Industrial law - Arrangement to pay employee on a sub-contract basis - Effect of arrangement - Whether still an employee - Entitlement to long service leave under Long Service Leave Act 1958, s 8

Courts and judges - Appeals jurisdiction - Industrial Appeal Court - Jurisdiction to hear appeal from Full Bench - Decision of Full Bench that worker an employee for purposes of Long Service Leave Act - Appeal on ground that worker an independent contractor - Whether appeal raised question of "construction and interpretation" of Long Service Leave Act - Industrial Relations Act 1979, s 90(1)

Industrial Relations Act 1979 (WA), s 85, s 86, s 90, s 96K

Long Service Leave Act 1958 (WA), s 4, s 6, s 7, s 8, s 9(2), s 11

Davies v Youngs (WA) Pty Ltd 82 WAIG 1114

1 ANDERSON J (PRESIDING JUDGE): This is an appeal from a judgment of the Full Bench delivered on 19 August 2002 in which it dismissed an appeal from the decision of an Industrial Magistrate to award to the respondent a total of $21,711.78 for long service leave entitlements pursuant to the Long Service Leave Act 1958. The claim was calculated on the basis of 19 years continuous service. The appellant did not dispute that the respondent had performed work for the appellant for a continuous period of 19 years from January 1981 until retrenchment in January 2000. However, in the proceedings before the Industrial Magistrate the appellant contended that between July 1988 and October 1992 the respondent was not an "employee" of the appellant within the meaning of s 8 of the Long Service Leave Act.

2 The relevant provisions of the Act are as follows:

"4(i) ...

'employee' means, subject to subsection (3) -

(a) any person employed by an employer to do work for hire or reward including an apprentice or industrial trainee;

(b) any person whose usual status is that of an employee;

...

'employer' includes -

(a) persons, firms, companies and corporations; and

(b) ...

employing one or more employees;

...

8. Long Service Leave

(1) An employee is entitled in accordance with, and subject to, the provisions of this Act, to long service leave on ordinary pay in respect of continuous employment with one and the same employer...

(2) Subject to subsections (4) and (5) of this section, an employee who has completed at least fifteen years of such continuous employment, as is referred to in subsection (1) of this section, is entitled to an amount of long service leave as follows -

(a) in respect of fifteen years so completed, thirteen weeks;

(b) in respect of each ten years' continuous employment so completed after such fifteen years, eight and two-thirds weeks; and

(c) on the termination of the employee's employment -

(ii) in any circumstances otherwise than by his employer for serious misconduct,

in respect of the number of years of such continuous employment completed since the employee last became entitled under this Act to an amount of long service leave, a proportionate amount on the basis of thirteen weeks for fifteen years of such continuous employment."

3 There are provisions for proportionate entitlement in the event of more than ten years but less than fifteen years' continuous service.

4 It will be seen therefore that if the respondent ceased to be an employee in 1988 and did not again become an employee until 1992 he did not qualify for payment of any long service leave as neither the first period of employment nor the second were of ten years duration.

5 It is therefore yet another case raising the question whether the true legal relationship between the parties was that of employer and employee or principal and independent contractor.

6 There is no question that during the first period of employment, between January 1981 and July 1988, the respondent was the appellant's employee engaged by the appellant under a contract of service. He was paid a salary and all the usual allowances. Neither is it in dispute that after about July 1992 and until his retrenchment the respondent was the appellant's employee. However, the evidence discloses that in about July 1988 there was a conversation or conversations between the respondent and a representative of the appellant after which the respondent ceased to be paid a salary and allowances. Instead, with the assistance of the appellant's accountant invoices were rendered to the appellant by a firm "J & L Birighitti Engineers". The evidence was that this firm was a partnership of which the members were the respondent and his wife Lucy, who also performed work for the appellant. The invoices were in a form devised by the appellant's accountant and were rendered approximately monthly and charged a lump sum for work performed by the respondent and his wife. At first, the invoices detailed the hours worked by each and the lump sum was calculated according to a flat hourly rate, initially $22 per hour for the appellant and $10 per hour for his wife. These hourly rates increased over the years and ultimately the invoices showed very little detail. Many of the later invoices, which were accepted and paid by the appellant, were simply for a lump sum. For example, the invoice of 29 June 1992 was in the following terms:

"Lump sum payment for work undertaken during the month of June 1992

7 The "tax" was the tax withheld under the prescribed payments system applicable to contractors, not PAYE deductions.

8 Although the Industrial Magistrate made no findings as to what were the terms of the arrangement between the respondent and his wife on the one hand and the appellant on the other the evidence is that the respondent and his wife agreed with the appellant, expressly, that they would be paid as sub-contractors, in order that both parties could obtain what were perceived to be the advantages of such an arrangement. The advantages to the respondent and his wife were that they would receive higher remuneration and would pay less tax. The accounting details were not gone into to any great extent but it would appear that it was more advantageous to the respondent for the remuneration earned by him to be received by a partnership between himself and his wife and returned as partnership income. Throughout the period the respondent and his wife kept partnership accounts and did in fact put in partnership tax returns showing their earnings as a distribution of partnership profits after business expenses.

