Maestrale & Anor v Australian National Security Pty Ltd t/as All Night Security & Ors

FIRST RESPONDENT Australian National Security Pty Ltd t/as All Night Security PARTIES: SECOND RESPONDENT Fiance Pty Ltd

THIRD RESPONDENT AFJ Holdings Pty Ltd

FOURTH RESPONDENT Alfio Peter Merlino

CATCHWORDS: Unfair contract - Security guard - Services provided through business as sub-contractor - Remuneration less than employee would receive performing the work - Whether contract designed to or did avoid award - Whether employee or independent contractor - Whether award applied to applicant - Whether if award did apply Commission had jurisidction to hear application pursuant to s 106 of the Industrial Relations Act 1996 - Whether remedy provided by s 365 of the Industrial Relations Act 1996 - Delay in bringing application - Discretion - Held contract unfair - Contract designed to, and did avoid the provisions of an industrial instrument - Costs

Industrial Arbitration Act 1940 LEGISLATION CITED: Industrial Relations Act 1996

A & M Thompson Pty Ltd and others v Total Australia Ltd [1980] 2 NSWLR 1 ACE Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420 Agius v Arrow Freightways Pty Ltd [1965] AR (NSW) 77 CASES CITED: Brown v Rezitis (1970) 127 CLR 157 Davies & Anor v General Transport Development Pty Ltd & ors [1967] AR (NSW) 371 Huskisson RSL Sub-branch Club Ltd v Sullivan (1990) 20 NSWLR 332

HEARING DATES: 10/04/2005; 10/05/2005; 10/10/2005

FIRST APPLICANT Mr M Potts of counsel Solicitor: Mr A Mednis MacElbing, Mednis & Associates

SECOND APPLICANT No appearance

FIRST RESPONDENT LEGAL REPRESENTATIVES: No appearance

SECOND RESPONDENT No appearance

THIRD RESPONDENT No appearance

FOURTH RESPONDENT Mr R de Meyrick of counsel Solicitor: Paris Carr Paris J Carr & Associates

