRC 2643 at [24] and [25]; (2001) 81 WAIG 1212 at 1214 that:

"The relationship of employer and employee is a contract of service where an employee contracts to provide his or her work and skill (typically to enable an employer to achieve a result).  An independent contractor works in his or her own business on his or her own account.  Whilst the authorities do not establish a conclusive test for determining whether a person is an employer, regard must be had to the whole of the relationship.  In Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 Mason J at 24 and Wilson and Dawson JJ at 36 held that a prominent factor is the degree of control which the person (who engages the other) can exercise over the person engaged to perform work.  The High Court also held that the existence of control is not the sole criteria, other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to provide exclusive services, provision for holidays, deduction of income tax, delegation of work, the right to suspend or dismiss, the right to dictate the place of work and hours of work.  Further, Mason J in Stevens v Brodribb Sawmilling Co Pty Ltd at 26 to 27 also observed that in some cases the organization test can be a further factor to be weighed (along with control), in deciding whether the relationship is one of employment or of independent contractor.  The organization test is whether the party in question is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not for a superior (Montreal v Montreal Locomotive Works [1947] 1 DLR 161 per Lord Wright at 169).

Whilst regard can be had to whether the parties regarded their contractual relationship one of employee/employer or independent contractor, if the evidence shows otherwise the parties cannot alter the truth of that relationship by putting another label on it (Massey v Crown Life Insurance Co (1978) 1 WLR 676 and Narich Pty Ltd v Commissioner of Pay-Roll Tax (1983) 2 NSWLR 601)."

37       The distinction between an employee and an independent contractor is "rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own" (Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210 per Windeyer J at 217; see also Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313 per McHugh J at 366; approved by Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ in Hollis v Vabu Pty Ltd [2001] HCA 44 at [40]; (2001) 181 ALR 263 at 275).

38       The notion of "control" and its adjustment to the circumstances of contemporary life was recently re-considered by the majority of High Court in Hollis v Vabu Pty Ltd [2001] HCA 44 at [43-44]; (2001) 181 ALR 263 at 276; where Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ observed:

"… In Humberstone [62], Dixon J observed that the regulation of industrial conditions and other statutes had made more difficult of application the classic test, whether the contract placed the supposed employee subject to the command of the employer.  Moreover, as has been pointed out [63]:

'The control test was the product of a predominantly agricultural society.  It was first devised in an age untroubled by the complexities of a modern industrial society placing its accent on the division of functions and extreme specialisation.  At the time when the courts first formulated the distinction between employees and independent contractors by reference to the test of control, an employer could be expected to know as much about the job as his employee.  Moreover, the employer would usually work with the employee and the test of control and supervision was then a real one to distinguish between the employee and the independent contractor.  With the invention and growth of the limited liability company and the great advances of science and technology, the conditions which gave rise to the control test largely disappeared.  Moreover, with the advent into industry of professional men and other occupations performing services which by their nature could not be subject to supervision, the distinction between employees and independent contractors often seemed a vague one.'

It was against that background that in Brodribb [64] Mason J said that, whilst these criticisms might readily be acknowledged:

'the common law has been sufficiently flexible to adapt to changing social conditions by shifting the emphasis in the control test from the actual exercise of control to the right to exercise it, 'so far as there is scope for it', even if it be 'only in incidental or collateral matters': Zuijs v Wirth Brothers Pty Ltd [65].  Furthermore, control is not now regarded as the only relevant factor.  Rather it is the totality of the relationship between the parties which must be considered.'"

39       The Industrial Appeal Court recently considered the test for a contract of service in Personnel Contracting Pty Ltd T/AS Tricord Personnel v The Construction Forestry Mining and Energy Union of Workers [2004] WASCA 312; (2004) 85 WAIG 5.  Simmonds J at [102] observed that the difficulty in applying the test was acknowledged in Stevens v Brodribb Sawmilling Co Pty Ltd (op cit), Hollis v Vabu Pty Ltd (op cit) and Building Workers' Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104.