9 Apparently the practice of "sub-contracting" had become rather widespread in the construction industry and may have excited the interest of the income tax authorities. As a result of advice received from its accountants in mid-1992 to the effect that the respondent was not a "true sub-contractor" the appellant decided not to continue this manner of remunerating the respondent and the respondent was told that he was to go back onto wages, which he did. The respondent's wife meanwhile had ceased to perform work for the appellant and was engaged elsewhere.

10 As has been noted the respondent continued in the employ of the appellant until about July 2000 when he was retrenched.

11 The Industrial Magistrate held that in truth and in substance the respondent's status never changed from that of an employee and the Full Bench upheld that decision.

12 The primary contention on behalf of the appellant advanced in the first ground of appeal is that there was an express arrangement between the parties that the appellant would perform his work in the period in question on a sub-contract basis and that this was conclusive of the relationship between the parties unless the sub-contract arrangement was a sham, which it was not. As Mr Caspersz, who appeared for the appellant pointed out, the Industrial Magistrate made no finding that the sub-contract arrangement was a sham and neither did the Full Bench. Both judgments below proceed, or appear to proceed from the premise that there was indeed an express sub-contracting arrangement entered into bona fide. The alternative is that the arrangement was entered into dishonestly, without any genuine intention to change the relationship between the parties and for the sole purpose of income tax avoidance. He submitted that there was no evidence upon which any such finding could have been made and no such finding was made. In my opinion, this submission should be accepted.

13 Therefore, it is a case in which there was an express agreement between the parties pursuant to which it was intended that the appellant was no longer to be an employee but instead was to be an independent contractor. If that was the beginning and end of the arrangement it would be a most important if not decisive consideration in deciding whether the relationship of employer and employee had ceased and the relationship of principal and independent contractor had commenced: Massey v Crown Life Insurance Co [1977] EWCA Civ 12; [1978] 2 All ER 576 per Lord Denning MR at 580. But there was obviously more to it than that, as the Industrial Magistrate and the Full Bench found. The fact is that the respondent continued to enjoy benefits that were inconsistent with a simple sub-contract relationship. It is well settled that the true relationship of the parties is to be gathered from the effect of the arrangement as a whole and not just from a single term of the arrangement which seeks to put a label on that relationship. Massey v Crown Life Insurance Co (supra) per Lord Denning MR at 579; Narich Pty Ltd v Commissioner of Pay-Roll Tax [1983] 2 NSWLR 597 at 601, 606. Whilst the parties may have genuinely expressed an intention in one part of their contract to enter into a relationship of principal and independent contractor and may have genuinely desired to do so the question remains whether in point of law they succeeded in doing so. That involves a consideration of all of the terms of the arrangement not just the declaration by the parties that their relationship is one thing or the other. It is the effect of the arrangement as a whole which is decisive and if the effect of the arrangement as a whole is to create (or in this case maintain) the relationship of employer and employee then a statement that the relationship is to be that of principal of independent contractor is of no effect: Narich Pty Ltd v Commissioner of Pay-Roll Tax (supra) at 606.

14 The Industrial Magistrate examined the conduct of the parties in order to reach a conclusion as to the terms and conditions on which they were contracting with one another. As the contract was not in writing and was entered into in circumstances of considerable informality and the evidence as to its formation was very vague the strict rule against the admission of extrinsic evidence and post-contract conduct in the interpretation of a written contract were not relevant. In the case of informal oral agreements the terms of which are not the subject of direct evidence the content of the arrangement may be inferred by examining events which succeeded the contract and from the course of dealing between the parties themselves, that is to say, their post-contract conduct: Haynes v McNeil (1906) 8 WALR 186; Glass v Pioneer Rubber Works of Australia Ltd [1906] VicLawRp 123; [1906] VLR 754. As it is put in Lindgren, Carter and Harland: Contract Law in Australia (Butterworths, 1986) at [205]:

"the formation of agreement will in many cases be inferred from the conduct of the parties. Sometimes there may be no identifiable offer and acceptance because the parties have not expressly discussed the formation of contract but have indicated by their conduct that they did in fact intend to contract. In many cases a more realistic explanation is that by the time a dispute arises, perhaps many years after the alleged contract was entered into, no direct evidence is available of what was said by the parties and yet their conduct is consistent only with the hypothesis that an agreement was in fact made by them."