• 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

ROSETTA MAESTRALE & ANOR v AUSTRALIAN NATIONAL SECURITY PTY LTD T/AS ALL NIGHT SECURITY & ORS

Application under s 106 of the Industrial Relations Act 1996

1 On 31 August 2001, Rosetta Maestrale, the first applicant and ICU Security Pty Ltd, the second applicant, commenced proceedings pursuant to s 106 of the Industrial Relations Act 1996 ("the IR Act") against the Australian National Security Pty Ltd t/as All Night Security, the first respondent, Fiance Pty Ltd, the second respondent, AFJ Holdings Pty Ltd, the third respondent and Alfio Peter Merlino, the fourth respondent. The second applicant was not represented in the proceedings. The fourth respondent was a director of the first, second and third respondents, all of which were de-registered in 2003, 1995 and 1998 respectively. At various times, each of the respondent companies traded as All Night Security. 2 The first applicant, from time to time, performed work through a private business structure, Maestrale Security, and subsequently a private corporate structure as a sub-contractor, or as a contractor for the various corporate respondents. The arrangement with Ms Maestrale has been discontinued. 3 The claim for relief was 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 IR 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". Background and Evidence 4 All Night Security was, on the evidence, a substantial operator in the security industry providing security guards under contract to various clients. The first applicant was engaged in that work for a number of years commencing as an employee for All Night Security on 3 April 1993. 5 Ms Maestrale is 39 years of age, and after leaving High School, obtained an apprenticeship in upholstery and cabinet making which included a period of work with Co-design Artese at Lidcombe. In about 1992, she obtained her security licence. In early 1993 Ms Maestrale became aware, through her brother, Aldo Maestrale, who was a security officer for All Night Security, that positions for security officers were available with that organisation. She went with her brother to the office of All Night Security at Burwood and was introduced to Mr Alf Merlino, whom she had been told was the person in charge of All Night Security. Ms Maestrale's affidavit evidence regarding the meeting was as follows: Mr Merlino said: "How often can you work? When are you available?" At the time I was unemployed and said: "Anytime weekdays, weeknights and weekends." Mr Merlino said: "Ok you will require to get yourself a pair of navy blue trousers and two light blue shirts like the police use." I said: "Where should I get them?" He said: "Down at the Disposal Store on Burwood Road." … Mr Merlino said: "I've got plenty of casual work available, in the meantime you can start to buy your trousers and shirts. When you buy the uniform just stop by the office to show me and I'll have the patches ready for you." 6 At the time there was no discussion concerning rates of pay, or hours that may be available. Nor was there any mention of any award or whether Ms Maestrale would have to join a union. 7 A couple of days later, after Ms Maestrale had purchased the trousers and shirts, she advised Mr Merlino that she was ready to commence work. In about late March, Ms Maestrale stated that Mr Merlino advised her that she would start work at Holroyd High School on a weekend shift, 6:00 pm to 6:00 am with another officer. She was directed to attend the office of All Night Security to pick up a two way radio and to receive instructions of what she was to do. Mr Merlino gave her the following instructions: "Your call sign over the radio is Golf 404, radio in to base when you arrive on site. You'll be on the outside, you have to do external perimeter foot patrol checks every hour and move on anyone who enters school grounds and fill in the occurrence activity report sheets I have there with the day guard. At 0600 hours I'll have another guard relieving you, don't leave the site until your relief guard arrives." 8 Ms Maestrale was required to wear a shirt with All Night Security patches attached to it. Ms Maestrale worked on 3 and 4 April 1993 at Holroyd High School. She was required to attend the premises in her own vehicle after picking up the two way radio from the office of All Night Security at Burwood. After the completion of one week's work, Ms Maestrale enquired of Mr Merlino as to when she was going to be paid. Mr Merlino informed Ms Maestrale that she would be paid on a fortnightly basis and asked her to write her name and hours on a sheet of paper and hand it to the office advising that it would work out to be $9.00 per hour cash. 9 Ms Maestrale's evidence was that there was no discussion about penalty rates or any other allowances for working on weekends, or about tax being taken out of the $9.00 hourly rate. Her initial understanding was that the amount of $9.00 per hour was the nett amount, after the deduction of tax. 10 During this period, Ms Maestrale's brother was also performing static guard work at various locations for All Night Security. At the conclusion of the fortnight ending 16 April 1993, Ms Maestrale and her brother each handed in a sheet of paper detailing their hours worked during the previous two weeks. Payment was withheld for that particular pay period. This resulted in Ms Maestrale and her brother having a discussion on 6 May 1993 with Mr Merlino who said: "Aldo and Rose, to continue to work for All Night Security, you will have to register a business name. It's only going to cost you $75.00." Ms Maestrale asked: "What $75.00 each?" He said: "No, you can both have just one registered name." Ms Maestrale said: "Why?" Mr Merlino said: "That's how everyone does it. That's how you've got to do it to continue working for me." My brother said: "Well what business name do we register?" He said: "Just use your surname, 'Maestrale Security." "Here's a business name registration form. Fill out the form now and I will sign as the JP witness for you." 11 Ms Maestrale deposed that from 24 April 1993 until 28 May 1993 she was required by Mr Merlino to issue invoices in the name of Maestrale Security for all work that she did for All Night Security. She would receive fortnightly cheques in payment from All Night Security in the name of Maestrale Security. During this period she was still generally only working three to four days a week including weekends. The hours varied between 20 and 30 hours per week. 12 In about mid July 1993, Ms Maestrale asked Mr Merlino when she would be provided with her group certificate to put her tax through. Mr Merlino said: "We don't issue you with a group certificate you have to pay your own provisional tax. You're a contractor. You had better go and see an accountant." 13 Ms Maestrale's evidence was this was the first time that she had been made aware that she was a contractor and not an employee of All Night Security. Upon becoming aware that she was required to pay her own provisional tax, she made an appointment to see her accountant, Paul Sayer. During the period between 29 May 1993 and 11 June 1993, Ms Maestrale received a cheque for payment for work done for All Night Security from a company called Davonsa Pty Ltd. In mid June 1993, Mr Merlino advised that she was to make her invoices out to Fiance Pty Ltd which she did and was paid by cheque from the second respondent. 