40       It should be borne in mind that the test for a contract of service has been developed principally to enable courts and industrial tribunals to determine whether the true relationship between the parties is that of independent contractor or an employee.

41       When considering the facts of this matter the Commission must bear in mind that the fact that some of the "usual' incidents of an employment relationship such as lack of supervision do not arise when a person works as a real estate salesperson which is turn does not mean that an employment relationship does not arise (see Federal Commissioner of Taxation v Barrett (1973) 129 CLR 395 per Stephen J at 406-407).

42       It was recognised by Olney J in the Western Australian Carpenters and Joiners, Bricklayers and Stoneworkers Industrial Union of Workers v Izzo (1984) 64 WAIG 411 at 415:

"There is of course no infallible test that may be applied in every case.  There is infinite scope for parties to contract with one another in relation to the execution of work and every contract will of course be peculiar to the parties to it."

43       It is necessary to ascertain the terms of the contract in this matter so that obligations and the benefits and can be ascertained (see Tricord Personnel (op cit) per Steytler J at [26]).  In Sargant v Lowndes Lambert Australia Pty Ltd [2001] WAIRC 2603 at [67]; (2001) 81 WAIG 1149 at 1155, the President observed:

"It is always necessary, if a contract is relied upon, to determine the terms of a contract (whether it is an employment contract or any other contract) (see Re Transport Workers Union of Australia (1993) 50 IR 171 at 196 per Munro J).  A contract may be oral or in writing, partly oral and partly in writing, the contractual terms may be express or implied, there may be a series of contracts, and indeed the written terms of the contract may not reflect the substance of the agreement between the parties.  There may be terms of the contract derived from custom and usage too (see Macken, McCarry & Sappideen The Law of Employment, 4th edition, at page 94)."

44       Whilst the relationship between the Applicant and Mr Mezzatesta could be described as a "quasi-partnership" as discussed by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd and Ors (1973) AC 360 at 379, that is, the relationship that was created between the Applicant and Mr Mezzatesta personally.  However, in this matter the Commission is called upon to determine what was the relationship between the Applicant and the Respondent.  The Applicant as one of the owners of the Respondent has certain rights and entitlements on the basis of the agreement that he entered into with Mr Mezzatesta in June 2003. 

45       In the same way that it is well established that one person can function in dual capacity as a company director and also as an employee of the company employed under a contract of service, a person can also function in dual capacity as an owner of a company and as employee of the company employed under the contract of service. 

46       In Koivisto v Barrett Koivisto Scatena Pty Ltd (op cit) at pages 870-871 Fielding C observed:

"Whether a director of a company is also an employee of that company is largely a matter of fact.  The main factors to be considered in determining that question were outlined in Eaton v Robert Eaton Ltd and Secretary of State for Employment (1988) IRLR 83.  Amongst the factors said to be indicative of an employment relationship was the existence of a board minute constituting an agreement to employ, although the non-existence of such a minute or other formal contract was not fatal to the existence of such a relationship.  The payment of a salary by weekly instalments, as opposed to a director's fee, is indicative of an employment relationship, particularly if the director performs a function unconnected with his directorial responsibilities."

47       In the Matter of a claim for relief relating to the dismissal of Carole Lynds by Altiplano Distributors Ltd [1998] NSWIRComm 233 an arrangement was entered into by Mr and Mrs Lynds with a Mr Kelt to establish a company to set up a business.  Mr Kelt held 50% of the shareholding and Mr and Mrs Lynds worked in the business full time.  It was agreed Mr and Mrs Lynds would be renumerated $2,500.00 each per month.  In 1996 the company acquired a similar business and a new equity partner which resulted in Mr and Mrs Lynds reducing their shareholding to jointly 33% and later to 20% in 1997.  Bishop C held that the arrangement was effectively a "partnership" and a joint venture.  Mrs Lynds was a minority shareholder and that over time M Kelt had taken overall control of the company.  When Bishop C looked at the totality of the relationship he concluded that in 1997 the employment status of Mrs Lynds changed to that of an employee.  In particular he found that there was no evidence of real decision making, delegation or control exercised by Mrs Lynds to indicate she was an "owner" of the business and not an employee.