15 I think it was permissible to examine the conduct of the parties, to see what their agreement was in its entirety. This was done by the Industrial Magistrate and by the Full Bench. I have already referred to the cessation of the payment of wages and allowances and the establishment of a partnership between the respondent and his wife and to the system whereby that partnership rendered accounts to the appellant calculated by reference to a flat hourly rate for work done by both the respondent and his wife which accounts were accepted and paid by the appellant. I have also referred to the fact that this enabled the respondent to submit partnership taxation returns and so on; and to present himself to the Australian Taxation Office as an independent contractor not as an employee and claim and obtain all of the income tax benefits attendant on that status. These facts tend to indicate that the relationship between the parties really was intended to be that of principal and independent contractor. On the other side of the coin, there was no change whatever in the manner in which the respondent performed his work for the appellant. He performed exactly the same duties of a senior supervisor and site administrator. He took on no other business activities and continued to work full time and exclusively for the appellant. All of the respondent's tools and work clothing continued to be provided by the appellant. The respondent continued to be provided with a company utility with all running costs paid for by the appellant. The appellant continued to direct the respondent as to where he should work and as to what work he should do; and there is no evidence that the appellant relinquished control over how he should do the work. The respondent remained at all times under the direction and control of the appellant.

16 I think it was permissible to receive this evidence as evidence of the agreement as a whole and what emerges, it seems to me, is that although the form of remuneration changed there was no other material change in the relationship between the parties. In all other respects the respondent continued to be treated as an employee with the duties and benefits of a senior supervisor acting as the servant of the appellant not on his own behalf. On the whole of the circumstances of the relationship between the parties it was open to the Industrial Magistrate and to the Full Bench to conclude that the relationship of employer and employee was never terminated in point of law. The most important indicia pointing to the continuation of the relationship as one of master and servant is the degree of control which the appellant obviously continued to have and to exercise with respect to the work of the respondent. He was not at liberty to elect not to work at a particular site or on a particular day nor was he at liberty to elect what kind of work to do. There is evidence that at one stage he took a holiday in Phuket during which he was paid. On the whole of the evidence and on the findings below he did what he was told to do, when he was told to do it and the appellant continued to exercise ultimate authority over the manner in which that work was to be performed and gave him at least some benefits (paid holiday, motor vehicle, tools, clothing and equipment) as if he was an employee. He remained essentially part of the appellant's organisation and under the close control of the appellant at all times. The most striking single piece of evidence to this effect is that when the appellant decided to put the respondent back on wages, it did so with little discussion, no negotiation and without demur on the respondent's part. He was simply told that he was going back onto the pay-roll.

18 The only other ground of appeal which was pressed was ground 3 expressed in the following terms:

"The Full Bench erred in its construction of s 11(1)(b) of the Long Service Leave Act which, properly construed, confers a discretion to determine whether the respondent was entitled to any payment for long service leave under the Act even if he was an employee at all material times."

19 The section of the Act referred to is as follows:

"11(1) An industrial magistrate's court has jurisdiction to hear and determine all questions and disputes in relation to rights and liabilities under this Act, including without limiting the generality of the foregoing, questions and disputes -

(a) ...

(b) whether and when and to what extent an employee is or has become entitled to long service leave, or payment in lieu of long service leave;"

20 This section does not confer any discretion as to the manner in which an Industrial Magistrate is to exercise the jurisdiction to hear and determine disputes in relation to entitlements to long service leave. It does not confer upon the Industrial Magistrate a discretion to refuse to award long service leave entitlements prescribed in the Act. The purpose of the section is to define the jurisdiction of the Industrial Magistrate's Court, not to prescribe the manner of exercise of that jurisdiction. This ground of appeal must be rejected.

21 Mr McCorry, who appeared for the respondent, submitted that this appeal was incompetent because it did not fall within the ambit of the appeal jurisdiction conferred by s 90(1) of the Industrial Relations Act 1979 in its amended form. The amendment came into effect on 1 August 2002 and this appeal was instituted on 28 August so that the new provisions must be applied to it. In its amended form the section reads:

"90(1) Subject to this section, an appeal lies to the Court in the manner prescribed from any decision of the President, the Full Bench, or the Commission in court session -

(a) on the ground that the decision is in excess of jurisdiction in that the matter the subject of the decision is not on an industrial matter;

(b) erroneous in law in that there has been an error in the construction or interpretation of any act, regulation, award, industrial agreement or order in the course of making the decision appealed against; or

(c) on the ground that the appellant has been denied the right to be heard."

22 It is accepted on all sides that s 90(1)(a) and s 90(1)(c) are irrelevant and that this Court can only entertain the appeal if the decision of the Full Bench involved "an error in the construction or interpretation of" the Long Service Leave Act.

23 Mr McCorry contended that, putting to one side the ground of appeal based upon s 11(1)(b) of the Act, the decision of the Full Bench involved no matter of construction or interpretation. I think, for myself, that this submission must be accepted. There was no dispute between the parties

as to the true meaning of the Act. Both parties accepted that whether or not the respondent was entitled to long service leave depended upon whether or not he was an employee between 1988 and 1992 and this question depended not on any point of statutory construction or interpretation but on common law principles. The question was not whether "employee" had a special meaning in the Long Service Leave Act but whether, according to the common law rules under which the character of the relationship was to be determined, the respondent was the appellant's employee. Putting that another way, it was accepted on both sides that if the application of the common law rules to the facts of this particular case resulted in a finding that the respondent was the appellant's employee in the years in question the respondent was entitled to long service leave calculated in accordance with the formula set out in the Act.

