Analysis of relationship
185 The Chief Commissioner laid emphasis on the level of control that Bridges was entitled to exercise over the representatives. They were required to comply with the compliance manual and such other policies, procedures or guidelines as Bridges issued from time to time. The detailed content of the compliance manual, the minimum service standards and the personal assistants procedures manual represented a high level of control of the way in which the representatives conducted their activities.
186 In Narich Pty Ltd v Commissioner of Pay-roll Tax [1983] 2 NSWLR 597 a franchisee of Weight Watchers International engaged a lecturer who was, rigidly, required to apply a handbook when giving her lectures. The handbook contained lengthy, detailed and specific instructions as to how each of the 28 subjects covered by it was to be taught or handled by the lecturer. The Privy Council concluded that the lecturer was an employee notwithstanding a provision of the contract that asserted that she was not an employee but an independent contractor.
187 There is force in the Chief Commissioner's submission. But there are countervailing issues. Much of the control was directed to matters the subject of regulatory restriction under the Corporations Law, ASX requirements and ASC and ASIC pronouncements.
188 Key restrictions of this regulatory regimen applied to the representatives as securities representatives. That term was defined in the Corporations Law, s 94(1) to mean a person employed by, or who acted for, or by arrangement with, another person, in this case Bridges. Of a similar definition, Rogers J said a more loose legal relationship was hard to imagine (Siu v Brick Securities Ltd (1987) 5 ACLC 714 at 715). Since the obligations applied to relationships other than that of master and servant, a level of control, even if high, was just as much required in a principal - independent contractor relationship as it was in an employer - employee relationship.
189 Bridges was bound to exercise a degree of control commensurate with the regulatory requirements cast upon it. Those requirements required a high degree of control. Such a level of control, in these circumstances, is not inconsistent with a relationship of principal and independent contractor.
190 The representatives and agents agreement did not deal with matters that one would have expected to be covered in a contract of employment. The representatives were not required to provide services to clients. They could select clients they wished to serve. The representatives were not required to attend the office premises during specified hours. They could determine what hours they chose to work and they could determine whether and when they took holidays or other leave. They were paid no sick leave, holiday leave, or long service leave. Nor did Bridges have any obligation to provide work or refer clients to the representatives. It is a usual feature of a contract of employment that there be a mutuality of obligation to provide work and to perform it (Boylan Nominees at [56]). That feature is absent in this case.
191 The representatives were free to choose how much time they would devote to their financial planning activities and how much time they would devote to other business operations such as income tax advice or general business advice.
192 A representative was free to delegate the work, subject to the requirement that if financial advice was to be provided by the delegate, the delegate had to hold a proper authority from Bridges. The evidence established that the selected representatives, with the exception of Mr Wilson, delegated portions of their work to personal assistants and other administrative staff and some of the selected representatives delegated work to proper authority holders.
193 Since the contract of employment calls for personal service, a power to delegate the performance of the work tells against an employment relationship (Australian Mutual Provident Society v Allan (1978) 52 ALJR 407 at 410, Australian Air Express Pty Ltd v Langford [2005] NSWCA 96 at [64]).
194 While the format for a representative's presentation to a client was constrained, there was still a wide area of judgment left to the representative. While a financial plan was required to address specified matters, the way in which the matters were addressed was left to the financial planner. It was the financial planner who recommended the structure of the investment plan and it was the planner who chose the product from the broad choices in the recommended products list.
195 It was up to the individual representative whether a client would be charged a fee for services, such as portfolio watch, and the level of that fee.
196 In Narich, a rigid adherence to constraints was imposed. Bridges did not require the same level of adherence. Mrs Baldry emphasised that she complied with the requirements in the compliance manual that reflected legal obligations. She developed her own best practice procedures in other respects. The selected representatives were generally aware of the personal assistants procedures manual but none, with the possible exception of Mr Noordhuis, evinced any close familiarity with it.
