Case Note: Contractors and Super Entitlements

In this case, a dentist working under a services agreement was entitled to super payments despite not being an ‘employee’ for the purpose of the Fair Work Act 2009 (Cth).

EMPLOYMENT – UNPAID ENTITLEMENTS 

Moffet v Dental Corporation Pty Ltd [2019] FCA 344

Introduction

The Applicant to this matter, Dr David Moffet instituted proceedings in the Federal Court of Australia for sham contracting, unpaid annual leave, unpaid long service leave and superannuation. The key inquiry regarded whether Dr Moffet was an employee of Dental Corporation (the Corporation), or rather whether he was engaged under a contract for services. The Fair Work Act 2009 (Cth) (the FWA), the Long Service Leave Act 1955 (NSW) (the LSL Act) and the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGA Act) were considered separately to answer this question.

Dr Moffet’s claim was largely unsuccessful and he was regarded as an unreliable witness by Flick J (who presided over the matter), however his claim under the SGA Act was successful, due to the expanded meaning of “employee” under that Act.

Facts

Dr Moffet sold his dental practice of 20 years to the Corporation in 2007 and in connection with the sale was engaged by the Corporation to provide dental services under an agreement titled “Services Agreement”. Following the conclusion of the Services Agreement in 2012 and a further period of service on terms agreed by the parties, Dr Moffet subsequently submitted a pointed letter of resignation to Dental Corporation in November 2014, claiming that he had been subject to bullying by 2 key personnel of the Corporation and narrated the impact it had had on his mental health.

Issues

Was Dr Moffet an employee of Dental Corporation for the purposes of the Fair Work Act?

Dr Moffet claimed that the Corporation’s Services Agreement with him falsely represented the arrangement to be one of principal and independent contractor, where the true nature of the relationship was that of employer and employee in breach of section 357 of the FWA (often referred to as a sham arrangement). Further, he argued that the Corporation breached sections 90(2) and 323 of the FWA by failing to pay him annual leave that he had accrued as an employee.

The claims could only succeed if Flick J found that Dr Moffet was an employee of the Corporation during the engagement. In coming to a decision, Flick J reviewed the well-known and principal authorities on the matter such as Hollis v Vabu Pty Ltd [2001] HCA 44 and Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16. Those authorities establish that consideration of whether a relationship is one of employment or not involves a holistic assessment, by which regard is given to indicia that are commonly indicative of either a contracting or employment relationship, and further that no one factor alone should be considered conclusive. Following from this, the authorities convey that the terms of the contract should be considered to elucidate an ambiguous relationship, however, importantly, they are not determinative. In making this evaluation, Flick J gave regard to the factors outlined under the below headings.

Little to no control exercised over his work

Control by the organisation over a person’s work is an element of the working relationship commonly given consideration in such an evaluation. There was nothing in the Services Agreement governing Dr Moffet’s hours of work or the nature of the work to be undertaken (other than to say that he was to provide dental services) and it was evident from cross-examination of Dr Moffet that there was no requirement for him to seek the consent of the Corporation to take annual leave or to reduce his working hours. Dr Moffet also dictated the amount he charged patients for his services (subject to the requirement to pay any shortfall to the Corporation for failure to meet revenue targets).

The structure of the relationship

Pursuant to the Services Agreement the Corporation provided administrative services to Dr Moffet and such equipment as was needed for him to undertake his dental services under the Agreement. It was also found that there was no unilateral right to employ or dismiss employees conferred on Dr Moffet and that he did not occupy a management role at the organisation.

The financial arrangements

The financial arrangements were that the Corporation remunerated Dr Moffet with reference to the monthly revenue he generated and he was reimbursed for the expenses he incurred in connection with providing the dental services. The Corporation did not deduct income tax from the amounts paid to him.

Dr Moffet’s tax returns were telling. He retained the Australian Business Number he used for his dental practice prior to its acquisition by the Corporation (using it for his tax returns) and deducted expenses he incurred from operating as a dental surgeon (expenses for which he had not already been reimbursed by the Corporation). It was inferred by Flick J that these expenses related to Dr Moffet’s promotion of his work outside of his services to the Corporation, in light of various advertisements that he had released detailing a consulting service targeted at dentists that he was offering.