14 Ms Maestrale's evidence was that from about April 1993 to the end of June 1993, her hours varied whereby she would regularly work between three and seven days per week. During weekdays she would generally work four to eight hours shifts and on weekends, she would work six to 12 hour shifts. She continued to be paid $9.00 per hour for all shifts both on weekdays and weekends. On average during this period she was working 25 to 30 hours per week. 15 In about June 1995, Mr Merlino directed Ms Maestrale to direct invoices to AFJ Holdings Pty Ltd, the third respondent, which she did and she was paid by cheque from that company. However, despite the change in the name of the company from whom she was receiving payments, she continued to perform the same work that she had been performing prior to the change, namely, as a security officer for All Night Security. She was paid under the same terms and conditions as she had been previously by All Night Security. 16 In about July 1995, Ms Maestrale had a conversation with Mr Merlino in which she advised that she was not happy paying provisional tax. Ms Maestrale deposed that Mr Merlino had said that she shouldn't be paying any taxation because, as a business, she should be claiming a loss. Mr Merlino suggested that she set up a company and see his accountant, Max Raiola, and work it out. Mr Merlino's accountant recommenced that she set up a company structure to eliminate paying provisional tax and pay "PAYE" tax and continue to perform her security officer work through that company structure. As a result of this advice, Ms Maestrale, together with her brother, purchased a company named ICU Security Pty Ltd, the second applicant. This company was sold by Ms Maestrale on or about 30 June 2000. 17 From approximately September 1994 to February 1995, Ms Maestrale was averaging approximately 40 to 50 hours work per week. She was still not paid any additional amounts for overtime, weekend, or public holiday work, nor did she receive any allowance for providing her own vehicle or uniform. 18 In early 1997, as a result of a conversation with a security officer, Ms Maestrale became aware that there was an award which sets out rates of pay and conditions for security officers, and of a union that represents security officers, the Federated Miscellaneous Workers' Union of Australia, New South Wales Branch. Ms Maestrale made contact with that Union and was provided with a copy of an Award ("the Security Industry (State) Award"). Ms Maestrale ceased to perform security work for All Night Security on 31 August 1995. During the period of Ms Maestrale's engagement, she did not take, nor was she paid any annual leave or superannuation contributions. 19 Ms Maestrale provided a schedule setting out amounts that she should have been paid pursuant to the Award. This document had been prepared from the invoices provided to All Night Security. 20 Ms Maestrale's evidence was that it was Mr Merlino who determined the manner in which she was required to perform her work and where the work was performed. She gave an example of working at the Apia Club, Leichhardt. At the commencement of the shift, Ms Maestrale stated Mr Merlino gave her instructions for the site and appointed her leading hand for the night. During one of the subsequent shifts at the Apia Club, it was Ms Maestrale's evidence that she worked with Mr Merlino, John Mangano and her brother Aldo Maestrale. At one stage during the evening, Ms Maestrale saw Mr Merlino and Mr Mangano sitting in a car. Ms Maestrale remarked: "Oh, this is nice, while we're getting cold, you're warm in your car." Mr Merlino replied: "That's cause (sic) I'm the boss." 21 Ms Maestrale stated that in about February 1994, Mr Merlino trained her to do cash-in-transit runs at various locations including the Mt Druitt and Campbelltown areas. Mr Merlino took her to various sites introducing her to clientele and showing her where she was to perform her work, the time and place where she was required to pick up the money and which bank the money was to be deposited. In about August 1995, Ms Maestrale stated that Mr Merlino arranged a staff meeting which was held at the office of All Night Security. All security guards were present and Mr Merlino informed staff that he had fired a guard for sleeping on the job at Capitol Motors, Auburn. Ms Maestrale recalled Mr Merlino saying: "… When you're wearing my uniform you are working for me. These All Night Security badges represent my face on your shoulders." 22 Ms Maestrale's evidence was that she and her brother did not engage in any other security subcontract work. She agreed that she had been employed by Australian Entertainment and Concert Security and paid an income. 23 The first applicant's brother also gave evidence. Mr Maestrale's evidence was that he worked as a security guard for the first, second and third respondents between January 1993 and May 1997. Mr Maestrale commenced proceedings against the four respondents together with an additional respondent, Integrated Services Pty Ltd in 1999 pursuant to s 106 of the IR Act (CT 2281 of 1999). 24 This matter settled at conciliation. Much of Mr Maestrale's evidence corroborated the evidence given by the first applicant in these proceedings. 25 Mr Maestrale denied the allegation made by Mr Merlino that he elected to become an independent contractor after being engaged to commence employment with All Night Security. Mr Maestrale's evidence was that in late April 1993, about three weeks after his sister commenced working for All Night Security, Mr Merlino withheld the payment of moneys to both himself and his sister. Mr Merlino's evidence in respect of the discussion which took place between Mr Merlino and himself was in identical terms to the evidence given by Ms Maestrale. Mr Maestrale annexed to his affidavit an affidavit sworn on 5 March 1999 in CT 2281 of 1999. 26 Mr Maestrale's evidence was that Mr Merlino gave his sister and himself an application form for registration of a business name. The application was filled out and signed by his sister in the presence of Mr Merlino who was a justice of the peace. A copy of the application for registration of a business name was annexed to Mr Maestrale's affidavit. Mr Maestrale's evidence was that a conversation occurred between Mr Merlino, his sister and himself, where Mr Merlino said words to the effect: "Aldo and Rose, to continue to work for All Night Security, you will have to register a business name. It is only going to cost you $75.00." 27 Some time later, during the conversation, Mr Merlino said: "That's how everyone does it. That's how you've got to do it to continue working for me." 28 Mr Maestrale denied that on rare occasions he or his sister would engage sub-contractors to perform shifts in lieu of themselves. It was Mr Maestrale's evidence that Mr Merlino determined where he was to work, the hours he was required to work, and the work he was required to perform. He deposed that he regularly had to report in to the base office on his two way radio. Mr Maestrale wore what he described as All Night Security uniforms and carried All Night Security business cards, which he occasionally gave out in shopping centres. He had no business cards of his own. Mr Maestrale never delegated work to other security officers and he did not believe that he had such a right. Mr Maestrale's evidence was that shortly after he commenced working for All Night Security in early 1993, Mr Merlino said words to the effect: "You'll be paid on a fortnightly basis. The fortnight ends this coming Friday. Write your hours on a sheet of paper and hand it to the office. It will work out to be $9.00 an hour cash." 29 When Mr Maestrale commenced working for All Night Security, his evidence was that there was no discussion between himself and Mr Merlino in relation to whether he was to work as an independent contractor. He assumed that the $9.00 per hour referred to, was the nett amount after tax was deducted. Mr Maestrale denied ever telling Mr Merlino that he had some other security sub-contract work, although he stated that it was common knowledge that he did some security work at outdoor concerts. 