Leggett and Anor v Aardvark Security Services Pty Ltd

RESPONDENT Aardvark Security Services Pty Ltd FILE NUMBER: IRC1911 of 1998 CORAM: Peterson J CATCHWORDS : security guards - services provided through corporation as subcontractor - remuneration less than an employee would receive performing the work - whether contract designed to or did avoid award - whether employees or independent contractors - contract held unfair. LEGISLATION CITED : Industrial Relations Act 1996 s105(c) and (d) s106 Industrial Arbitration Act 1940 s88F(1)(d) and (e) CASES CITED : Richard Hartnett v Aardvark Security Services Pty Ltd (1998) 85 IR 315 Huskisson RSL Sub-Branch Club Ltd v Sullivan (1990) 32 IR 404 HEARING DATES: 11/18/1999; 11/19/1999; 05/22/2000; 05/23/2000 DATE OF JUDGMENT: 09/15/2000

APPLICANTS Ms E S Brus of counsel

SOLICITOR Gells SYDNEY.

LEGAL REPRESENTATIVES: RESPONDENT Mr K G Bennett of counsel

SOLICITOR John Byrnes & Associates DRUMMOYNE.

JUDGMENT:

• 42 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

JOHN ROBERT LEGGETT & ANOR v AARDVARK SECURITY SERVICES PTY LTD

Application under s.106 of the Industrial Relations Act 1996. JUDGMENT 1 This application is brought pursuant to s.106 of the Industrial Relations Act 1996 ('the Act') by joint applicants, John Robert Leggett and Victor Cvetkovich. Both of the applicants performed work through their private corporate structures as contractors or sub-contractors to the respondent, Aardvark Security Services Pty Ltd, ACN 000 862 180 ('Aardvark'). Mr Cvetkovich remains with Aardvark on this basis. The arrangement with Mr Leggett has been discontinued. The claims for relief are advanced principally on the basis that the contract or arrangement under which the work was performed was an unfair contract within the meaning of s.105(c) of the Act, as a contract or arrangement "that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work" and secondly, under s.105(d) as a contract or arrangement "that is designed to, or does, avoid the provisions of an industrial instrument". 2 The proceedings were, by an arrangement between the parties accepted by the Court, conducted on the basis that the Court would determine whether the contract or arrangements fell within the section and whether, having regard to the nature of the defence advanced, the Court would decline to exercise its jurisdiction to make an order for the payment of money to the benefit of the applicants. In the event that the determination was to make an order for the payment of money, the parties were agreed that it would be necessary for a detailed process of quantification to be engaged in and it was preferable, having regard to the nature of that process, for it to be deferred in the event that it might ultimately be unnecessary. Aardvark conceded that the case was one which satisfied the features of s105(c), in that the applicants had received in total a remuneration less than an employee would have received performing the work. However, the applicants pressed the view that the facts also supported a finding that the contracts were within s105(d) as being designed to, or did, avoid the provisions of an award; this was contested. This judgment deals with those issues and the question whether the Court would make no order as a matter of discretion because the applicants received a net financial benefit, taking all matters into account, which was at least equal to that available to an employee performing the work. Background 3 Aardvark is, on the evidence, a substantial operator in the security industry and provides security guards under contract to various clients. The two applicants have been or were engaged in that work now for a number of years. Mr Leggett first commenced as an employee of Aardvark and was, accordingly, paid pursuant to the terms of the Security Industry (State) Award (269 IG 1314). 4 Mr Leggett is 54 years of age and has had a variety of positions in his working life including work as a bank teller, a Commonwealth public servant and as a farmer. Between approximately 1987 and 1991 he worked as a security guard for Wormalds in Sydney and then on a casual basis for them in Brisbane. In 1991 upon returning to Sydney he was unable to get work with Wormalds Security and was put in touch with Aardvark. He visited Aardvark's offices in Cowpers Street, Marrickville and spoke with Warren Osbourne, who was the Operations Manager - Guards Manager. He was told in answer to his inquiry that "we pay the award rate. We have plenty of work." He commenced employment with Aardvark two days later as a casual employee on the Higher School Certificate marking at Sydney Showground. This work continued until 7 January 1992 when he was informed by Mr Osbourne that a permanent position was available at Digital Equipment at Rhodes. He started there as a permanent guard on 7 January 1992 on a 7-day, 24-hour roster. While working at Digital Equipment at Rhodes he became aware that some of the guards had become contractors. 5 The work at Digital Equipment required the use of computers which controlled doors, lifts and alarms. All staff had access cards to different areas at certain times, which cards were created, altered and cancelled by the security guards. They had an extensive close-circuit TV surveillance system and a central control room. The guards worked in pairs, one in the control room and one on patrol, turn about. They were required to alter the air conditioning, lighting and power to the building via the computer. Mr Leggett was being paid as a security officer/gatekeeper. An issue arose about their classification under the award. Mr Leggett asked Steve Cowell (a supervisor) about this and he suggested Mr Leggett ask Ian England, the Guards Manager. He told Mr England that he had been talking to the union and he believed that because of the computer input work they did they should be treated as Level 2 employees. Mr England said he would look into it but Mr Leggett never got an answer. 6 On 2 November 1992 he was transferred to the State Bank at Ashfield where he was paid on the same basis. The grading issue arose again, the duties required including the extensive use of computers. Again he approached Mr England and also Mr Osbourne, both of whom said they would look into the question of award classification but Mr Leggett again got no response. 7 On about 1 October 1992 he was telephoned by Mr Osbourne who asked "Have you thought about becoming a contractor" to which he replied "No I haven't, I don't know what is involved or how it works". Mr Osbourne then said "There is nothing to it just register a name as a sole trader and take out insurance you can save heaps on tax because you can claim so many things as a business."

Mr Leggett: "I don't know what claims I can make as a business. I don't have an accountant".

Mr Osbourne: "Go to any accountant you can claim it off tax."

Mr Osbourne: "I think I should tell you that the new direction of the company is that all guards will be contractors, there will be no permanent guard employees at all. Within the next 3 months all guards in this company will be contractors or they won't be working for us. Everything to do with the job will remain the same, the duties will remain the same but there will be more prospect of extra hours or overtime". 8 Mr Leggett formed the view he would be sacked if he did not comply. He said that on another occasion Mr Osbourne said words to the effect "If you become a contractor there will be less chance of you getting the sack, you will be more permanent." 9 Mr Leggett agreed to become a contractor as he was anxious to maintain his job although he really had little idea as to what it meant. On 13 October 1992 he registered a business name, Tandem Security as a sole trader. He also insured himself for income protection at a cost of a $1,000 per annum. His employment was terminated and a termination payout was made, reason for leaving being given by Aardvark as "contracting". Mr Leggett's affidavit contained the following:

1. Nothing whatsoever changed in the way I did the job, what shifts I did or how the work was performed. I still reported to the same people and it was literally a sitaution (sic) of being an employee one day and an independant (sic) contractor the next. Now that I was a contractor I was offered more overtime outside of my usual job at the bank, In fact I had to decline the offer of shifts. We got paid at a casual guards rate but only got paid for the hours worked, the money in the hand was more but the tax liability was more as none of it was received as allowances.