48       I do not agree that the facts of Worthington's case are almost identical in this matter.  The applicant in that case was a valuer whose entitlements as a director were separate to his entitlements for his work as a valuer.  Further his remuneration as a valuer in charge of the valuation department was not linked to the profit of the company.  To the contrary he was paid a fixed sum of $100,000.00 per annum for his work as a valuer.  In contrast, an owner of the business the Applicant was entitled to 50% of all income less 50% of all debts of the company. 

49       The relationship between the parties in this matter is affected by the provisions of REBA.  Under s 28 of REBA where a licensee is a company the person in bona fide control of the company must be a licensed real estate agent.  Only Mr Mezzatesta was qualified to do so, as the Applicant was a registered real estate sales representative within the meaning of s 4 of REBA and not a licensed real estate agent. 

50       The Applicant strongly contended when he gave evidence that the declaration made by Mr Mezzatesta in Exhibit 2 is evidence that he was an employee of the Respondent.  Exhibit 2 does not support his contention.  Exhibit B shows that the Respondent is the licensee under REBA and Exhibit 2 does not contain a statement that the Respondent was the Applicant's employer.

51       The evidence given by the Applicant about his day to day work after he completed his real estate sales representative course was not contested by Mr Mezzatesta.  It is apparent from that evidence that in relation to obtaining listings, selling real estate and carrying out work to maintain the rent roll the Applicant and Mr Mezzatesta to some extent worked as a team.  The Applicant had no role in relation to the business accounts.  Pursuant to Part VI of REBA Mr Mezzatesta as the licensed real estate agent was solely responsible for the trust accounts.

52       It is clear from the evidence given by the Applicant that his entitlement to half of the income from the rent roll arises out of his ownership of the company and does not rely upon any work or efforts by the Applicant as a precondition to any payment.  The Applicant describes the rent roll as an asset he purchased.  Consequently his entitlement to the income generated from the rent roll does not arise under the terms of any contract of employment between the Applicant and the Respondent.

53       Having considered all of the evidence I am of the opinion the "totality of the relationship" points to a conclusion that the Applicant did not carry out work as an employee of the Respondent for the following reasons:

(a) The role of the Applicant as an owner and sales representative were not separated.  He canvassed potential clients in the capacity as an "owner" of the Respondent (Exhibit B).  His remuneration as an owner and sales representative were not separated.

(b) His remuneration was not solely for work performed by him.  He had an entitlement to income from the commissions earned by the sales representatives who were employed by the Respondent.  Further his entitlement to income from half the rent roll arose solely out of ownership of the Respondent and did not depend upon work performed by him.

(c) His remuneration from all sources within the business was subject to deduction of 50% of the operating costs of the business.  The entitlement to remuneration was clearly a profit sharing arrangement and not payment in the nature of a wage.  If the organisation test is applied it is clear the Applicant was carrying on business as a co-owner and not for a superior.

54       I do not find the evidence that Mr Mezzatesta paid himself his own commissions as a PAYG employee relevant.  When Exhibit 7 is examined it is clear that all commission payments made to Mr Mezzatesta were made prior to February 2004 and prior to the terms under which the Applicant was to work in the business coming into effect.

55       As to the argument that the matter in dispute concerns a commercial dispute and does not raise an industrial matter or that the claims do not arise out of a contract of employment, in the event that my conclusion at law that the Applicant was not an employee is wrong I make the following observations.  I am of the view that the Applicant's claim for payments of commission does have an industrial relations complexion within the meaning of the Act as the sums claimed can be characterised as sums accrued and due under a contract of employment.  I am not, however, of the opinion that the Applicant's claim for income from the rent roll raises an industrial matter as the evidence of the Applicant establishes that the entitlement to that income arises solely as a shareholder and not as a sum accrued under the employment agreement.