197 While an initial financial plan for a client was required to be checked by Messrs Boult and Noordhuis or Ms Smith, any variation in the plan or transposition of investments was not required to be checked unless it contained a new strategy.
198 Advertising material was checked by Bridges. But that was because of ASC practice note 117. Bridges needed to ensure that a representative was not portrayed as a licensed dealer.
199 Audits were directed at compliance matters and not at general office procedures. There was some variation in the way in which representatives collected data. For compliance reasons again, it was necessary for the representatives to ensure that data was entered into the computer system using the AREV software.
200 Much of the cross examination was directed to establishing that the representatives operated under the banner of Bridges. The telephone listings were of the offices as branches of Bridges. The ability to transfer a call to an office enhanced this relationship. The use of Bridges' letterheads and its name on business cards were designed to give the appearance to clients that the representatives operated with the stamp of approval of Bridges and as Bridges' representatives. But the representatives brought their talents to their activities such that most of the selected representatives were able to bring clients developed under earlier proper authorities with them when they became proper authority holders from Bridges. It does not follow, in my view, that the appearance created in the minds of clients was consistent only with Bridges conducting its business through the financial planners as its employed representatives.
201 The skill and training of which each of the selected representatives gave evidence was not challenged by Chief Commissioner. Some also brought skill and training in accountancy or tax advice to the relationship with Bridges.
202 While the representatives did not bring expensive physical assets to their activities, a most significant aspect of this matter was the level of capital, valued as a factor of trail commissions, that were brought into the relationship with Bridges and in which Bridges benefited to the extent of 30% in a 70/30 office and to the extent of 50% less expenses in a scale office. Thus, Mr McLaren brought his Tasmanian clients to the new relationship. Mrs Baldry brought Community First clients. Mr Frank had built up clients in Sydney well before the commencement of the relevant period. And so had Mr Lao, Mr Noordhuis and Mr Jones. Mr Lesniak brought 60% of his Bleakleys' clients with him.
203 The evidence was that the representatives could sell their entitlement to trial commissions and the build up in the capital value of those rights was reflected in the significant increases in funds under management during the relevant period. Mr Madge contributed an agreed amount to Darmark to match the value of trail commissions introduced by Mr Barlow.
204 Another aspect that tells against an employment relationship, was the freedom of the representatives to choose the business structure in which the financial planning activities were to be conducted. They varied from the individual capacity in which Mr Lesniak conducted his activities to the family companies and the corporate trustees of family trusts that employed other selected representatives. And there was variation in the manner in which offices were structured. There was the Nancracken partnership between Mr Jones and Ms Hiscox-Price. Sykim, Darmark, Compim and Rylego were companies while Oxford and Propeq were trustees of unit trusts.
205 Another significant factor that tells against an employment relationship was the significant ratio of business expenses to which the representatives were subject. This was demonstrated by retentions by the offices of portions of the commissions, brokerage and fees generated by the representatives and by additional expenditure by the representatives themselves or by their family companies or trusts.
206 The representatives were free to employ the services of others or to cause a family company or trust to employ others. There was no challenge to the proposition that all income tax and, where appropriate, all workers' compensation payments were the responsibility of the representative or the representative's company or trust.
207 In Allan at 409, the Privy Council endorsed a statement by Lord Denning in an unreported case:
"The law, as I sees it, is this: if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it…On the other hand, if their relationship is ambiguous and is capable of being one or the other [that is, either service or agency], then the parties can remove that ambiguity, by the very agreement itself which they make with one another. The agreement itself then becomes the best material from which to gather the true legal relationship between them."
208 The representatives and agents agreement stated the relationship to be that of principal and independent contractor.
209 In Barrett, Stephen J concluded that commission salesmen retained by a firm of land agents were employees. There were some similarities of fact to the instant circumstances. The salesmen were not required to work set hours; they could take extended leave without permission; they were required to adhere to the code of ethics and rules of the Real Estate Institute and the Multiple Listing Bureau with respect to each sale; they were required to complete sales documents and a questionnaire providing the land agents with detailed knowledge of the circumstances of the sale. But there were points of distinction. By legislation, they could not act as salesmen for any other agents nor act in any way in connection with land dealings on their own account. They were expected to report on their whereabouts each working day and they were expected to attend at the office of the land agents for about one day a week in accordance with a roster.