30 Mr Maestrale stated that Mr Merlino suggested that he set up a company and recommended an accountant to him. It was as a result of this advice that he purchased the company known as ICU Security Pty Ltd. 31 Mr Maestrale stated that the business relationship between he and his sister and Mr Merlino ceased because each had been underpaid for their work. He stated that he ceased working for All Night Security on 9 May 1997. Shortly thereafter, his company, the second applicant, tendered for the security work at Burwood Plaza and won the tender. The work had previously been undertaken by All Night Security. The Fourth Respondent's Evidence 32 The fourth respondent gave evidence which sought to put a very different complexion on the arrangement between the respondents and the first applicant. The fourth respondent stated that he was one of two directors of the first and second respondents prior to their de-registration and one of three directors of the third respondent, the others being the first applicant's cousin and a man named Frank, whose surname he could not recall. It was acknowledged that the first, second and third respondents generally traded as All Night Security. Mr Merlino also annexed an affidavit filed by him in proceedings CT 2281 of 1999. 33 Mr Merlino stated that in about late 1992 or early 1993, Davonsa No 1 Pty Ltd, of which Mr Merlino was a director, engaged Aldo Maestrale as a security officer. Mr Maestrale was initially engaged as a casual member of staff, but elected to become an independent contractor. When the first applicant was engaged in about May 1993, she joined, as part of Aldo's trading name and as a sub-contractor. Mr Merlino denied that he requested, or required, the first applicant or her brother to register a business name or become contractors, stating that a number of security officers preferred to operate as independent contractors, however, it was never the policy of the respondent companies, or himself, to require security officers to become independent contractors. 34 Mr Merlino's affidavit evidence included the following: I recall that in or about May 1993, shortly after Ms. Maestrale commenced working with All Night Security, I was approached by Aldo Maestrale who said words to the effect "Rose and I want to run our own business. We would like to register a business name. Its better for us with the tax, and we've also got some other security work." I gave them some help by supplying them with a form for applying to register a business name. Thereafter, the First Applicant and her brother traded as "Maestrale Security" and invoiced me for their time as security officers on a sub-contractor basis. Sometimes the First applicant and her brother worked at the same site, and on other occasions they would work separately. 35 Mr Merlino's affidavit evidence was that the nature of the business relationship between the first applicant, her brother and All Night Security was as follows: (a) the company with whom Aldo contracted determined where the work was to be performed, and the hours in which it was to be performed, and the actual work to be performed; (b) Aldo determined in his absolute discretion, the manner in which the work was to be performed; (c) there was no supervision by the Company over the manner in which Aldo performed the services; (d) although the Company had a right to control Aldo's work, the actual control was with Aldo in the performance of the work; (e) the work performed by Aldo was integrated into the Company's business; (f) Aldo provided his own work equipment; (g) Aldo was paid according to the work he chose to perform and actually performed; (h) the Company did not pay income tax instalments for or on behalf of Aldo; (i) the Company did not guarantee any work, but simply advised Aldo of work available and Aldo had the discretion as to whether or not he would accept or not accept performance of that work; (j) Aldo was free to seek other work and in fact did other work as both a Storeman and Packer and as a Security Officer during the relevant period January 1993 to May 1997; (k) the Company did not pay any superannuation payments for or on behalf of Aldo; (l) Aldo has the right after accepting an offer of work to delegate that work to another duly licensed security officer; (m) the length of each contract between the relevant Company and Aldo, was simply the length of hours at any one time, offered to Aldo for the performance of security work; (n) Aldo had his own business cards; (o) the Company did not pay any workers compensation premiums for or on behalf of Aldo. 36 Mr Merlino stated that Maestrale Security was paid $9.00 per hour gross. This rate was set between Aldo Maestrale and Mr Merlino at the outset of the sub-contract and no tax was deducted from the gross amount invoiced. It was also contended that Mr Maestrale informed Mr Merlino that "we got some other security sub-contract work". 37 Mr Merlino recalled that during the time the first applicant and her brother provided sub-contract services to the first, second and third respondents, the first applicant and her brother set up a company structure for their business, being the second applicant. Apart from referring Mr Maestrale to a reliable accountant, Mr Merlino stated that it was not his initiative that this company be formed. 38 Mr Merlino referred to proceedings No CT 2281 of 1999, contending that some of the invoices attached to the affidavit of the first applicant related to the earlier proceedings. 39 Mr Merlino's evidence was that the contract with Burwood Plaza was worth in the order of $8,000 - $10,000 in gross takings per month. 40 Mr Merlino's evidence was that security guards were not required to attend the Burwood office of All Night Security to collect any items. In respect of the work carried out by the first applicant at Holroyd High School, Mr Merlino stated that there was no need to attend the office due to the fact that "all of the appropriate things were at the location". However, Mr Merlino could not recall what was at other schools, for example, Russell Lea Public School. His evidence was that there was no need to attend the All Night Security office because all of the necessary equipment that was left at the relevant location. Mr Merlino did not recall the first applicant attending the office to collect equipment before shifts, or to drop off equipment after shifts. 41 In the course of cross-examination by Mr M Potts, counsel for the first applicant, Mr Merlino gave some instructive evidence as follows: Q. How many security guards did you employ at any one time; do you recall?