II. Sick pay III. Penalty pay for hours worked after normal shift III. Uniform allowance IV. Gun allowance V. Battery allowance VI. Meal money when applicable VII. superannuation

2. Furthermore we had to pay out own tax, and were not sure whether we were at this stage covered for public liability insurance and/or workers compensation by Aardvarks policies.

Otherwise nothing changed, we still worked as directed by Aardvark who decided where we worked, what hours we worked, how we carried out the work (they had supervisors who came and checked on the various sites). If you got sick and could not attend a shift, you were still required to notify the base and the senior guard on site, so that they could arrange a replacement. If you wanted any overtime you were still required to ring the control room to register, should any overtime arise, it was still alloted (sic) in a arbitrary manner. We were still required to wear the Aardvark uniform and these were still supplied by Aardvark.

3. We worked a roster as set by Aardvark and any overtime shifts on top of that where possible. Aardvark dictated the rates that they would pay. The system of payment, did, however, change. We were now required to fill out an invoice and submit it to Aardvark's account section (Mr Col Creighton who work for them on the central coast authorised payment).

The cheque was made out to the guard's business name - In my case Tandem security. I had opened a cheque account in the name of Tandem security at the Advance Bank Ashfield to clear these cheques. 10 In December 1992 Mr Leggett received over the signature of Gordon Donald, the Managing Director of Aardvark, a letter in the following terms: Date: 07.12.92 Time: 2.30 pm Dear Valued Contractor, We have been informed by our Company Auditor, confirmed by the company solicitor, that the 1/12 loading included in your hourly rate is deemed to be a loading for annual holidays.

Having in the past paid this amount, we are putting the true interpretation of sub-contractor at risk and could be seemed to be negating our original agreement.

Please be advised that, as from the next remittance period, the company will not be responsible for this payment, however, will continue to pay a 15% allowance in excess.

We would like to take this opportunity to wish you and yours the best for the festive season and express our appreciation for your assistance during 1992. We look forward to your continued support in 1993.

GORDON DONALD MANAGING DIRECTOR 11 This caused Mr Leggett to ring Mr Osbourne who is now the Operations Manager to ask: " How can you cut 92 cents an hour off our rate?"

The reply was: "You are not entitled to a casuals rates of 92 cents an hour because you are permanent contractors."

Mr Leggett said: "Does this mean that we will now get a written contract stating what our status is and just what our conditions of employment are?"

Mr Osbourne said: "Yes, we are working on a contract at present. As soon as it is complete we will send you a copy to sign".

Mr Leggett said: "I will have to get a solicitor to look at it before I sign."

Mr Leggett said: "I am not happy about this. I don't think this right at all".

Mr Osbourne said: "The bottom line is you should not havie been paid id this casual loading at all because you are permanent contractors."

12 On 1 August 1993 Mr Leggett again received from Mr Donald a letter requiring Mr Leggett to form a commercial partnership or a proprietary limited company, in effect to satisfy Australian Taxation Department requirements for contractor relationship. The letter was in the following terms:

The Australian Taxation Department, spurred on by the Australian Government's short fall in revenue, have again changed the position of the goal posts in the playing field of commerce which effects the Security Industry and in particular our current and future harmonious commercial relationship.

The changes are very simple and with your co-operation we will be able to adjust our contractual relationship without any disadvantage or financial hardship to either party and continue into this financial year.

Basically the Taxation office claims that a "true blue" contractor has to be either:- (a) Commercially involved in a partnership. OR (b) Be a Pty Ltd company

(a) To be involved in a partnership is as simple as either being involved with your working partner or if your are working a site alone having your spouse as a partner of your business.

The personal taxation advantages of this arrangement to you are never ending as you may claim a ratio of your home/office/rent, a portion of your telephone account, running costs and lease/hire purchase payments of either or both cars etc. off your taxation at the end of the year.

This partnership arrangement will not attract the cost of setting up the original company as in option (b).

(b) The setting up of a Pty Ltd company is of course the ultimate protection for your income.

Your taxation advantages are utmost coupled with the above add travelling expenses to and from the site which you are protecting, uniforms, laundry and any other related costs to your income.

The usual Insurance coverage have to be still observed in both options.

We have to impress that we have no control over the changes in the taxation act however will have to observe the new regulations which will mean that if you are not involved in a partnership or a company we have no option than to cancell your services.

Should you wish to discuss this matter, confidentially, privately and in further detail please contact David Sharp or Michael Sutton on 698.9255.

Proof of partnership and or formation of a Pty Ltd company together with all Insuracne (sic) required for the coming year should be received by either of the above managers and in this office by the 31st August 1993 .

Failure to achieve the above will result in the termination of our current contractual arrangements with you as at that date.

Remember "once ounce of co-operation outweighs one ton of aggravation" together we will repair the situation. GORDON D. DONALD Managing Director. 13 Mr Leggett then joined with another security guard, Richard Hartnett, to form a company. He said:

On 16 September 1993 Harle Group Pty Ltd became an entity in order for us to keep our jobs. It cost $900 to set up plus now our accountancy bill was $800 plus we had to pay Australian Securities Commission $195 per year. 14 He said:

"The arrangement was simple. We both did our rostered shifts . . as usual, accepted the rates that were Aardvark dictated and we each submitted an invoice of hours worked . . . . and they paid us a cheque separately each to the Harle Group but paid into separate bank accounts - one was mine, opened in the name of the company and the other was Mr Hartnett's opened for his benefit in the name of the company again but in a different bank." 15 On 6 September 1993 Mr Leggett was transferred to the Naval Supply Depot at Zetland which was manned 24-hours a day, 7 days a week. The Aardvark supervisor was Steve Cowell, then the Manpower Manager. Mr Leggett's affidavit continued:

In December 1993 we had a meeting at Zetland between Andy Bell Manager and all of the guards working at Zetland and Randwick Naval Stores, Steve Cowell was present.

Andy Bell said; "We are looking at reviewing the rates of pay at this site because we made a mistake when we did the tender and didn't allow enough for the number of guards required".

All of the guards yelled and shouted; things like "Get stuffed" .

Another guard, Victor Cvetkovich said "Would you show us the contract with the figures so that we can see for ourselves"

Andy Bell said; "Yes, they are at the office (At Devonshire street Surry Hills) I'll bring them with me next time I'm out here."

(Mr Bell never brought the contract and didn't return for many months).

On 6 June 1994 I was transferred to Digital Equipment Lane Cove. The same situation arose that I had experienced before - I was being paid $13.08 per hour flat.

On the 10 July 1994 without warning my rate was cut to $12 per hour. I rang Steven Cowell who seemed to wear many hats, he was the control room manager (Manpower Manager) by this time.

He said "We are now paying different rates for each site."

He said "We have had to cut our rates to be competitive, so it depends on the contract at each site."