Prescribed amount – s 29AA(4)

56       As to the argument that the Applicant is barred by s 29AA(4) of the Act from bringing a claim, it is common ground between the parties that at all material times the Applicant did not receive any payments of remuneration.  The Respondent contends that pursuant to reg 5 of the Industrial Relations (General) Regulations 1997 ("the Regulations"), for the purposes of the prescribed amount in s 29AA(4) of the Act, where an employee has been employed for less that 12 months the amount the Applicant was entitled to (or did) earn during his or her employment must be divided by the number of days worked and multiplied by 365.  The prescribed amount at the time of the making of the application was $99,700.00.  The Respondent contends that if the value of the rent roll is more than $5,000.00 the Applicant's claim is over the limit.  However, it is agreed for the purposes of the preliminary argument the Commission should only determine the question whether in applying the divisor the Commission should take into account the amounts the Applicant claims he was entitled to receive.

57       The Respondent says that in relation to the argument that the Applicant's particulars of claim specify a salary in excess of the prescribed amount, the regulations must be construed in light of s 29AA(4) of the Act, which makes it clear that the prescribed amount must be assessed on the basis of a benefit to which an employee is entitled under a contract of employment. 

58       The Applicant says that the divisor in reg 5(2)(c) of the Regulations only requires the amount of remuneration actually received by the Applicant to be divided by the number of days employed and multiplied by 365.  As the Applicant has not received any remuneration at all the amount under the formula is $0.  It is submitted that the Applicant's "salary" for the purposes of s 29AA(4) of the Act does not exceed the prescribed amount. 

59       Section 29AA(4) of the Act provides:

"(4) The Commission must not determine a claim that an employee has not been allowed by his or her employer a benefit to which the employee is entitled under a contract of employment if —

(a) an industrial instrument does not apply to the employment of the employee; and

(b) the employee's contract of employment provides for a salary exceeding the prescribed amount."

60       Section 29AA(5) of the Act defines the "prescribed amount" to mean:

"(a) $90 000 per annum; or

(b) the salary specified, or worked out in a manner specified, in regulations made by the Governor for the purposes of this section."

61       Regulation 5 of the Regulations provides that:

"(1) For the purposes of paragraph (b) of the definition of "prescribed amount" in section 29AA(5) of the Act the specified salary is $90 000, or that amount as affected by indexation in accordance with reg 6.

(2) For the purposes of paragraph (b) of the definition of "prescribed amount" in section 29AA(5) of the Act the salary provided for in an employee's contract of employment is to be worked out as follows —

(a) for an employee who was continuously employed by an employer and was not on leave without full pay at any time during the period of 12 months immediately before the dismissal or claim — the greater of —

(i) the salary that the employee actually received in that period; and

(ii) the salary that the employee was entitled to receive in that period;

(b) for an employee who was continuously employed by an employer and was on leave without full pay at any time during the period of 12 months immediately before the dismissal or claim — the total of —

(i) the actual salary received by the employee for the days during that period that the employee was not on leave without full pay; and

(ii) for the days that the employee was on leave without full pay an amount worked out using the formula —

or

(c) for an employee who was continuously employed by an employer for a period less than 12 months immediately before the dismissal or claim — the amount worked out using the formula —

62       It is my opinion the meaning of the reg 5(2)(c) is clear and unambiguous.  For the purposes of ascertaining whether the salary of an employee who has been employed for less than 12 months exceeds the prescribed amount, the Commission is only required to take into account remuneration received by the employee, that is, the remuneration actually received and not the salary the employee or the employer claims the employee was entitled to receive.  In my view the Applicant's counsel correctly contends in written submissions:

"Whilst this result may seem unusual, on closer analysis, reg 5 is structured in a way that is clearly intended to differentiate between employees who have been employed for less than 12 months and those who have been employed continuously for 12 months or more.  Compare reg 5(2)(a) (which provides for the prescribed amount to be the greater of the salary entitled to be received and the salary actually received) with reg 5(2)(c) (which is based on remuneration received)."

63       For the reason that I have determined that the Applicant was not an employee of the Respondent, the application will be dismissed.