A. That period there, probably between 15 to 20 guards.

Q. How many of them would have been independent contractors?

Q. A substantial proportion of your workers were independent contractors?

Q. Some of your security guards had to wear firearms at times?

Q. Did you have any specific security guards that worked that had to wear firearms or was it depending who took over the shift at the time?

A. No, they were special accredited security officers.

Q. When they finished their shift, they would return the firearms to you?

A. Depends if they needed the firearm on the next shift. The log shows that you can (retain?) the firearms up to 7 days.

Q. Was there a specific frequency on that 2 way radio that connected with your base system?

Q. All your security guards would have operated on the same frequency?

Q. For 1 security guard to talk to another security guard or to your base system, they must have been on the same frequency?

A. Depends on the distance that they were from the city of the Sydney. Some areas, the Western Suburbs would not pick up areas and 2 way radios is (sic) not required. From point to point, from security guard to security guard.

Q. One of your company badges at All Night Security?

Q. Would have been the badge that was issued to the applicants, Rosetta Maestrale and to Aldo Maestrale?

A. Not all the time. These are only carried by patrol men.

A. Patrol men are required to drive around the streets, and must have displayed securities signs like this, same as the motor vehicle.

Q. Were those badges used between the relevant period 1993 to 1995?

Q. That badge would date between the period 1993 to 1995?

A. Yes, I believe so. 42 Mr Merlino agreed that he had been involved in the security industry since at least 1989 and that he was well aware of the award covering that industry. 43 During the period that the first applicant had an arrangement with All Night Security, Mr Merlino agreed that in respect of the first respondent, he and his former wife were the only directors, with Mr Merlino holding nine shares and his father one share. In respect of Fiance Pty Ltd, during the relevant period, Mr Merlino and his former wife were directors and the only shareholders in this company. In respect of the third respondent, a similar situation prevailed in respect of the shareholders, to that of the second respondent, however, there were three directors. 44 Mr Merlino confirmed that he gave the first applicant and her brother some help to register a business name when they came to see him on 6 May 1993, after not being paid for some five weeks. The following exchange occurred during cross-examination: Q. I suggest to you neither the first applicant Rosetta Maestrale or Aldo Maestrale, when they came to see you on 6 May 1993, had been paid by your company for some five weeks?

Q. They came to see you about the payment and you said to them words to the effect: "If Aldo and Rose continue to work for All Night Security you would have to register a business name"?

A. That I told them to go and register a business name?

Q. Yes. If they wanted more work from All Night Security they would have to register a business name?

A. I gave them some help to register the form for a business name, yes.

Q. You just happened to have this form available, did you?

Q. Rosetta and Aldo Maestrale asked you what name they should register this business name application under?

Q. Where did you tell them to take the form to be registered?

Q. What I am suggesting to you, you told Aldo Maestrale and Rosetta Maestrale if they wanted any further work from you they would have to register a business name and become independent contractors?

A. That's correct and they did not want to pay the tax bracket of a second employee's tax.

A. In those words of the situation, yes. 45 Mr Merlino acknowledged that he had, as a Justice of the Peace, witnessed the application for a business name by the first applicant and her brother. 46 Mr Merlino was then asked about the incorporation of the applicant's business: Q. Subsequently in July 1995, having been drawn into the independent contract, they came to you and told you they were not happy with the provisional tax situation?