I said "This is a bloody rort and you know it." 16 He worked at Digital Equipment until 31 May 1995 when Aardvark Security lost the contract. He then did casual work at various sites until a position was found for him at the Defence National Supply Distribution Centre at Moorebank. Mr Leggett was still being paid $12.00 per hour flat rate. He said that it was necessary to work long hours to get a decent wage, about $600 per week before taxation. He found himself getting very tired. There were no restrictions on the number of hours worked. It was common to work 16 hour shifts and sometimes 24-hour shifts. On 1 September 1995 he returned to Zetland at the rate of $13.08 per hour and then on 1 June 1996 he commenced at the State Bank Ashfield. At this site he was operating computers at a flat rate of $13.00 per hour. He was working 13 days a fortnight to get enough hours up to earn about $750 per week. He had anticipated being appointed a senior guard at the State Bank but this did not eventuate. His hours commenced to be cut back by the senior guard present and Mr Leggett resigned effective on 31 March 1997. 17 Mr Cvetkovich had not a dissimilar experience with Aardvark. He is 42 years of age, having started work in 1975. He worked in a family business until 1981 when he joined the Public Service in the Stamp Duties Office attaining the role of Senior Assessor prior to leaving in June 1990. 18 In 1989 he with his brother had incorporated a share trading company called Vilnius Pty Ltd. In September 1989 the company had got into trouble as a result of the company's being placed in liquidation so he left the Public Service to concentrate on share trading to try to save the company. It became necessary for him to obtain full time employment because of the company's unhappy trading position. He had been a security employee as a second job while in the Public Service. On about 12 September 1991 he made contact with, and was interviewed by, Mr Osbourne of Aardvark. He was offered employment on evening shift at a Rosebery Housing Commission site. On the day he was due to start work, 20 September 1991, he was telephoned by Mr Osbourne who told him the job was no longer available and to come into the office for a discussion. He there met Mr England who told him that:

"the only job available is as a contractor at the Navy base at Zetland".

"I would like to know more about the site and the conditions as a contractor, before I commit myself."

"The rates of pay are the same as a casual guard on grade 1 money as per the award."

He said he was shown a union pay sheet which set out the rates of pay for a casual guard grade 1. He asked "what happens if the award goes up" which the reply was "It will flow on to you". 19 Mr Cvetkovich also deposed to the following conversation: Mr England: "You will be required to register a business name or incorporate, to become a contractor. The cost to register a business name would be about $80.00. As contractor, you would be able to claim this and many other costs as a tax deduction".

Mr Cvetkovich: "I currently have an incorporated entity Vilnius Pty Ltd and it is unlikely that I will go to the expense of creating a new business name."

Mr England: "If you have that, that is even better"

Mr Cvetkovich: "Why is the job on a contract basis and not the same as the Rosebery job."

Mr England: "We stuffed up on the quote and did not make allowance for a guard."

Mr Cvetkovich: "What difference do the contractor rates make as they were basically the same as a casual employee."

Mr England: "It enables us to cut costs on various items."

Mr Cvetkovich: "Do these costs costs include payroll tax etc".

Mr Cvetkovich: "Is there was a written contract and if so can I see it".

Mr Cvetkovich: "Do you ever intend to have a written contract".

Mr England: "No". 20 Mr Cvetkovich said that when he later did a rough calculation of pay rates and decided he was no worse off than the job at Rosebery. In view of the fact it was the only permanent job offer he had been able to obtain in the industry he decided to accept it. He commenced work at Zetland the following day. He formed the view that the functions he was then trained in were identical to those of employment. There was no discretion in the performance of any tasks and he was subject to direction from the senior guard. 21 Within a couple of days the senior guard made the point that he was turning up late for work and that he was expected to be at work 10 minutes earlier than starting time for the official hand over from the previous shift. He said ". . . improve your act or suffer the consequences." 22 Subsequently, following a discussion with a senior guard, he formed the view that he was required to have his own workers' compensation cover. He took out the bare minimum cover for fear that had he not done so he would not be paid for his work. 23 At the Zetland site the shifts worked were determined by the senior guard. The guards did not have any say in who worked in their absence as only guards with security clearance could work on the site. 24 At Zetland the guards would receive regular advice of the amount of money they could claim as contractors. Mr Cvetkovich said the rates were based on the Grade 1 casual rate. The contractors input was to remind Aardvark once there was a change in the award rate. On 1 June 1992 Aardvark published a notice in the following form:

As of next invoicing period the changes we will accept from you are as follows

Guarding Monitoring M-F Day $11.91 $12.37 M-F Aft $13.56 $14.08 M-F Ngt $13.83 $14.37 Saturday $ 7.41 $ - Sunday $ - $ - P/Holiday $ 8.40 $ - (Gaps indecipherable)

Ian England 25 In relation to the December 1992 memorandum from Mr Donald (see paragraph 10 above) Mr Cvetkovich said that he asked Warren Osbourne "What is this rate cut about?" Mr Osbourne said:

"You are not entitled to the leave loading, as it could be taken that you are employees if your rate is the same as the casual employee."

"That's bullshit and if you're worried out it being the same rate as a casual, put the rate up 50 cents." 26 In August 1993 the Manpower Manager, Steve Cowell, then based at Zetland dismissed Mr Cvetkovich over an issue concerning his refusal of certain work. He was telephoned by Mr Osbourne who asked him to work at North Sydney at a defence establishment. He said the rate there was dropped from Grade 2 to Grade 1 by Aardvark unilaterally. In late November or early December 1993 a meeting of the guards was held at Zetland which was attended by Aardvark representatives Andy Bell and Steve Cowell. Mr Bell informed the meeting that the company was losing money on the contract and it had decided to use a flat rate on the Zetland site and he asked the guards to "come up with the figure you will accept for a flat rate". Eventually the guards suggested $16.60 per hour which provoked the response from Mr Bell: "But, that's is more than you are getting now."

The guards could not obtain information concerning the value of the contract, what the company was losing and any rate that might be suggested by the company which would enable it to make a profit. Mr Bell left the meeting with the intention of coming back with some figures in a week or two. 27 The public holidays over Christmas-New Year 1993 were paid at the flat rate with no recognition for the fact of there being public holidays. 28 In May 1994 Steve Cowell asked Mr Cvetkovich to do some shifts at North Sydney between the hours of 5.30pm and 10pm. He there found the rate was $12.00 per hour and said to Mr Cowell:

"that's too low, at least pay what you pay at Zetland, $13.08 an hour."

Mr Cvetkovich: "Okay. Piss off and get someone else." 29 On 23 February 1994 Aardvark circulated to contractors over the signature of Mr Michael Sutton, the Group Administration Manager (copies to Messrs Bell and Donald and two others) a memorandum in the following terms: "Due to current changes in requirements it is necessary for the format of your invoices to change as per the attached example.

Please ensure that all future invoices resemble the example attached, if your invoice does not contain the information as set out below your invoice will not be processed.

Your assistance and co-operation in the above would be appreciated."