24 I agree that the appeal is incompetent, so that even if I am wrong as to the merits of the appeal, I am of the opinion that the appeal should be dismissed.

25 SCOTT J: In this matter I have had the opportunity of reading in draft the reasons to be published by the presiding Judge.

26 I agree that this appeal should be dismissed for reasons that his Honour gives.

27 In relation, however, to the jurisdictional considerations referred to by his Honour, I take a different view.

28 Section 90(1) of the Industrial Relations Act 1979 at the relevant time provided:

"90. Appeal to Court from Commission

(1) Subject to this section, an appeal lies to the Court in the manner prescribed from any decision of the President, the Full Bench, or the Commission in Court Session --

(a) on the ground that the decision is in excess of jurisdiction in that the matter the subject of the decision is not on an industrial matter;

(b) erroneous in law in that there has been an error in the construction or interpretation of

any Act, regulation, award, industrial agreement or order in the course of making the decision appealed against; or

(c) on the ground that the appellant has been denied the right to be heard,

but upon no other ground."

29 In my view, the decision in this case turns upon the definition of "employee" in s 4 of the Long Service Leave Act 1958 which is defined in the following way:

"'Employee' means, subject to subsection (3) --

(a) any person employed by an employer to do work for hire or reward including an apprentice or industrial trainee;

(b) any person whose usual status is that of an employee;

(c) any person employed as a canvasser whose services are remunerated wholly or partly by commission or percentage reward; or

(d) any person who is the lessee of any tools or other implements of production or of any vehicle used in the delivery of goods or who is the owner, whether wholly or partly, of any vehicle used in the transport of goods or passengers if the person is in all other respects an employee."

30 The first thing to note about the definition of "employee" is that it is not an inclusive definition, but a defined term for the purposes of the Long Service Leave Act. In my view, the issue as to whether the respondent was an employee at the relevant time can only be determined by reference to the definition of that term in the Act. The interpretation, of course, may be assisted by the construction of the word "employee" at common law, but at the end of the day it is the construction of the statutory provision which is critical to this decision.

31 It follows, in my view, that the Industrial Appeal Court has jurisdiction to entertain this appeal because the issue turns upon the definition of "employee" in the Long Service Leave Act and is therefore a question of construction or interpretation of that Act.

32 In view of the fact that s 90(1) of the Industrial Relations Act is a jurisdictional provision, in my opinion, it should not be construed narrowly so as to restrict the right of appeal: Magrath v Goldsbrough Mort & Co Ltd [1932] HCA 10; (1932) 47 CLR 121 at 134. In my view, the amended section was formulated in such a way as to preserve the right of appeal to any party coming within its terms properly construed. It may cause injustice if this section is interpreted narrowly and in such a way as to confine the right of appeal to this Court.

33 HASLUCK J: The appellant, United Construction Pty Ltd, employed the respondent, John Birighitti, in 1982 to work in the appellant's business at Kwinana as Master of Apprentices and General Foreman. The company was involved in the fabrication of pipelines, tanks and conveyers. Repairs were effected in the workshop. At a later stage his wife was employed by the company in preparing invoices and timesheets.

34 In July 1988 the respondent entered into an arrangement with the appellant whereby he would be paid an hourly rate following the submission of monthly invoices.

35 In the course of the hearing before the Industrial Magistrate, the circumstances giving rise to this arrangement were described by the company's former secretary, Mr Carmignani, in this way:

"Can you tell us what happened in or about June of 1988 in relation to the earnings of ---?--- Yeah. He went from wages as PAYE to what they call --- as a subcontract system where he was paid by the hour, so much an hour. No tax was deducted from his salary or his income and ---

How did that arrangement come to --- come into existence? --- Well, it was decided by the directors to try and get some of the workers onto subcontract whereby there was a saving for both parties. For United Construction there was no holiday pay, sick pay, workers comp payments. Super wasn't there at the time so --- and that sort of thing there. For the employee you had a way of minimising his tax by splitting the income with his wife."

36 Mr Carmignani's evidence in chief continued in this way:

"And what happened in relation to Mr Birighitti? --- He was offered this system of payment and he asked me and I --- I said "Yes. It could be a good way of doing it, and you pay less tax as well, and you'd have your wife included at the time" when she wasn't working at Alcoa with John, 'and it was a way of minimising your tax.'

Now, there's been some evidence about a business name registration. What, if anything --- ? --- J & L---

--- can you tell us about that? --- I think --- I can't remember, but I think I registered his business name, J & L Birighitti Engineering, for this purpose here. So his payment was made to this company --- to this business name, rather than to his sole name."

37 Mr Carmignani also provided evidence to this effect:

"You have given evidence of how what Mr Birighitti was doing down at Alcoa when he was receiving wages? --- Yeah.

To your knowledge was there any change in that when this payment system came into effect? --- What he was actually working as --- what his work was?