Q. You told them, did you not, that they should incorporate their business?

Q. That way they did not have to pay the provisional tax?

Q. You referred them to your accountant, did you not, Mr Raiolla (sic)?

A. Mr Raiolla (sic) has only been an accountant since 2000 for me - for my companies.

Q. That company they set up was called ICU Security Pty Limited, do you remember that?

A. There is a name ICU Security Pty Limited, that's correct.

Q. They started operating under that name on or about early July 1995?

Q. Rosetta Maestrale, the first applicant, terminated that service with you towards the end of August 1995?

A. The name All Night Security or the company name.

A. Whatever my affidavit says? 47 Mr Merlino agreed that approximately 75 percent of the security guards working for him were independent contractors. 48 Mr Merlino was then asked about the difference in costs of employing independent contractors as compared to employees: Q. The small jobs were done by employees because it was more cost effective to the company, is that correct?

Q. But employees on short shifts was more cost effective to the company?

Q. Employing independent contractors on long shifts was more cost effective to the company?

A. You would allocate subcontractors a permanent position.

Q. That's correct, it was a lot cheaper to employ an independent contractor than an employee?

Q. Contracting with an independent contractor, you knew quite well you weren't bound by the terms of the award?

A. Independent contractors has things (sic) to give to them and they take care of that position.

Q. That's correct, you are not bound by the terms of the award when you contract --

49 Mr Merlino was shown a portfolio for All Night Security which relevantly provided: Security officers are supplied with marked company vehicles and equipped with mobile telephone for emergency use and two way radio in direct communication with our (24) twenty four hour control operation, response vehicles and senior supervisor back-up support and assistance should it be required at any time. ALL NIGHT SECURITY Guards are carefully selected and well trained in all aspects of general security… … All Guards are licensed and equipped with two-way radios which are in direct communication with our central operation control, patrol and response vehicles. Guards are also well equipped with an electronic bar code wand, to record and verify each patrol inspection check upon various locations throughout the complex and grounds. ALL NIGHT SECURITY Guards are available for permanent access security, official functions, private parties, or any other purpose. Guards are available in full uniform or should you prefer, in plain clothes and upon your request armed or unarmed. 50 In relation to whether the first applicant commenced as an employee, Mr Merlino's evidence was: Q. You would agree if she commenced providing services to All Night Security on 3 April and the business name was not registered until 6 May 1993, then there is a period of some five weeks when she was not an independent contractor?

A. Look, I don't know, I can't recall that far back.

Q. Look at paragraph 8 of your affidavit of 30 January 2004, third sentence?

Q. You agree the business name was not registered until 6 May 1993?

Q. I just showed you an application to register a business name and the date on that document was 6 May 1993?

A. If that is what the document says, that's correct.

Q. Therefore, your statement the first applicant was taken on in about May 1993, she joined as part of Aldo's trading name and sub-contract, that is incorrect, isn't it?

Q. In the third sentence paragraph 8 you say when the first applicant was taken on; we agreed she was taken on on 3 April 1993, don't we?

Q. Not in your affidavit. We agreed she commenced 3 April?

Q. You say the first applicant was taken on about May 1993, she joined as part of Aldo's trading name and sub-contract. You would agree that is incorrect, wouldn't you?

Q. I am asking you do go agree that is now incorrect?

A. That was 13 years ago, I can't recall that far back.

Q. The business name was not registered until 6 May 1993?

Q. I put it to you Aldo was not under a sub-contract at the time the first applicant was taken on?

A. I can't recall the 93 events. 51 Mr Merlino acknowledged that security guards were required to wear dark slacks and a blue or white shirt. Mr Merlino also acknowledged that he referred "a fair amount of work to a disposal store at Burwood and they would receive a discount because of the location of Burwood". He was then asked about the work provided to security guards and his evidence was: Q. You also directed your security guards and the first applicant where they were to perform their services, you allocated the site, if you like?