The memorandum annexed a draft invoice form which set out details of the date work was performed, the site, job number, the time on and off and the total number of hours worked, the hourly rate and the total cost. At the foot of the invoice appeared the words "** no unpaid wages included in this invoice**". 30 Subsequently, Mr Cvetkovich performed work for Aardvark on the naval ship, Manoora at Garden Island. To his enquiry, Mr Cowell said "the rate is the same as at Zetland, $13.08/hour". When he first received payment for this work he found the rate had been cut to $12.00 per hour. Upon his again enquiring Mr Cowell said "We cut the rate back to $12.00/hour as we quoted low". Mr Cvetkovich continued to claim $13.08 per hour but was paid at the rate of $12.00 per hour. The casual work on the Manoora terminated in March 1995 when he was offered by Aardvark full time work at Randwick which he accepted. 31 With his pay cheque for this work he received a memorandum from the Group Administration Manager of Aardvark, Michael N Sutton (copies to Messrs Donald, Bell and two others) in the following terms:

Once again it has become necessary to inform all contractors of invoicing requirements to enable prompt and correct payment of all invoices. · Invoices must show correct cost centre number's (sic) · Invoices must show correct hourly rates. · Invoices must show the following statement, "No unpaid wages included in this invoice". · Invoices must be completed as per example below. · Invoices must be clearly written or typed. An invoice form according to the fourth dot point was then set out. 32 Mr Cvetkovich was not paid for any time he was absent through sickness or took other time off for a break including holidays. 33 In July 1997 the then Administration Manager of Aardvark wrote to Vilnius Pty Ltd seeking "a current copy of Certificate of Currency for Public Liability and a current copy of Certificate of Currency for Workers' Compensation Insurance "for your company"". One month later, Vilnius Pty Ltd, through Mr Cvetkovich, having chosen to ignore the first request received another request for those documents. On this occasion the request also included the following: A copy of your Security Licence and Business Registration would also be appreciated. The Respondent's Evidence 34 The principal witness for Aardvark was Mr Gordon David Mitchell Donald, the Managing Director of Aardvark. Mr Donald's evidence sought to put a very different complexion on the arrangements between Aardvark and the applicants. He accepted that Mr Leggett was an employee of his company up until 24 October 1992, that he was engaged as an independent contractor thereafter, and that he would render invoices for any services provided by him either through his business name, Tandem Security, or later his company, Harle Group Pty Ltd. He said it was part of the financial arrangement between the parties that Mr Leggett would render invoices for any services provided and be responsible for his own insurance and tax arrangements. 35 Mr Donald's affidavit evidence included the following:

"I say that Mr Leggett made a decision to terminate his employment with my company on 24 October 1992, and thereafter his services were engaged by my company providing opportunities for Mr Leggett, through his registered business name of Tandem Security, to provide his services as an independent contractor and not as an employee of any type of my company.

I say that I did not authorise or direct any person to force Mr Leggett to change the status of his association with my company from employee to contractor. I say that the time Mr Leggett chose to change his status with the company that my company still employed other persons and paid those persons on a P.A.Y.E. Basis. After the 24 October 1992, any moneys paid to Mr Leggett for services provided by him on behalf of my company were paid through his registered business name on the provision by that business name of invoice submitted in respect of work performed. The financial arrangement was that my company would pay Tandem Security for services performed by Mr Leggett as a sub-contractor, and Mr Leggett, as a person responsible for his own financial arrangements, was required to pay any taxation in respect of money earned. Since that time no Group Certificate was ever provided to Mr Leggett for any services provided, and no request for any such documentation was ever made. My company has paid no taxation moneys for or on behalf of Mr Leggett since 24 October 1992. I have perused documentation, including taxation returns, prepared on behalf of Mr Leggett which confirm that from that time either he personally or a company known as Harle Group Pty Limited was responsible for the payment of all taxation moneys payable by either Mr Leggett personally or Harle Group Pty Limited, of which Mr Leggett remains a Director, for any work performed for or on behalf of either my company or other companies or persons by either Mr Leggett or persons directly or indirectly associated with his company. Annexed hereto and marked with the letter "A" is copies of taxation returns relevant to the financial years ending 30 June 1992, 30 June 1993, 30 June 1994, 30 June 1995, 30 June 1996 and 30 June 1997, which relate to incomes received and taxation moneys paid on behalf of Mr Leggett for services he provided and income received by him during that period of time. " 36 Mr Donald annexed a series of receipts in relation to Mr Leggett's insurance cover which he said:

". . . confirm to me that he was at all times after 24 October 1992 at pains to financially protect himself, as a sub-contractor, to ensure that he was properly advised and protected in relation to the payment of tax, and also to ensure that he was fully covered in respect of Workers Compensation and Income Protection Insurance should he become injured or be disadvantaged in any financial way." 37 He said that:

"Significant financial benefits flowed to Mr Leggett after he made the decision to become an independent contractor to the company rather than an employee, and that the arrangement which he then had with my company enabled him to arrange his financial affairs in such a way as to effectively eliminate the payment by him of any tax on the moneys he received for work performed by him on behalf of my company. I say that the taxation benefits he received from this new arrangement were significantly more beneficial to him than would have been the case had he continued to be paid as a P.A.Y.E. employee of my company." 38 He said that the amount of tax Mr Leggett paid from 24 October 1992 until October 1998 had been negligible. This confirmed to Mr Donald that the applicant had been financially advantaged by the arrangement. 39 He disputed that the company had agreed to include holiday pay and the hourly rate of any person contracted to the company. He also disputed that the rates of pay paid by his company to sub-contractors was not negotiable although he agreed that it was open to any sub-contractors to refuse to accept rates of pay offered for work. The decision was theirs. 40 He said:

"I dispute the inferences contained therein that Mr Leggett was forced to work at the Zetland site. As with a number of other contractors, Mr Leggett, via his proprietary limited corporate structure, was provided the opportunity of working at the Zetland site for an agreed hourly figure, and the decision by him to personally work at that site or not was completely a matter for himself. He was not paid directly by my company but through his own corporate structure." 41 In relation to a claim by Mr Leggett that his 1993 tax claim of a deduction in respect of superannuation was disallowed, Mr Donald said that upon his perusal the reason therefore was that the taxation office "considered him to be an employee for part of the year. This was a decision which could have been challenged by Mr Leggett if he chose to do so, but apparently this course available to him was never pursued". 42 In relation to Mr Cvetkovich Mr Donald made the point that no moneys had ever been paid by Aardvark directly to Mr Cvetkovich but rather to Vilnius Pty Ltd in response to invoices received. 43 Mr Donald denied that it was not possible for Vilnius Pty Ltd to provide its own replacement guards for work to be performed under the arrangement. He said:

"Vilnius Pty Ltd, as the company responsible for the rendering of invoices and the company to which payments were made, was at all times capable of providing substitute guards for any shifts needed to be worked by individuals in respect of work undertaken to be performed by Vilnius Pty Ltd on behalf of my company. It is my companys policy to allow any contractors to be able to provide substitute guards for any shifts as might need to be arranged. Obviously, in the security industry, precautions need to be taken by my company to ensure that all persons who work security shifts are properly qualified to do so. Subject to contractors satisfying my company that any replacement guards have the appropriate qualification, there is no difficulty in such persons performing any work allocated to contractors to my company at any time. If any contractor chooses not to perform shifts or is unable to perform shifts as requested, then it is my companys obligations to provide replacement guards as required." 44 Mr Donald also said:

"I also have personal knowledge that Mr Cvetkovich, either via his company Vilnius Pty Ltd or directly as an individual has provided his services as a security guard to at least one other security provider within the security industry for a very considerable period of time, that security provider being known to me as Castile Security Pty Ltd. I say that this is consistent with the ability of Mr Cvetkovich either individually or via his company Vilnius Pty Ltd to choose for whom and at what times he makes his services available to either my own company or other security companys within the security industry." 45 Otherwise, Mr Donald's evidence in respect of Mr Cvetkovich, was consistent with that in relation to Mr Leggett. 46 In relation to Mr Cvetkovich he said:

"I can say that it can be clearly shown that through the operation of Vilnius Pty Ltd Mr Cvetkovich has been able to organise his personal finances in such a way which has required him to pay no personal tax for the financial years sighted by me in respect of which personal taxation returns have been filed by him or on his behalf. It is clear that this company has over a period of years been able to completely offset any income earned by the Directors of the company from any source against previously accrued losses which have come into existence prior to Mr Cvetkovich performing security work for Aardvark. Had he been paid at all times as a PAYE employee of Aardvark it would not have been open to Mr Cvetkovich to eliminate the payment of personal tax by him in the way that he has been able to avoid such payments through the corporate structure which he has operated through that period of time. I say that by being able to minimise his personal taxation payments in this way he has been able to provide himself with a higher amount of disposable after tax income which would not have otherwise been available to him if he had been paid by Aardvark on a PAYE basis." 47 In the course of cross-examination by Ms Brus , Mr Donald gave some instructive evidence as follows:

Q. Sometime in 1992 did you make a decision with regard to a move to contractors? A. It wasn't 1992. That has always been at the back of my mind as far as commercial sense.