Yes? --- No, not really. The only thing is he had his wife helping him. They put her with him to help him because it was getting too much for one person to do all the paperwork, but otherwise he did the same thing. Yeah."

38 In October 1992 the appellant was minded to end the "sub-contract" arrangements and thereafter the respondent was treated as an employee with taxes being deducted from his wages by the appellant. Some years later his position was made redundant and he was retrenched on 21 January 2001.

39 It was not in dispute that upon the termination of his employment the respondent had been associated with and remunerated by the appellant for a period of 19 years. However, a difference of opinion arose between the parties as to whether the respondent was entitled to certain payments in respect of long service leave. The appellant contended that from July 1988 until about October 1992 the respondent was employed as a sub-contractor, with the result that the four year period allegedly served in that capacity was not a qualifying period for the purposes of long service leave entitlements.

40 The respondent commenced proceedings pursuant to s 11 of the Long Service Leave Act 1958 upon the basis that he had not been paid long service leave entitlements in accordance with s 8 and s 9(2) of the Act. He alleged in par 6 of his particulars of claim dated 17 July 2001 that "At all times between 1988 and 1992, notwithstanding payment being made as a contractor, the Claimant remained an employee of the Respondent."

41 The particulars of claim go on to allege that on termination of his employment the respondent had completed 19 years continuous service with the appellant and was entitled, pursuant to the Long Service Leave Act to 16.47 weeks pay in lieu of long service leave or, in the alternative, he was deemed to have completed 15 years continuous service and was entitled to 13 weeks pay in lieu of long service leave. A claim was advanced in the sum of $19,223.68 (in the alternative $15,173.52).

42 The appellant denied that the respondent had served the requisite minimum period of 15 years continuous service in order to qualify for long service leave. It alleged that during the contested period of four years between 1988 and 1992 he was not an employee of the appellant. Further, when the matter was brought on for hearing, the appellant submitted that the payments made to the respondent during the relevant four year period were inclusive of long service leave benefits and should be brought to account as the payments made were intended to cover all leave obligations.

43 In his reasons for decision handed down on 10 January 2002 the learned Industrial Magistrate held that the respondent had at all times been an employee and was entitled to long service leave benefits. The appellant was required to pay long service leave entitlements plus interest in the total amount of $21,711.78. When the matter was subsequently taken on appeal the Full Bench affirmed the decision below.

44 By its notice of appeal dated 9 September 2002 the appellant seeks an order quashing the decision of the learned Industrial Magistrate or, alternatively, an order that the matter be remitted for consideration as to whether any amounts paid by the appellant during the relevant period should be taken into account under s 7(2) of the Long Service Leave Act or, alternatively for the exercise of a discretion under s 11(1)(b) of the Act.

45 I note in passing that at the hearing of the appeal counsel for the appellant abandoned the ground of appeal set out in par 2 of its notice of appeal. Accordingly, it is only necessary to give consideration to the grounds of appeal set out in par 1 and par 3 of the notice of appeal. For ease of reference, I will continue to refer to the ground in par 3 as the third ground of appeal.

46 The appellant contends in its first ground of appeal that the Full Bench erred in its interpretation of the Long Service Leave Act when it determined that the respondent was, at all material times, an employee for the purposes of the Act. Particulars in support of this ground of appeal are set out in sub-paragraphs (i) to (viii) and bring under notice various facets of the relationship between the parties during the relevant four year period including principally that the respondent, knowingly and willingly, entered into an arrangement lasting over four years pursuant to which he registered a business name and submitted invoices to the appellant for work done by he and his wife. It is said further that in the absence of any finding that the arrangement was a sham, the arrangement in question was wholly inconsistent with a finding that the respondent was an employee of the appellant.

47 By its third ground of appeal the appellant contends that the Full Bench erred in its construction of s 11(1)(b) of the Long Service Leave Act which, properly construed, confers a discretion to determine whether the respondent was entitled to any payment for long service leave under the Act even if he was an employee at all material times.

48 A question arose at the hearing as to whether the Industrial Appeal Court had jurisdiction to deal with an appeal based upon such grounds. By an amendment to s 90 of the Industrial Relations Act that took effect upon 1 August 2002, shortly before the present appeal was instituted, an appeal can only be brought in the circumstances of the present case upon the ground that the decision below was erroneous in law in that there has been an error in the construction or interpretation of the Long Service Leave Act. I will come back to this issue later. For the moment, I will assume that the two grounds of appeal relied upon can be advanced by the appellant. It will therefore be useful to begin by looking at the statutory provisions and legal principles bearing upon the matters brought into issue by the grounds of appeal.

49 Section 8(1) of the Long Service Leave Act provides that an employee is entitled in accordance with, and subject to, the provisions of the Act, to long service leave on ordinary pay in respect of continuous employment with one and the same employer. By s 4, the term "employee" means, subject to certain qualifying provisions, any person employed by an employer to do work for hire or reward including an apprentice or industrial trainee. It means also any person whose usual status is that of an employee.