210 The statutory limitation on their activities means that, unlike the representatives in this case, they could not generate goodwill nor sell a business.
211 In D & D Tolhurst Pty Ltd v Commissioner of State Revenue (Vic) 97 ATC 2179, the Victorian Administrative Appeals Tribunal was constituted by Mr Nettle, as he then was. The case had many similarities to the instant circumstances. The taxpayer was a stockbroker and licensed dealer. It engaged investment advisers who perceived that they had their own clients and conducted an investment business with them. They held proper authorities from the stockbroker. Business was written in the name of the stockbroker and it retained up to 60% of brokerage and fees earned by the advisers. The advisers were free to work as they saw fit. Neither holiday pay, nor superannuation was provided. The advisers were required to operate in accordance with a compliance manual directed towards the restrictions in the Corporations Law and ASX rules. While they could work from any location they chose, they had access to a desk, telephone, computer screen and the broker's administrative facilities and research. By law, all transactions were required to be conducted in the broker's name. The stockbroker employed a compliance officer whose duties were to ensure that each adviser was fully aware of the regulatory requirements.
212 Mr Nettle concluded, at 2187, that while the investment advisers perceived themselves to be conducting their own businesses, the fact, like the position at law, was that the business that each investment adviser transacted with his or her clients was the business of Tolhurst:
"If a client enters into a contract, the client enters into a contract with Tolhurst. If the adviser enters into a contract, the adviser so enters as the agent of Tolhurst. The adviser is the conduit through which the investment advisory services of Tolhurst are delivered by Tolhusrt to prospective buyers and sellers of securities. The adviser is Tolhurst's factotum."
213 Mr Nettle concluded that the advisers were employees.
214 In my view, Tolhurst is distinguishable from the instant case. First, each of the advisers in Tolhurst had been an employee of the stockbroker for at least four years prior to the date in question. They did not have trail commissions in their own right that could be transferred to a new proper authority and, in consequence, they had no goodwill with respect to clients that could be sold. Secondly, there was no power of delegation in the advisers in Tolhurst. Thirdly, the advisers were relieved of the need to provide working capital costs by the provision to them of access to an office, staff, electronic equipment and furniture and fittings. Fourthly, the advisers in Tolhurst were required to attend a morning meeting at 8.45 am, regularly attended by the compliance officer. Fifthly, by arrangement with the advisers, PAYE deductions were made from their share of brokerage and fees in many cases. Sixthly, the investment advisers in Tolhurst had no business beyond their activities with Tolhurst.
215 In my view, in this case the representatives and agents agreement stated the relationship, correctly, as that of principal and independent agent . In the 70/30 offices, the representatives bore the entirety of the expenses of their activities. In the scale offices, Bridges bore some of the expenses but at the expense of a lower share of the commissions, brokerage and fees generated by the representatives. They benefited from the success of their activities and bore the risk of failure. It was they who determined the extent to which their operations required the services of others. They determined whether they should act entirely as financial planners or provide other services as well. It was they who generated a saleable asset to the value of which they alone were entitled. Trail commissions formed a significant part of the earnings of the representatives. Those trail commissions, established while the representatives were proper authority holders from other dealers, could not, properly, be characterised as wages paid by Bridges to an employee as such.
216 The fact that representatives were able to sell a business and make capital payments to acquire existing businesses is, to my mind, a highly significant factor telling against a common law employment relationship.
217 Rather than this being a case of Bridges operating its business through the representatives, it franchised them to conduct their businesses under constraints necessitated by regulatory requirements and provided such services as research, a portfolio service and initial and on-going training.