Q. What was the difference between the type of work that people who were contractors and people who were employees performed? A. It was still security guarding work.

Q. Was it possible at any one of these sites you might have persons you regarded as contractors and person who were your employees working side by side on the same site? A. That could happen.

Q. And they were doing the same work? A. Yes.

Q. And they were required to work the same number of hours per shift? A. Depending on the roster.

Q. And the roster, was that determined by yourself or by the site? A. It could be dictated by the site depending on the specifics of the tender. The actual logistics of the roster would be organised from our operations centre at Marrickville which would be middle management.

Q. That exercise, that applied to both employees and contractors? A. yes.

Q. Would it be possible that a roster issued for the following week and would indicate names of persons who were contractors and names of persons who were employees? A. I didn't really see the roster.

Q. I am asking you whether you have any knowledge? A. No, I have no knowledge of that. 48 Mr Donald confirmed that employees and "sub-contractors" wore the Aardvark uniform provided by Aardvark.

Q. What was the difference between an employee and a contractor in performing security services? A. In personal performance?

Q. Yes. A. The contractors were found to be much more efficient because they had more of a job ownership as opposed to the employees.

Q. As far as your providing security services to site X, site X would not be able to tell by looking at the persons providing that security whether they were contractors or employees? A. By looking at them?

Q. Was the contractor paid more or less than the employee? A. It differed at different sites.

Q. Why was it different from site to site? A. Because, as I said, the contractor had more job ownership and a lot of times we would go to the contractor and seek a rate from the actual contractor.

Q. If I am at site X and I am an employee and I am paid an hourly rate and I go to another site as an employee, do you pay the same rate as I would have been paid at site X as your employee? A. Employees are covered by a different set of rules.

Q. Would you have paid me the same hourly rate? A. Yes. . . . . Q. And the rate for an employee, was that usually higher or lower than for a contractor? A. It was usually lower.

Q. Lower on all occasions? A. As I recall, yes.

Q. What about weekend work? A. No, it would have been - the contractor would have been lower on the weekend rates, yes.

Q. And public holiday work? A. Same thing.

Q. Any work performed on weekends or public holidays from a cost point of view to Aardvark, it would be better for a contractor to undertake that work than an employee? A. Commercial sense, yes. 49 Mr Donald suggests that the normal position was for contractors to be the subject of a written contract, copies of which they would obtain. In relation to that matter Mr Donald gave this evidence:

Q. Was there ever any provision within that written contract whereby Aardvark could arbitrarily reduce an hourly rate? A. No.

Q. If there was an occasion whereby the hourly rate was reduced, according to your knowledge of the written contracts, that would be contrary to the contract? A Yes.

Q. How would it impact on Aardvark if an individual chose not to incorporate and chose not to go into partnership? A. He could be deemed to be an employee if he wasn't.

Q. If he was deemed to be an employee, what would that mean to Aardvark? A. That he would come under a different set of conditions under the award and not a contractual arrangement.

Q. That would mean higher pay? A. From on-costs --

Q. And those costs would include things such as superannuation and workers' compensation? A. Yes.

Q. So it was financially advantageous for you to put your contractors in a situation where they incorporated or entered into a partnership? A. Out-sourcing is always more beneficial than employees. 50 In relation to the letter dated 7 December 1992 which reduced the rate by removing a one-twelfth loading, Mr Donald's evidence was:

Q. So in 1992 you elected not to absorb or retain a 1/12th loading that had been previously paid to your contractors? A. That's right.

Q. how did you negotiate that reduction in the hourly rate with your contractors? A. I sent them this letter.

Q. Is that the extent of the negotiations? A. From memory I think it was, yes.

Q. If one of them had objected to this arbitrary 1/12th decision to reduce their pay, would you have negotiated an increase? A. Yes.

Q. Did anyone do that? A. To my knowledge, no.

Q. So they all accepted the 1/12th reduction? A. Yes.

In relation to the letter, which was headed "Contractors Accepted Hourly Invoice Rates" this evidence followed: Q. How did this process of acceptance transpire? A. I should imagine at that date Steve Cowell would have negotiated with the contractors.

Q. You had no personal knowledge of such negotiations taking place? A. No.

Q. You are assuming they took place? A. That's all I can do.

Q. Would you be surprised if there were no negotiations? A. I would.

Q. And that if this was a decision you or Aardvark imposed on the contractors you would be surprised? A. That is not our policy.

Q. If anybody who had been previously contracted by Aardvark accepted those rates, that would not cause you a problem? A. They had the option of working for us and engaged by us at rates commanded and if they did not accept those rates that was the option of the contractor.

Q. It was a take it or leave it situation, this is what we are prepared to pay? A. That's correct.

Q. You didn't think the same with employees, did you, because an employee was required to be paid in accordance with the industrial award? A. That's right. 51 After referring to the shift in status of an employee to one of independent contractor this question was asked: Q. Apart from that title and the method of payment, did anything else change with regard to the way Mr Leggatt (sic) performed his duties? A. Personally I wouldn't know ma'am.

Q. Mr Leggatt (sic) wasn't the only person who went from the employee to contractor status? A. That's true.

Q. To the best of your knowledge did anything change with regard to these people who were formally (sic) employees who then became contractors in the way in which they carried out a service for Aardvark Services? A. Service no, the method of payment changed.

Q. That is the only thing that changed? A. That's correct. 52 Ms Brus then turned to the notion of an agreement between Aardvark and each contractor and Mr Donald's non-participation in the making of any such agreement. This question was asked: Q. If you were not involved in those negotiations, how can you say there was such an agreement? A. Because every contractor has an agreement to sign.

Q. But you were not involved in the discussions with Mr Cvetkovich? A. No, that's true.

Q. You haven't personally sited (sic) a written contract for Mr Cvetkovich? A. That's true.

Q. So you don't know whether that agreement was in fact reached? A. Using your words, you are quite correct.

Q. Because you say that there was an agreement reached; you have agreed with me on a mutual understanding that agreement implies mutuality, a mutual understanding? A. Right.

Q. For that mutual understanding to have taken place, Mr Cvetkovich must have indicated that to your company? A. He would have indicated it by continually providing a service to us as well.