50 Section 6 deals with what constitutes continuous employment. By s 6(1)(a) employment of an employee shall be deemed to include any period of absence from duty for (i) annual leave; (ii) long service leave; or (iii) public holidays or half holidays, or, where applicable to the employment, bank holidays. By s 6(1)(c) it is also deemed to include any period following any termination of the employment if such termination has been made merely with the intention of avoiding obligations under the Act in respect of long service leave.

51 Section 6(2) provides that for the purposes of the Act, the employment of an employee whether before or after the commencement of the Act shall be deemed to be continuous notwithstanding certain specified events such as the transmission of a business or any absence of the employee from his employment if the absence is authorised by his employer.

52 Section 7(2) provides that any long service leave or payment in lieu thereof granted under any long service leave scheme and irrespective of the Act to an employee in respect of any period of continuous employment with his employer shall be taken into account in the calculation of the employee's entitlement to long service leave under the Act.

53 By s 8(2) an employee who has completed at least 15 years of continuous employment with one and the same employer is entitled to an amount of long service leave to the extent set out in that and following provisions.

54 Section 11 of the Act is expressed in these terms:

"(1) An industrial magistrate's court has jurisdiction to hear and determine all questions and disputes in relation to rights and liabilities under this Act, including without limiting the generality of the foregoing, questions and disputes -

(a) as to whether a person is or is not an employee, or an employer, to whom this Act applies;

(b) whether and when and to what extent an employee is or has become entitled to long service leave, or payment in lieu of long service leave;

(c) as to the ordinary rate of pay of an employee;

(d) as to whether the employment of the employee was or was not ended by an employer in order to avoid or to attempt to avoid liability for long service leave; and

(e) with respect to a benefit in lieu of long service leave under an agreement made under section 5.

(2) Jurisdiction granted under subsection (1) is exclusive of any other court except where an appeal lies to that other court."

55 It emerges from a consideration of these provisions that, on one view of the matter, the task of the Industrial Magistrate was to determine whether the respondent was an employee within the meaning of the Act and then to determine whether he had been in continuous employment with the same employer, namely, the appellant, for the minimum requisite period of 15 years. On this view of the matter, as a line of argument going to the jurisdictional issue, it might be said that in circumstances in which both parties accepted that the respondent was undoubtedly an employee before and after the relevant four year period, it was not necessary to resolve any issue of interpretation in that regard. It was only necessary for the Industrial Magistrate to make a finding of fact as to whether there had been continuity of employment.

56 Nonetheless, it is significant that the issue raised by par 6 of the respondent's particulars of claim was whether the respondent remained an employee of the appellant during the relevant four year period. Certainly, it is apparent from the reasoning of the Industrial Magistrate and of the Full Bench that it was thought necessary to determine whether he was an employee during that period. Accordingly, it will be useful to look at some of the decided cases concerning the distinction between an employee and an independent contractor.

57 Until comparatively recent times disputed cases of employment were usually resolved by reference to the so-called "control test", namely, whether the person said to be the employer can direct the person claimed to be a worker not only as to what the worker does but also as to how he or she does it. Increasing dissatisfaction with a test of this kind appears to underlie the observations of various members of the High Court in Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16. Mason J observed at 24 that the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. It is merely one of a number of indicia which must be considered in the determination of such an issue. Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee. He went on to say it is the totality of the relationship between the parties which must be considered.

58 A similar approach is reflected in the judgment of Wilson and Dawson JJ in the same case. They said at 36 that in many, if not most, cases it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee. However, that is not now a sufficient or even an appropriate test in its traditional form in all cases because in modern conditions a person may exercise personal skills so as to prevent control over the manner of doing his work and yet nevertheless be a servant. This has led to the observation that it is the right to control rather than its actual exercise which is the important thing. But in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which the work is performed for another.

59 These two members of the High Court went on to say that any attempt to list the relevant matters may mislead because they can be no more than a guide to the existence of the relationship of master and servant. The ultimate question will always be whether a person is acting as the servant of another or on his own behalf. The answer to that question may be indicated in ways which are not always the same and which do not always have the same significance.

60 The observations of Wilson and Dawson JJ were cited with approval by Kirby J of the New South Wales Court of Appeal (as he then was) in Connelly v Wells (1993) 55 IR 73. Further, in Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21 a majority of the High Court adopted a similar approach. In that case, the majority held that bicycle couriers performing work for a courier firm should not be classified as independent contractors. The majority noted that the couriers were not providing skilled labour, they had little control over the manner of performing their work, they were presented to the public in their uniforms and by the use of the Vabu logo as emanations of Vabu and their finances were superintended by Vabu. It followed that the relationship between Vabu and the bicycle courier who had caused an injury to a third party was that of employer and employee.

"In classifying the bicycle couriers as independent contractors, the Court of Appeal fell into error in making too much of the circumstances that the bicycle couriers owned their own bicycles, bore the expenses of running them and supplied many of their own accessories. Viewed as a practical matter, the bicycle couriers were not running their own business or enterprise, nor did they have independent in the conduct of their operations."