In his tax return for the period ending 30 June 2013 he made a deduction of $291,125, for an amount he paid to the Corporation as reimbursement for an annual cash flow shortfall described under the Services Agreement for failure to meet earnings targets during that period.

Consideration

In keeping with relevant authority, Flick J was careful to note that he did not give undue weight to Dr Moffet’s tax return in making his finding, instead treating it as factor to be considered as part of the totality of the relationship. Notwithstanding, he regarded the reality of the relationship between the parties to be one of principal and independent contractor. More concretely that, following the acquisition of Dr Moffet’s dental practice, the Corporation allowed Dr Moffet to continue to run his own business. The Corporation had little to no control over the manner in which Dr Moffit conducted his practice and the structure of the relationship spoke to that of a principal and contractor relationship. Flick J couched his reasoning as to the financial relationship between the parties in the following way:

“An employee is normally paid a salary or hourly, daily or other periodic wage, free of deductions for expenses incurred in the performance of their work. The prospect of cash flow being less than otherwise anticipated is a risk normally borne by an employer.”

Although not considering it necessary to refer to the Services Agreement to resolve any ambiguity in the relationship, Flick J expressed that it nevertheless confirmed what was already evident on the evidence before the Court and correctly labelled the relationship between the parties as a contract for services that was not one of employment.

Was Dr Moffet a “worker” for the purposes of the Long Service Leave Act?

Flick J relied on his reasoning with respect to the FWA to conclude that Dr Moffet, as much as he was not an employee of the Corporation for the purposes of the FWA, was also not a “worker” as defined under section 4 of the LSL Act. The LSL Act defines a worker as a person “employed, whether on salary or wages or piecework rates, or as a member of a buttygang…”. His Honour did not give any analysis as to the meaning of the clause, beyond citing the common law approach to the meaning that he had already evoked with respect to the FWA.

In bolstering his finding, Flick J reasoned that, even if he were wrong, and Dr Moffet was a worker for the purposes of the Act, the Corporation did not terminate his services (he resigned), nor could it be considered that Dr Moffet terminated the arrangement on account of “illness, incapacity or domestic or other pressing necessity…”, as there was no evidence to substantiate that conclusion. One of these conclusions was needed for Dr Moffet to be entitled to LSL under the Act, as he was in the position of having worked with the Corporation for less than 10 years.

Was Dr Moffet entitled to superannuation payments under the Superannuation Guarantee Act?

Dr Moffet was in fact successful on this point of his claim. The decision turned on an interpretation of section 12(3) of the SGA Act. Flick J’s finding was that the effect of the provision was to extend the application of the Act to “employment-like” relationships that would otherwise not be recognised at common law as employment relationships. His Honour principally relied on the decision of Bromberg J in On Call Interpreters and Translators Agency Pty Ltd v Federal Commissioner of Taxation (No 3) [2011] FCA 366, who found that payments to an independent contractor under a contract for personal services are captured by the Act, where the relationship has an employment-like character.

Compliance Impact

Subscribers should be aware of the extension of the SGA Act to principal and contractor arrangements that have an employment-like character. Bromberg J put it this way:

“Whether an employment-like setting exists may be best answered by asking: Whether, in all the circumstances, the labour component of the contract in question could have been provided by the recipient of the labour employing an employee?”

Failure to pay superannuation to an employee within the extended meaning under the SGA Act results in liability to pay the “superannuation guarantee charge” (the SGC). The charge is comprised of unpaid superannuation payments, 10% interest on those amounts (accumulated from the first day of the relevant superannuation quarter up until the date that the SGC is lodged) and an administration fee of $20 per employee (per quarter of unpaid superannuation). Following lodgement of the SGC statement, interest continues to accumulate on this amount at the general interest charge rate (currently 8.96%), until the SGC is paid.

On top of the SGC, newly in-force amendments give the Commissioner robust powers of enforcement. Failure to comply with a Commissioner direction to make payment of the SGC can result in criminal penalties.

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