Q. Even if he did not have any choice? A. Well, contractors always have choice and employees have choice whether they elect to continue to be engaged or employed by a company such as ours. The choice is always theirs. 53 Mr Donald was questioned about Aardvark's contract to provide services in relation to the HMAS Manoora, a 1994 contract which was in evidence which appeared to show a rate of $17.50 per hour payable to Aardvark. Mr Donald indicated that the percentage of profit of the hourly sum would be of the order of 5 per cent or 85 cents. His evidence continued:

Q. So, you were prepared to take a profit of 85 cents per hour? A. Yes ma'am.

Q. If you were paying your contractors $13 an hour, where does the $4 an hour that's left over become absorbed? A. Administration costs.

Q. Yes. All in administration costs? A. That's the main expenditure a business has over its costs of labour. 54 Later this evidence was given in relation to the return to Aardvark:

Q. If a situation had arisen where you had made a miscalculation on quoting the price for provision of a service to a site? A. Right.

Q. And you had discovered that your five per cent profit was in fact going to be somewhat less than that, would you take steps to try and protect that profit margin? A. Yes.

Q. And what steps would you take? A. They are numerous. We have looked at administration costs. We could go back to the actual client. That's basically it.

Q. Or you could reduce the rate you pay to contractors? A. Commercial suicide.

Q. You say you never reduced the rate you were paying to your contractors? A. Sites are different. Rates would be deemed to be reduced if one moves from one site to another site.

Q. Sticking with the Zetland site for the time being? A. Hmm.

Q. Are you saying the rate payable to contractors at the Zetland site was never reduced? A. I am not saying that at all.

Q. Are you saying that it was reduced? A. I am not saying that. I didn't have anything to do with that site or that meeting you have been speaking of. I read it in the affidavit.

Q. You have no knowledge of whether the rate payable to contractors was reduced or not at the Zetland site? A. That's correct.

Q. And presumably the only person who would, would be the person who negotiated the rates payable to the contractors? A. That's correct.

Q. That would be Mr Bell? A. Or middle management.

Q. Or middle management? A. Yes.

Q. None of whom work for you any more? A. That's correct. 55 In relation to subcontractor's providing their own replacements this evidence was given:

Q. When contractors worked for you, were they able to decline work on offer and say have a fortnight's holiday? A. Yes ma'am.

Q. And if they wanted to are you saying that they can get somebody else to come and work their shifts for them? A. As long as that person they engaged on that shift had a security license (sic), yes.

Q. If that person was engaged on that shift, who do you say engaged them? Was it yourself or was it the contractor? A. The contractor.

Q. And do you know what arrangement this person entered into with the contractor with regard to the rate that they were paid? A. No ma'am.

Q. Well, using your five per cent profit margin, if a security contractor who was contracted with your organisation wanted to subcontract that contract, they would be doing it presumably with a profit in mind? A. That was their own personal commercial arrangement.

Q. But they would have to pay less than what you were paying them to realise that profit; wouldn't they? A. I don't know how they run their business.

Q. But it is a simple mathematical equation. If you are paying them $10 an hour and you are making a five per cent profit on that $10 an hour and they substitute somebody to work their shift on that basis, then they would have to pay less than the $10 an hour that they are going to receive from you to realise a profit? A. They may elect to pay $12 an hour hypothetically to subscribe to their holiday or break.

Q. If they want to make a profit, they would have to pay less? A. If they want to make a loss, they pay more.

Q. But if they want to make a profit, they pay less? A. mathematically they are both correct.

Q. Yes. If they employed that person to carry out their duties, they would be obliged to pay the industrial award; wouldn't they? A. If they employ them, I should imagine they would.

Q. Otherwise they would have to engage this person as a subcontractor to the subcontractor? A. They could do that. 56 Dealing with the fact that rates varied for subcontractors from site to site this evidence flowed:

Q. So that person is paid a lower rate because of some commercial condition completely outside his control? A. Or ours.

Q. Or yours but certainly outside the control of the contractor? A. That's correct.

Q. What about an employee on one of these differential sites? A. No he is totally disadvantaged.

HIS HONOUR: Q. When you say the employee is totally disadvantaged in that context, do you mean he is priced out? A. No, I didn't use the word total. He is disadvantaged.

Q. I thought you used the word, the employee I thought you said was totally disadvantaged? A. In the comparison you mean?

Q. Do you mean he is priced out of such a job? A. Yes. 57 Mr Donald was cross-examined about a New South Wales Government proposal to have subcontractors in the security industry deemed employees. This evidence flowed:

Q. One of the issues here is the deeming clause means contractors will for certain purposes be regarded as employees? A. That is correct.

Q. The greatest impact to Aardvark is you will have to pay the contractors more money? A. The greatest impact to the industry, not just Aardvark.

Q. To Aardvark it would have a financial detriment? A. It will have a detriment to the whole industry.

Q. But it will have a detriment to Aardvark? A. And everybody else.

Q. Indeed back in 1992-93 when Mr Leggatt (sic) became a contractor you gained a financial benefit from that? A. That is correct.

Q. And when Mr Cvetkovich joined your organisation as a security guard rather than as an employee as you say, that was financially beneficial to you at that time because you could pay him a lower rate? A. It was commercially responsible to do so.

Q. It was still beneficial to you from a financial point of view? A. Certainly outsourcing is. 58 Mr Donald also disputed Mr Leggett's view that he had been approached by Mr Osbourne who encouraged him to think that it was necessary to alter from employment to a principal/contractor relationship. Mr Donald's evidence was:

Mr Leggett instigated those discussions. He asked to have a talk with me, and as I said the door is always open, and he come to see me (sic). 59 He also disputed Mr Leggett's evidence that he never received a written contract and claimed that he had given him a copy with a suggestion that he take the document away to a solicitor or accountant of choice. 60 In relation to the $17 per hour rate paid to Aardvark in relation to its defence contract work, Mr Donald accepted that the profit per guard would be of the order of $126 per week with administration costs of $648 per week per guard. He explained that it was necessary to pay a full-time supervisor on that site which defrayed those earnings, the cost of a supervisor not having been factored into the contract. 61 In re-examination Mr Donald also developed his reference in cross-examination to the notion of "commercial suicide" this way:

A. If the contractor is not paid, certainly at a rate which is acceptable to the contractor, and secondly paid promptly when his invoice arrives, the contractor will not perform the services required. He will not stay with the company. So therefore it puts my company at risk. It also puts the contractor at risk. If he leaves me he may go somewhere else, or he may lose his engagement, but the contractor has to be comfortable with the rates that he has supplied to us, and we have to be comfortable with the service level that he provides. 62 He also developed the meaning of the phrase "greater job ownership" this way:

A. The contractor tends to take more responsibility on-site than an employee. He tends to be more reliable on-site. His service levels, I would suggest to you, are better than an average employee. So we use the terminology of "job ownership", "site ownership": He gets involved with the site, and that is very important.