62 These previously decided cases indicate that care must be exercised in applying general precepts to particular circumstances. However, the decided cases strongly suggest that in having regard to the totality of the relationship between the parties the control test remains relevant and an important factor will be whether a person is acting on his own behalf or simply as a representative of the putative employer's enterprise.

63 The decided cases indicate also that the nature of the relationship between the parties in an employment situation must be resolved not by reference to the label used but by an examination of the substance of the matter.

64 For example, in Cam & Sons Pty Ltd v Sargent (1940) 14 ALJR 162 Dixon J said that the Court should look at the substance of the transaction and not treat a written agreement, which was designed to disguise its real nature, as succeeding in doing so if it amounted merely to a cloud of words and, without really altering the substantial relations between the parties, described them by elaborate provisions expressed in terms appropriate to some other relation.

65 In Massey v Crown Life Insurance Co [1977] EWCA Civ 12; [1978] 2 All ER 576 the appellant was employed as a branch manager of an insurance company under two contracts. Under one contract he was treated as an employee and under the other as a general agent. The Court of Appeal held that the appellant could not say that for the purpose of claiming tax advantages he was not an employee and then say that for the purpose of claiming compensation or unfair dismissal he was an employee. The agreement whereby he was appointed an agent was held to be a genuine transaction which had been aimed to effect, and did in fact effect, a change in the appellant's status from that of an employee to that of a self-employed person. He was therefore not an employee within the meaning of the subject legislation and could not bring a claim for unfair dismissal.

"A claim for unfair dismissal was quite admissible if he was employed by the company under a contract of service, but not if he was employed under a contract for services. So here he was claiming as a servant whereas, for the last two years, he had been paid on the basis that he was an independent contractor.

The law, as I see it, is this: if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label on it."

67 Lord Denning went on to say later that when the situation is ambiguous, so that it can be brought under one relationship or the other, it is open to the parties by agreement to stipulate what the legal situation between them shall be. So the way in which they draw up their agreement and express it may be a very important factor in defining what the true relationship was between them. If they declare that he is self-employed, that may be decisive.

68 It was common ground in the present case (as appears from the evidence of Mr Carmignani mentioned earlier) that the relationship between the parties was informal, both as to the initial contract of employment and as to the subsequent arrangement in 1988 whereby the respondent and his wife were remunerated by submitting invoices to the appellant. Unlike the situation in Massey v Crown Life Insurance Co (supra), being a case upon which the appellant in the present case relied, the appellant was not able to point to any agreement drawn up between the parties which could be used as a point of reference in resolving any ambiguity as to the nature of their relationship. Thus, essentially, the Industrial Magistrate, in reviewing the totality of the relationship, was obliged to take account of a variety of factors bearing upon the employment issue, and purported to do so. The Full Bench followed a similar approach.

69 Against this background I must now return to the grounds of appeal.

70 The first ground of appeal is to the effect that the Full Bench erred in its interpretation of the Long Service Leave Act when it determined that the respondent was at all material times an employee of the appellant for the purposes of the Act.

71 I noted in earlier discussion that the appellant supported this contention by reference to a number of matters specified in the notice of appeal including that the respondent, knowingly and willingly, entered into an arrangement lasting over four years whereby he held himself out as a partner in a business partnership, he was paid in response to invoices submitted to the appellant, he and his wife paid income tax and claimed expenses as contractors and not employees.

72 In essence, counsel for the appellant submitted that the arrangement made by the parties in 1988 for the respondent to be paid as an independent contractor should be treated as decisive because no specific finding had been made by either the Industrial Magistrate or the Full Bench that the arrangement in question was a sham. Long service leave is a benefit to which an employee does not become entitled until he has completed 15 years of continuous service. The respondent had failed to discharge his onus to establish that he was an employee during the relevant four year period, and therefore had failed to establish that he had completed 15 years of continuous service.

73 This brings me to the reasoning of the Full Bench and to the principal reasons for decision provided by his Honour the President P J Sharkey. The President reviewed the evidence and the findings of the learned Industrial Magistrate. It is not necessary for present purposes to summarise the findings in their entirety. It emerges from the President's review that the appellant, on the evidence of Mr Carmignani, was keen to introduce the tax minimisation scheme. However, apart from the registration of a business name and the preparation of invoices, there was no evidence that the respondent was running a business or regarded himself as being free to work for anyone else without resigning from the appellant company. The Industrial Magistrate found that the method of payment made in July 1988 was for the purpose of expediency on the part of the appellant and for tax minimisation on the part of the respondent, and although the respondent was for that purpose described as a sub-contractor, he remained, in fact, an employee and was so for the duration of his employment with the appellant.

