Contractor vs Employee — truck driver loses bid to claim historical employment benefits

Case note: Chiodo v Silk Contract Logistics [2023] FCA 1047

In a recent decision of Chiodo v Silk Contract Logistics [2023] FCA 1047, the Federal Court dismissed a truck driver’s claim that he was an employee and therefore entitled to payment for annual leave and long service leave, as well as superannuation. The Court found that the truck driver was a contractor and not entitled to the benefits usually afforded to an employee.

The Court’s decision re-emphasises the importance that is placed in defining the contractual relationship between parties when assessing whether an individual is an employee or an independent contractor.

The facts

The following is a brief summary of the facts:

1999 – 2008

• In 1999, the truck driver entered into a verbal agreement with CTC Transport Services (CTC) to provide cartage services for CTC. At this time, the truck driver provided the truck and the services through a company in which he was the sole director and shareholder.
• The company rendered invoices to CTC for the cartage services performed by the truck driver. This was initially based on the volume of cargo transported, however later changed to a fixed-rate per load.
• All insurances etc. were registered and paid by and for the company.

2008 – 2018

• For reasons unknown, the truck driver then subsequently began issuing invoices using a different company name (the company did not exist) along with an ABN that was registered in his and his wife’s name. The effect of this was that the truck driver was acting as a sole trader.
• The former company was deregistered in 2010, meaning that the truck used for the cartage services was owned, maintained, and insured by the truck driver in his personal capacity.

2019 – 2021

• In 2019, Silk Logistics Holdings (the Respondent in this proceeding) purchased the shares in CTC. CTC continued to trade, and Silk Contract Logistic’s purchase had no effect on CTC and the truck driver’s contractual relationship.
• Following this, managers of CTC told the truck driver they were not prepared to continue engaging him as a sole trader and, instead, required him to:
  • operate through a company that had up-to-date insurances; and
  • would accept payment on an hourly rate. The hourly rate was three times that paid to CTC’s employee drivers.
• Following this, the truck driver subsequently incorporated a second company, continued to provide services for CTC, and rendered invoices to CTC — which CTC paid. All insurances, equipment, tax deductions etc. for the truck driver were undertaken through this second company.
• The relationship broke down in 2021 and CTC stopped offering work to the truck driver. The truck driver in turn said that he ‘resigned’ his ‘employment’.

The law

The Court applied the recent High Court tests set down in Personnel Contracting¹ and Jamsek², which are as follows³:

• Where the rights and duties of the parties are contained in a written contract (and the contract is not a sham), the obligations established by that contract are decisive of the character of the relationship;
• The contract is construed objectively and in accordance with the usual principles of contractual interpretation (i.e. by looking at what the agreed terms of the contract were). The circumstances surrounding the making of the contract and events and matters, known to the parties at the time of contracting, assist in identifying the purpose or object of the contract – but things said and done after a contract was made are not legitimate aids to its construction;
• The characterisation of the relationship between the parties depends on their contractual rights and not on circumstances, facts or events that do not affect those rights;
• Once the scope of the contract (i.e. the legal relationship) is identified, consideration is given to both:
  • the extent to which the claimed employer has the right to control how, when and where the claimed employee performs the work; and
  • the extent to which the claimed employee can be seen to be working in their own business as distinct from the claimed employer’s business,
• The important aspects of the contract are likely to include: the mode of remuneration, provision and maintenance of equipment, the obligation to work and hours of work, provision for holidays, deduction of income tax, whether work can be delegated, and the right to exercise direction and control; and
• The label that the parties attach to their relationship is not determinative and rarely of assistance.

Further, the Court said that where there is an oral or implied contract (not a written contract), then inferences are drawn from the parties’ conduct to determine the scope of any contractual relationship.

The decision

Putting aside the fact that the truck driver sued Silk Contract Logistics (which did not exist in 1997 and was not involved in any contractual dealings prior to 2019) and not CTC, the Court nevertheless assessed the contractual relationships formed over the years, together with the degree of control exercised over the truck driver, as well as the businesses.

The Court found that the truck driver was, at all times, a contractor and not an employee. Importantly, the Court pointed to the following in making its decision:

• He worked the hours that he chose.
• He did not work every day of the week and often finished early on Fridays (employees of CTC were required to work until close of business on Fridays).
• He went home after he had completed his last cartage run for the day.
• He chose jobs which he preferred to do, and declined jobs that were not attractive to him.
• He never asked CTC’s permission to finish early, and further was not expected to.
• There was no evidence of CTC insisting the truck driver work certain hours or take certain jobs. In fact, there was no identified contractual provision for this.
• He was hired for his skill and experience as a truck driver and chose the routes he would drive.
• He made use of a corporate entity (the two companies) and claimed significant tax deductions because of this.
• He conducted his business either through a company or as a sole trader (i.e. through the use of an ACN or an ABN). This included issuing invoices, paying for insurances and maintenances over the truck and so on.
• The truck itself was a significant capital asset, which was a tool that was central to the provision of the cartage services.
• He was paid significantly higher than CTC’s other employees. This demonstrated that the ‘labour’ component of his pay was a relatively small component of the contractual arrangement.
• During the period he was paid per load (not by time), the more loads he delivered the more he was paid.
• Nothing was suggested that CTC considered the truck driver to exclusively drive for it. In fact, there was suggestion that he drove for a competitive company for a time.

Key takeaways

This decision serves to re-enforce the contractual approach taken in determining the tension between identifying a person as either an employee or a contractor. As seen in Personnel Contracting and Jamsek, the first step (and arguably the most important) in assessing this tension is to define the contractual scope of the given relationship. In other words, what was contractually agreed to between the parties?

Therefore, it is clear that for any business operating in the logistics sphere (or other similar service) to ensure that they have in place well documented contractual arrangements which precisely define the nature of the relationship, whether it be contractor and principal, or employer and employee.

Care should be taken to avoid artificial arrangements as the cost of getting it wrong over an extended period of time can be very significant.

_References

<sup>1. Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1; 96 ALJR 89.
2. ZG Operations Australia Pty Ltd v Jamsek [2022] [2022] HCA 2; 96 ALJR 144.
3. As summarised in JMC Pty Ltd v Commissioner of Taxation [2022] FCA 750.</sup>