Q. . . . Based on your experience and the answer you have just given, how do you compare contractors with employees? A. They are much more reliable; they give better service levels; appearance-wise; in every shape or form I feel the contractor does a much better job than an employee. 63 Aardvark relies upon the evidence of Artin Etmekdjian, chartered accountant, who is a member of the Institute of Chartered Accountants, a registered tax agent and a Justice of the Peace as underpinning the proposition at the heart of Aardvark's case. He is the principal of the firm Etmekdjian & Company of Chatswood and Parramatta. He has been the Chartered Accountant and Financial Advisor to Aardvark since 1997. After examining relevant financial accounts, including tax returns of the applicants and their corporations, Mr Etmekdjian said in relation to Mr Leggett:

"I can say that it can be clearly shown that through the operation of, initially a registered business name by Mr Leggett, and subsequently through the operation of Harle Group Pty Ltd, Mr Leggett has been able to divide the income he has received in each year financial year to effectively ensure that a minimum amount of personal tax has been paid by him each year when compared with those amounts he would have been otherwise required to pay had he received moneys from Aardvark as a PAYE employee. I say that by being able to minimise his personal taxation payments in this way he has been able to provide himself with a higher amount of disposable after tax income which would not have otherwise been available to him if he had been paid by Aardvark on a PAYE basis." 64 There is also short evidence from Andrew Bell, the General Manager of Aardvark. Mr Bell swore two affidavits on 16 October 1998, each of which were filed in the proceedings one relating to Mr Leggett and one relating to Mr Cvetkovich. In that relating to the former, Mr Bell described himself, perhaps in a freudian slip, as "company director" but in that relating to Mr Cvetkovich as "general manager". Each of those affidavits commenced with the following first paragraph:

I am contracted to the Respondent in these proceedings Aardvark Security Services Pty Ltd as the General Manager of that company.

Mr Leggett specifically chose to become a contractor to the company, rather than continue as an employee, because of the financial benefits which would flow to him under that new financial arrangement. 66 He contended in relation to Mr Cvetkovich that he had always been an independent contractor and in relation to the December 1993 meeting of security guards at Zetland he said:

. . . . my clear recollection of the way it was conducted and its outcome differs from the contents outlined in those paragraphs of Mr Cvetkovich's Affidavit. It is my recollection that while no firm decision in relation to a set rate to be paid to contractors for work performed in that site was reached at that meeting, this was subsequently agree (sic) to by all contractors who continue to work at the site and Aardvark Security Services Pty Ltd management. 67 In his oral evidence Mr Bell had difficulty establishing that the rates of pay had been "negotiated". The following evidence in relation to questions from the Court illustrates this point:

Q. With respect to the September 1993 meeting you said in your affidavit, Exhibit 22, and in response to Mr Bennett, you said the outcome of the meeting a flat rate was negotiated. A. Yes.

Q. You mentioned that there was heated discussion? A. Yes, there was heated discussion - when I say heated, the heat was about how we were going to resolve the problem. There was lots of talk about it, about how we were going to resolve the problems.

Q. You said there were a lot of options? A. Another one was to look at the different hours, different types of hours. Another one was to go to the Defence Department and tell them the contract wasn't viable, hand their contract back, go to them and vary the hours so we reduced the amount of hours they worked at the site, the normal sort of things.

Q. Were they discussed at this meeting? A. Yes, they would have been.

Q. And the net result of it was you were told where to go? A. Yes, that's it. Yes that is true.

Q. When you say a flat rate was negotiated, do you mean by that that after the flat rate was instituted nobody came to talk to you about it individually and therefore it was accepted, the flat rate was accepted, is that what you mean? A. That is what happened. 68 He also gave evidence of a written contract being in existence as a normal event between Aardvark and the guards. He indicated the contract was of 8-10 pages length but that it did not normally set out rates of pay, these varying between sites. He said he had seen such a contract between Aardvark and Harle Group Pty Ltd. 69 There are some glaring variations between the evidence of the applicants and Aardvark. Perhaps the following four suffice for present purposes:

1. The question of the existence of a written contract between Aardvark and the corporations associated with a security guard or guards, a fact which the applicants denied. The applicants claim there was no such contract; Messrs Donald and Bell contend to the contrary, yet no such contract with respect to Harle Group or Vilnius has been produced in evidence. There has been no production of even a form of the contract which it is contended has been widely used in these "commercial relationships". I find I prefer the applicants' evidence on this point;

2. The proposition advanced for Aardvark that an aspect of what he called commercial suicide was the late payment of guards. The evidence of the applicants was that the guards as a group had been seeking a regularity of pay day which they had been unable to achieve and that this was a continuing source of difficulty and contention. Again, I prefer the applicants' evidence in this regard;

3. The proposition advanced by Aardvark that the relationship between Mr Leggett and Aardvark as a contractor was one instigated by Mr Leggett. I find this evidence unbelievable;

4. The idea that there was any negotiation involved in the rates of pay received by guards. What was described in the evidence was either a take it or leave it proposition or a "we'll get back to you" suggestion which led to nothing. This does not reflect negotiations in any sense that I understand; 70 The proposition for Aardvark is that the net benefit to the applicants was not less than the net benefit an employee would receive. While that may be so, by this process it seems to me that Aardvark has effected a transfer of the liability which would attach to employment, to a taxation arrangement which is said to be perfectly legitimate but with a tax minimisation element which may leave the guard in a position of no or little disadvantage. Put another way, the ordinary and usual costs of employment are simply avoided. While this may be commercial good sense from Aardvark's point of view, it seems to me to fall clearly within the scope of the provisions of s105(c) and (d) of the Act. These contracts or arrangements are distinguishable from employment in only one respect - the lower rates of remuneration and the absence of other conditions of employment. It is no answer to the absence of, for example, annual leave payments, to say, as does Aardvark, that is a matter for the subcontractor's company to cater for. If the remuneration cannot, in gross terms, satisfy the needs of the guard's corporation to satisfy its liability as an 'employer', the position is, both in theory and practice if this scheme be legitimate, incapable of giving to the person performing the work a reward for effort consonant with ordinary industrial standards. 71 This point is driven home by the idea the guard when absent might supply a replacement guard for whom a liability for employment might arise: the liability would necessarily exceed the income earned. 72 The question arose whether these arrangements are shams, as Ms Brus suggested at one stage of the case. However, that was not treated as an issue necessary to be determined. Nevertheless, Wilcox CJ held so in relation to a similar arrangement involving the guard with whom Mr Leggett established Harle Group Pty Ltd. That person, Richard Hartnett, was a radio room operator whose relationship with Aardvark was terminated. A claim for compensation was brought in respect of an alleged breach of Div. 3 of Pt VIA of the Industrial Relations Act 1988 (Cth). In judgment on a review of the decision of a Judicial Registrar (which held in favour of the breach claimed and assessed compensation) Wilcox J in the Federal Court (1998) 85 IR 315 said :

First, it is common ground that the relationship commenced in May 1991, when Mr Hartnett was employed as a security guard, in the ordinary sense of the word "employed". In other words, it is conceded by Aardvark Security Services that, at that time, there was an employer/employee relationship. Mr Hartnett was directed to various jobs, where he had to carry out guard duties on behalf of customers of Aardvark Security Services. The location of his work varied from time to time and the hours were irregular. He was apparently paid on the basis of the award which provided a particular rate, I gather about $11.00 per hour, for ordinary time and something like $17.00 per hour for overtime.

Late in 1992 Mr Hartnett was told he should submit invoices as a contractor and that for this purpose he should register a business name. Mr Hartnett made it abundantly clear in his evidence that he was reluctant to take this course and he did so only because he was given to understand that, if he did not, there would be no more work for him. He said that, at the time, there was a recession and he did not have many options. He also referred to the fact that other employees felt the same pressure and took the same course.