Q. Your company All Night Security told them what hours they were required to work?

A. Well, the company would allocate the hours and location, that's correct.

A. It depends on the site whether it was a guarded or patrolled site; patrolmen would wear badges, yes.

52 And later: Q. They had a card with All Night Security and contact details?

A. It is called a calling card not a business card.

Q. They carried calling cards for All Night Security. Did you carry workers' compensation cover?

Q. Did All Night Security or the corporation behind All Night Security carry workers' compensation?

Q. You carried workers' compensation cover for all your independent contractors? A. Look, I can't remember that far back what the specifications of workers' comp or insurance policy required. 53 In re-examination Mr Merlino was asked whose idea it was for the first applicant and her brother to be independent contractors. Mr Merlino's evidence was that it was initiated by them because of the fact they did not want to pay tax. Consideration 54 Mr Potts of counsel contended, in essence, that Ms Maestrale's contract of employment was an unfair contract because it provided for a total remuneration that was less than the person performing the work would receive as an employee performing the work, and that it was designed to, and did, avoid the provisions of an award. Counsel, in effect, relied upon the definition of "unfair contract" as found in s 105 of the IR Act. 55 The case pressed by Mr R de Meyrick, counsel for the fourth respondent, was that this application was no more than a claim for the recovery of wages and related matters and should have been brought pursuant to s 365 of the IR Act. This section permits this Commission to order the payment of any moneys due under an industrial instrument. Mr de Meyrick argued that a claim under s 365 by the first applicant would be statute barred. Furthermore, it was contended that even if the Commission found the contract or arrangement between the parties to be unfair, the Commission should decline, in the exercise of its discretion, to make any orders in circumstances where the first applicant had obtained certain financial benefits from the arrangement, and because of the delay in bringing the proceedings. 56 The question as to what is an unfair contract under legislation is, as the authorities show, to be approached in a practical and common sense way. In making this assessment, the judge must apply standards which appear to him or her to provide a proper balance or division of advantage and/or disadvantage between the parties who have made the contract, bearing in mind the conduct of the parties, their appreciation of the bargain they had made, and their comparative bargaining positions when entering into the contract and/or arrangement: A & M Thompson Pty Ltd and others v Total Australia Ltd [1980] 2 NSWLR 1. 57 The approach to be taken in this matter, in determining whether there was unfairness, is to consider the operation of the contract. This means looking at the conduct of the parties and the terms of the contract or arrangement itself. In weighing up the evidence, I am mindful of the long-standing observation of Sheldon J in Davies & Anor v General Transport Development Pty Ltd & ors [1967] AR (NSW) 371 at 374 that unfairness of a contract or arrangement is to be determined according to "the common sense approach characteristic of the ordinary jury man ... It is a plain matter of morals not law." 58 His Honour cautioned, however, at 374 - 375, that the section's "massive power makes it imperative that it should be exercised with proper restraint... it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms... the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes." Those words by his Honour echoed what had been said earlier by Beattie J in Agius v Arrow Freightways Pty Ltd [1965] AR (NSW) 77 at 89 that it was a matter of deciding "in each particular case by the application of the tribunal's common sense and sense of justice whether a particular transaction is unfair, harsh and unconscionable." 59 There are some glaring variations between the evidence of the first applicant and the fourth respondent. Firstly, there is the question of the terms of the agreement between Mr Maestrale and the fourth respondent which is relevant to the terms of the agreement that the first applicant entered into with Mr Merlino on behalf of the various respondents. Mr Maestrale stated that the fourth respondent offered to pay him $9.00 per hour cash which Mr Maestrale understood to mean after tax. The fourth respondent agreed that a conversation took place in or around early 1993 regarding the engagement of Mr Maestrale as a security guard, but stated that Mr Maestrale indicated that he did not want to pay tax and so the fourth respondent offered to pay Mr Maestrale a flat rate allowing him to look after his own tax. The fourth respondent contends that Mr Maestrale stated that he would work as an independent contractor. Mr Maestrale denied the fourth respondent's version of the agreement. 60 This is but one example of evidentiary conflict. In this regard, I have to state that no witness presented as being completely reliable and truthful. I formed the view that the evidence of the first applicant tended towards exaggeration, possibly caused by feelings of bitterness and hostility, perhaps justified, towards the fourth respondent, and that the vagueness and evasiveness shown at times by the fourth respondent in answers to questions were not entirely due to the difficulty of recalling events that happened as long as 12 years ago. On balance, in cases of conflict, I prefer the evidence of the first applicant and her brother for the reasons expressed when I deal with the conflicts in the evidence. 61 The agreement reached in January 1993 between Mr Maestrale and the fourth respondent ("the January 1993 agreement") is relevant and important because the fourth respondent stated that the first applicant, when she commenced with All Night Security did so as a sub-contractor through the business known as Maestrale Security. Mr Maestrale denies that there was a sub-contract arrangement on foot either from January 1993, or when his sister commenced with All Night Security in April 1993. 62 The evidence discloses that the business name, Maestrale Security, which the first applicant and Mr Maestrale subsequently traded under, was not registered until 6 May 1993. I find, on this point, I prefer the evidence of the first applicant and Mr Maestrale. In any event, even if there was a sub-contracting arrangement entered into by Mr Maestrale and which the first applicant joined, it would seem to me that such an arrangement would fall within s 105 of the IR Act. It is common ground that the first applicant applied for a position as security officer with All Night Security in March 1993 and commenced working for that organisation on 3 April 1993. There was no evidence regarding the terms and conditions discussed between the first applicant and the fourth respondent when she commenced with All Night Security, apart from that given by Ms Maestrale that there was no discussion regarding the terms or conditions of engagement apart from the payment of $9.00 per hour. However, it appears that the first applicant considered she would be employed under the same terms and conditions as her brother. 63 The method of payment was that both the first applicant and her brother would submit, once a fortnight, the daily hours worked and would be paid by cheque which was to be collected from the office of All Night Security. 64 The next significant variation in the evidence between the parties is in respect of the meeting that occurred between the first applicant, her brother and the fourth respondent on 6 May 1993. This meeting occurred because neither the first applicant or her brother had been paid on 24 April 1993 and they were advised to speak to the fourth respondent. Between 3 April 1993 and 6 May 1993, the first applicant was not paid any moneys for the services that she performed. 65 At the meeting on 6 May 1993, the first applicant and Aldo Maestrale were told by the fourth respondent that if they wanted any more work, they had to become independent contractors. I prefer the evidence of the first applicant and Mr Maestrale on this issue. I also find that the fourth respondent produced an application for registration of a business name which the fourth respondent required the first applicant and Aldo Maestrale to complete. This form was witnessed by the fourth respondent. 66 Of course, if the fourth respondent's evidence was to be accepted that Mr Maestrale had already elected to become a sub-contractor in January 1993, establishing his own trading name, it would have been unnecessary for the meeting of 6 May 1993 to occur. 67 The evidence discloses that the first applicant was paid $9.00 gross for the services she provided to All Night Security as a security guard. Schedules provided during the course of the hearing, which had been calculated in accordance with award entitlements flowing from the Security Industry (State) Award ("the Award"), demonstrated that the hourly rate received by the first applicant was significantly below the entitlements provided for in the Award. The calculations found in the schedule were based on hours set out in an invoice book, copies of which were provided to the fourth respondent for payment. There was no challenge to invoices and I therefore find that they are a true record of the hours worked by the first applicant for All Night Security. There was a conflict in the evidence between the first applicant and Mr Maestrale as to who actually wrote out the schedule. The first applicant gave evidence that she had written out the schedule and Mr Maestrale stated that the schedule contained his handwriting and that he had re-written the schedule. I accept Mr Potts' submission that the schedule itself is not a contentious part of the evidence in this matter. It seems to me that, on balance, it is more likely that Mr Maestrale wrote the schedule. 68 The first applicant's credit was also challenged in respect of the circumstances surrounding the preparation of her affidavit filed in these proceedings. 69 Mr de Meyrick suggested that Ms Maestrale's affidavit evidence merely recited, in identical terms, the affidavit evidence submitted by Mr Maestrale in the earlier proceedings. The first applicant's evidence was that her former solicitor had drafted her affidavit after she had recounted her recollections of the events between 1993 and 1995. Her evidence was that she had not seen the 1999 affidavit of Mr Maestrale until the court hearing of these proceedings in which a copy of his affidavit was filed as an annexure to the first applicant's affidavit. The first applicant conceded that certain paragraphs in her affidavit were identical to those in her brother's affidavit. 70 Clearly, as Mr Maestrale's 1999 affidavit was filed in these proceedings by the first applicant's solicitor there can be no doubt that the first applicant's solicitor, when drafting her affidavit, had a copy of Mr Maestrale's 1999 affidavit. I am satisfied that the first applicant had a clear recollection of the events leading to her engagement with All Night Security, in particular the discussion which occurred leading up to and on 6 May 1993. Needless to say, the approach adopted by her solicitor manifests extreme laziness. Such an approach invites the type of cross-examination that ensued in respect of the identical nature of the paragraphs in the respective affidavits. 71 Mr de Meyrick submitted that, whilst not formally conceding the point, on one view of the evidence, the first applicant and also Mr Maestrale could be classified as employees. It was contended that, in such circumstances, this application was nothing more than a claim for the recovery of wages and should have been brought pursuant to s 365 of the IR Act. This was an important issue, so it was submitted, because the first applicant ceased to work as a security officer for All Night Security in August 1995. The summons in this matter was filed on 31 August 2001 which would, in effect, mean that virtually all of the claim would be statute barred if it had been brought under s 365 of the IR Act. 72 In my view, the issues before me do not require a determination as to whether the first applicant was an employee or not. The power available under s 106 does not depend upon employment and so the question does not strictly call for an answer. In my view, 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), ("the 1940 Act") to operate in respect of employment contracts. However, in Huskisson RSL Sub-branch Club Ltd v Sullivan (1990) 20 NSWLR 332, the former Commission in Court Session (Fisher P, Hill and Hungerford JJ) it was held that s 88F(1)(d) was not simply an alternate remedy to that provided by s 92 of the 1940 Act (the predecessor to s 365 of the IR Act) for the recovery of unpaid wages due to an employee and that some additional characteristic was necessary to bring it within s 88F of the 1940 Act. That case involved undisputed facts concerning the legal relationship between the parties as to which the Commission in Court Session said at 345: The present is a case which, prima facie, falls within both s 92 and s 88F. There is no doubt that the respondent could have brought an action under s 92 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 s 92 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 s 88F(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. … 74 And later, at 348: The present contract or arrangement falls within the specific and literal terms of s 88F(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, s 92 applied.