Some time later, apparently in 1993, Mr Hartnett was informed he ought to form a company. There is some documentary support for this statement. He says he resisted doing so for some time, apparently for about three months, and finally did so after he was told that, unless he had formed a company by a particular date, there would be no further work. On the day before the deadline, a company called Harle Group Pty Limited was incorporated. The directors of the company were Mr Hartnett and Mr John Leggett, who was a fellow security guard employed by Aardvark Security Services and apparently a friend of Mr Hartnett. Thereafter, invoices were submitted in respect of the work done by Mr Hartnett in the name of Harle Group Pty Limited.

Mr Hartnett said one effect of the change that commenced in late 1992 was that, instead of a differential hourly rate according to whether the work was ordinary time or overtime, there was a flat rate. Initially, he said, this was about $18.00 but then it was unilaterally reduced to $13.00 and eventually to $12.00. He claims the result was he was worse off than he had been when working under the award.

Mr Hartnett said nothing changed when the company was formed, in the sense that he was still subject to direction as to his duties, both as to location and time, in exactly the same way as previously. At no stage did Mr Hartnett contribute anything other than his personal services; he did not supply equipment or the services of anybody else, he simply worked as directed. He worked in a uniform supplied by Aardvark Security Services and carried out such instructions as he was given, in exactly the same way as when he was concededly an employee.

It seems to me the case in favour of the proposition that Mr Hartnett was at all material times an employee of Aardvark Security Services is overwhelming. If one applies the tests laid down in the authorities and looks at the nature of the services rendered and the matter of control, one finds he did nothing more than any employee would do - namely he provided his own services and nothing else - and he worked under the detailed control of a superior officer.

It is obvious that those associated with Aardvark Security Services thought there was some advantage to them in erecting a facade of an independent contractor relationship and, for reasons which escape me, having the independent contractors incorporate themselves; but this cannot affect the reality of the situation. The only ground which is advanced as an issue in the review fails. In my view the application for review should be dismissed. This will have the effect that the order of the Judicial Registrar will be confirmed.

It would appear difficult to distinguish the evidence in Hartnett's case from that before me, no doubt for the reason that the two matters have developed from similar circumstances. However, the issues now before me do not require a judgment to like effect; the power available under s106 does not depend upon employment and so the question does not strictly call for an answer. By reason of Aardvark's concession, and the judgment to which I shall now refer, I consider that the issues now before me may be resolved without a necessary finding as to employment. 73 Section 105(d) has been held (in the context of s.88F(1)(e) of the Industrial Arbitration Act 1940) to operate in respect of employment contracts. However, in Huskisson RSL Sub-Branch Club Limited v Sullivan 1990 32 IR 404 the former Commission in Court Session ( Fisher P, Hill & Hungerford JJ) the point was made that s88F(1)(d) was not simply an alternative remedy to that provided by s92 of the 1940 Act for the recovery of unpaid wages due to an employee; some additional characteristic was necessary to bring it within s88F. That case involved undisputed facts concerning the legal relationship between the parties as to which the Commission in Court Session said (at p.414.7):

The present is a case which, prima facie, falls within both s92 and s88F. There is no doubt that the respondent could have brought an action under s92 having regard to the fact that he was an employee and that the award applied to his employment. The sorts of issues raised are ones not infrequently arising in s92 cases, namely, was the worker an employee (and not an independent contractor) and, if so, was the award claimed to apply applicable to the employment and had there been smaller payment to the employee than that due under the award. If the answers to each of those questions is yes, the existence of an agreement providing for payment of lesser wages is irrelevant. The section expressly deals with that matter. It is a non-issue.

On the other hand, there is no doubt that the present action is also within the literal terms of s88F(1)(e) - the contract is one designed to avoid the provisions of an award by purporting to constitute the respondent an independent contractor, and not an employee, and providing for a lesser wage than that prescribed by the award.

The present contract or arrangement falls within the specific and literal terms of s88F(1)(e) in that it "was designed to . . . avoid the provisions of an award". It is difficult to see what force this provision of the statute could have if it did not apply in this type of case. Indeed, it was open to his Honour to determine the application on the basis of that provision alone - without entering, as he did, upon inquiry as to whether it did avoid the award or whether it failed to do so, and that, as a consequence of the failure, s92 applied. 74 That reasoning applies with equal force in the present case. 75 I find that, on the evidence in this matter, the concept of substituting independent contractors for employees was one which was devised and promulgated by Aardvark. Mr Donald's evidence that he found contractors preferable to employees because they were more effective in the sense that they had "job ownership" and that it made "commercial sense" for Aardvark to utilise contractors rather than employees puts paid to the idea that this was not Aardvark's concept. I reiterate his evidence in answer to the question whether in 1992 he made a decision to move to contractors; he said "It wasn't 1992. That has always been at the back of my mind as far as commercial sense" (sic). It is impossible to believe that a situation which could operate to such significant advantage for Aardvark could have been conceived by Mr Leggett and proposed by him to Aardvark. It is to be remembered that the minimal hourly rate received by him and other guards was a constant or flat rate whether it was being performed at the weekend or on public holidays or during the week. There was no payment for annual leave, sick leave or long service leave. These differentials between the rights of employees and the guards involved in these proceedings were costs which in substance Aardvark was able to avoid. This was the commercial sense or advantage to which Mr Donald referred. 76 Further, the arrangement only had a prospect of breaking even with the benefits of employment under an award if the tax minimisation programs were put in place and successful. This was something which appears to me to have advantaged nobody but Aardvark. 77 The contract or arrangement which bestowed these benefits upon Aardvark was in my view necessarily one which was designed to and did avoid the provisions of an industrial instrument within the meaning of s105(d). If one looks at the income earned by a guard as being the payment made to the guard's corporation according to the invoices there is no question that the total remuneration received according to those invoices is less than a person performing the work would receive as an employee performing the work within the meaning of s105(c) of the Act. 78 In this case I conclude that the applicants have satisfied the primary question of liability. I find the contracts or arrangements under which the applicants were provided to perform the work of security guards on behalf of Aardvark to be unfair contracts within the meaning of s105 of the Act. It remains to consider the supplementary question posed: would the Court decline, in the exercise of its discretion, to make any order? 79 The question of discretion involved in the contemplation of an order in a case such as this is not without difficulty. Were the applicants to benefit to the full extent of their claim, that is to say by receiving a compensatory order which was based upon the gross entitlements of employees, there is no doubt they would have been considerably advantaged over an employee performing the work, by virtue of their taxation arrangements. Mr Etmekdjian's evidence makes this point. However, if the effect of an employer's obligation to an employee is to pay wages in gross terms, with a deduction and transfer of tax to the Commissioner for Taxation, that must be the obligation with which s105(c) is concerned. There is, in my view, no basis for, in effect, exempting Aardvark from its obligations unless, as indeed Aardvark contends, the effect would be a gratuitous windfall for the applicants. 80 I am concerned that the applicants should not be permitted to "double-dip" by receiving employee (PAYE-type) levels of income while also maintaining the past tax advantages from the use of their corporate structures. The consequences of any order in that respect have not been addressed in the proceedings so far. 81 In the exercise of discretion, I consider the applicants are entitled to the benefit of an order which would compensate them for any shortfall as against the income at award level of an employee performing their work. That shortfall should be discounted to the extent that the structural arrangements of the parties' relationships gave the applicants a financial benefit which is immutable; that is, which is not reviewable or will not be reviewed by the Commissioner for Taxation. 82 I direct the parties to confer on that issue and to report the result thereof at a time and date to be fixed.

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