75 That reasoning applies with equal force in the present case. 76 In my view, both s 106 as well as s 365 of the IR Act are jurisdictionally available to the applicant. This raises the question of whether the Court should, as a matter of discretion, make orders in favour of the first applicant in this case, having regard to the failure of the first applicant to utilise s 365 of the IR Act. In considering this matter, the explanation advanced to explain the failure to commence proceedings, was that the first applicant acted upon legal advice in that regard. Ordinarily, a very substantial period of delay (five years) if unexplained, may well influence the Court against exercising discretion in favour of the applicants. However, taking into account the first applicant's explanation, I propose to exercise discretion in favour of the first applicant. 77 I find, on the evidence in this matter, the concept of substituting independent contractor for employee was one which was devised and promulgated by the fourth respondent. Mr Merlino's evidence was that if the first applicant and her brother wanted any further work, then they would have to register a business name and become independent contractors. He also agreed that it was company protocol that small jobs were done by employees because it was more cost effective to the company and independent contractors would be allocated a permanent position. Mr Merlino acknowledged that approximately 75 percent of the security guards retained by All Night Security were independent contractors. The first applicant had not been paid for five weeks and I accept her evidence that the fourth respondent proposed that she and her brother work as independent contractors. It is also to be remembered that the minimum hourly rate received by the first applicant and her brother was a constant or flat rate whether work 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. All Night Security was able to avoid these costs. This inevitably would have given All Night Security a commercial advantage. 78 The contract or arrangement which bestowed these benefits upon All Night Security was, in my view, necessarily one which was designed to and did avoid the provisions of an industrial instrument within the meaning of s 105(d) of the IR Act. If one looks at the schedule which sets out the amount paid and the Award amount, there is no question that the total remuneration received, according to the schedule, is less than a person performing the work would receive as an employee performing the work within the meaning of s 105(c) of the IR Act. 79 Mr de Meyrick advanced the proposition that the first applicant had benefited considerably from being an independent contractor and being self employed. It was contended that the first applicant obtained a very significant tax benefit from a self employed status. An analysis of the first applicant's tax returns by Mr de Meyrick appeared to bear out this contention. While this may be so, by this process, it seems to me that All Night Security 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 first applicant in a position of no or little disadvantage. To put it another way, the ordinary and usual costs of employment are simply avoided. While this may be commercial good sense from All Night Security's point of view, it seems to either fall clearly within the scope of the provisions of s 105(c) or s 105(d) of the IR Act. The contract or arrangement is distinguishable from employment in only one respect - the lower rates of remuneration and the absence of other conditions of employment. If the remuneration cannot, in gross terms, satisfy the needs of the first applicant's business to satisfy its liability, as an "employer", the position is, both in theory and practice, if this scheme be legitimate, incapable of giving the person performing the work a reward for effort consonant with the ordinary industrial standards. This must, particularly, be the situation when the first applicant established the corporation which was again at the suggestion of the fourth respondent. 80 Mr de Meyrick further submitted that, in the exercise of my discretion, that the fourth respondent should not bear all of the responsibility for any order for the payment of money. It was submitted that the fourth respondent was not the employer at any stage and was only dealing with the first applicant as a director only. It was submitted he was never the only director, or only shareholder of the various companies. The relevant principle is that found in Brown v Rezitis (1970) 127 CLR 157 and ACE Business Brokers Pty Ltd v Phillips-Treby (2000) 100 IR 420 at 439 which are authority for the principle that a person, not a party to a contract declared void or varied pursuant to s 106 of the IR Act may be liable to an order for the payment of money in connection with the contract where the justice of the order has "a real connection" with the making, performance, variation or avoidance of the contract. 81 The requirement that the conduct be "in connection with" envisages a causal connection between the creation of the contract or its performance and the grievance for which the first applicant claims relief. In my view, there is clearly a real connection between the first applicant and the fourth respondent, who I have found proposed the arrangement to the first applicant in circumstances where he had declined to pay her for five weeks work. The fourth respondent has clearly been a beneficiary of the arrangement. 82 In July 1995, the second applicant commenced its arrangement with All Night Security. Mr de Meyrick submitted that the second applicant had already brought proceedings against the fourth respondent, which proceedings were settled at conciliation on the basis of a deed of release. Mr de Meyrick contended that an issue estoppel arose in such circumstances, or in the alternative, an Anshun estoppel arose, as, it was submitted, the first applicant's claim could have been brought in the earlier proceedings in which the second applicant was a party. 83 I do not propose to determine this issue. As a matter of discretion, I do not propose to permit any part of the claim that postdates the establishment of the second applicant. In my view, on the evidence, the decision to establish the second applicant was at the initiative of the first applicant. The claim that the respondents should also pay the costs of establishing the second applicant must fail. 84 The final point raised by Mr de Meyrick was the laches of the first applicant. Mr de Meyrick pointed to the evidence of the first applicant that she prepared a schedule in respect of her claim with the assistance of her brother in 1997, but did not lodge her claim until 2001. For her part, the first applicant's evidence was that she did not bring her case at the same time as her brother because of legal advice. 85 On the applicant's own evidence, she was an employee up until 6 May 1993 and this period should be excluded from any calculation. 86 On balance, in light of the applicants' explanation for the delay, I propose to make orders in favour of the first applicant. However, in my view, in light of the delay, the first applicant should not be entitled to interest on any compensatory order that may ultimately be made. 87 In light of the decision that I have reached in this matter, it is necessary to deal with a further issue. A further example of the variations of the evidence between the first applicant and the fourth respondent was in respect of what the first applicant contended was a requirement to attend the office of All Night Security at Burwood to collect a mobile phone and a two way radio prior to the commencement of each shift and to return these items at the conclusion of the shift. The fourth respondent disputed that this was a requirement and contended that such items were left in a shed, for example, when work was being conducted at Holroyd High School. Mr Maestrale's evidence was to the same effect as the first applicant. On balance, I prefer the evidence of the first applicant in this regard. Both a two way radio and a mobile phone have batteries that require re-charging. The evidence was that in respect of the two way radio, the batteries were required to be re-charged after a 12 hour shift. It seems to me implausible that such equipment would be found at locations where security officers carried out their work. Therefore, subject to the provisions of the Award, that part of the claim for travelling time should be included in the calculations. 88 The question of discretion involved in the contemplation of an order in a case such as this is not without difficulty. If the first applicant was to benefit to the full extent of her claim, that is to say, by receiving a compensatory order which was based upon the gross entitlements of employees, there is no doubt she would have been considerably advantaged over an employee performing the work, by virtue of her taxation arrangements. 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 s 105(c) of the IR Act is concerned. There is, in my view, no basis for, in effect, exempting All Night Security from its obligations unless, as All Night Security contends, the effect would be a gratuitous windfall for the first applicant. 89 I am concerned that the first applicant should not be permitted to "double dip" by receiving employee (PAYG-type) levels of income while also maintaining the past tax advantages from the use of her business. The consequences of any order in that respect have not been addressed in the proceedings so far. 90 In the exercise of discretion, I consider the first applicant is entitled to the benefit of an order which would compensate her for any shortfall as against the income at award level of an employee performing her work. That shortfall should be discounted to the extent that the structural arrangements of the parties' relationship gave the first applicant a financial benefit which is immutable, that is, which is not reviewable or will not be reviewed by the Commissioner for Taxation. 91 I direct the parties to confer on that issue and report the result thereof to me. 92 In determining the question of costs, I have taken into account that for a short period of the claim, that being, from 3 April 1993 to 6 May 1993, the first applicant accepts that she was an employee. This renders that part of her claim as statute barred. In my view, therefore, the first applicant should receive 85 percent of her costs. 93 There was no appearance on behalf of the second applicant and that claim is therefore dismissed. 94 Mr de Meyrick urged that the Court, in such circumstances, should award costs against the second applicant, or, in the alternative, against the first applicant. The difficulty I have with that submission is that the first applicant and her brother sold the second applicant at or about the end of the 1999/2000 financial year. It therefore seems to me that if any costs order were to be made against the second applicant, it should be visited on the solicitor who joined that company without instructions from its directors. In my view, in circumstances where the first applicant was acting on legal advice, such costs should not be visited upon her. I do not propose to make any order in respect of the second applicant. Should the fourth respondent wish to pursue the issue of costs in respect of the second applicant, I give leave to the fourth respondent to do so. Such leave should be exercised within 28 days of this decision. 95 For the reasons given, I stand this matter over for report of the outcome of the discussions that I have directed to 10.00 am on Friday 16 December 2005.

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