74 President Sharkey then referred to a number of principles bearing upon the question of whether the respondent could be characterised as an employee during the relevant four year period. He referred to Stevens v Brodribb Sawmilling Co Pty Ltd (supra) and other cases concerning this issue. Having regard to Connelly v Wells (supra) he noted that in circumstances such as the present where there was no written contract to express the intention of the parties it was necessary to look at the conduct of the parties and to consider the totality of the contract in order to ascertain its true nature. He concluded that the control test remains the soundest guide in determining whether the relationship between the parties is that of employer and employee but it should not be regarded as the sole criterion. It is necessary to have regard to a range of indicia concerning such matters as the provision of tools and equipment and the existence of books and accounts for the partnership. He distinguished Massey v Crown Life Insurance Co (supra) upon the basis that in this case the avowed objective of conferring tax benefits had been initiated by the employer. The plan of action was later unilaterally re-characterised by the employer as a contract of employment shorn of tax benefits.

75 It follows from my earlier observations on the law that, to my mind, the views expressed by President Sharkey were consistent with the definition of the term "employee" in the Long Service Leave Act and with the principles reflected in previously decided cases. The President did not refer to the decision of the High Court in Hollis v Vabu Pty Ltd (supra). However, it is apparent from my review of the decided cases that the reasoning of the High Court in Hollis v Vabu Pty Ltd (supra) is consistent with the views expressed by the President. Accordingly, to this point, I am not persuaded that the reasoning of the Full Bench revealed a misunderstanding of the relevant principles of law or that it erred in its interpretation of the Long Service Leave Act.

76 According to counsel for the appellant, in circumstances where the parties had applied their minds to a change of some sort in the relationship in 1988, the crucial question was whether sufficient weight had been given to the evidence that there was a common intention to effect a change. In the absence of a finding that the arrangement was a sham, counsel for the appellant argued, it had to be accepted that the avowed intention of the parties to proceed upon the basis that the respondent was an independent contractor should be treated as decisive. A subjective intention that the respondent remain as an employee for purposes other than implementation of the tax objective should be disregarded.

77 I am not persuaded that this ground of appeal has been made out. In my view, it was not necessary for the Industrial Magistrate or for the Full Bench to make an explicit finding that the arrangement was a sham. It emerges from my review of the decided cases that both the Industrial Magistrate and the Full Bench were entitled to have regard to the totality of the relationship between the parties and to examine various indicia suggesting the presence of a master and servant relationship before moving to a conclusion as to how the relationship should be characterised. It is apparent from the various reasons for decision that the task was approached in that manner and with a view to determining what was the substance of the relationship. In effect, the Full Bench concluded, correctly in my view, that work undertaken by the respondent during the relevant four year period was not undertaken on his own behalf but as a representative of the employer's enterprise with the result that he should be regarded as an employee. To echo Lord Denning in Massey v Crown Life Insurance Co (supra), the true relationship of the parties was that of master and servant and the parties could not alter the truth of that relationship by putting a different label on it.

78 A conclusion of the kind I have just described was open on the evidence and I am therefore not persuaded that the Full Bench erred in its interpretation of the Long Service Leave Act when it determined that the respondent was an employee during the relevant four year period.

79 The third ground of appeal is that the Full Bench erred in its construction of s 11(1)(b) of the Long Service Leave Act which, properly construed, confers a discretion to determine whether the respondent was entitled to any payment for long service leave under the Act even if he was an employee at all material times.

80 I remind myself that s 11(1)(b) of the Act requires the Court to make findings of fact and law in relation to "whether and when and to what extent an employee is or has become entitled to long service leave or payment in lieu of long service leave".

81 Counsel for the appellant submitted that it could be inferred from the payments made to the respondent that he received payments equivalent to at least what he would have received on account of accrual for long service leave during the period that he was engaged as a contractor. Supplementary written submissions were provided to the Industrial Appeal Court in the course of argument with a view to demonstrating that the amount actually earned by the respondent during the relevant four year period exceeded what he would have earned as a staff employee at the relevant time.

82 This set the scene for submissions directed to s 7(2) of the Act whereby any leave in the nature of long service leave or payment in lieu thereof, granted, whether before or after the coming into operation of the Long Service Leave Act, under any long service leave scheme to an employee in respect of any period of continuous employment with his employer shall be taken into account in the calculation of the employee's entitlement to long service leave or payment in lieu.

83 When the payments made to the respondent were considered within the framework of s 7(2) and s 11(1)(b), counsel argued, it became apparent that a determination would have to be made by the Industrial Magistrate as to how certain payments should be regarded, for it would be contrary to public policy to allow the respondent to have the benefit of both a favourable tax position as a contractor, and benefits under the Act as an employee. A determination of this kind imported an element of value judgment and thus, in determining to what extent the employee had become entitled to payment in lieu of long service leave in these circumstances, the Industrial Magistrate was, in effect, exercising a discretionary power. The Full Bench had erred in misconstruing the nature of the power allowed to the Industrial Magistrate.

84 As the learned Industrial Magistrate noted, and as the Full Bench affirmed, there was no evidence that the parties turned their minds to long service leave when the arrangement of 1988 was entered into or at any time in the course of the existence of the arrangement. The term "scheme" in s 7(2) requires the parties to come up with a coherent plan directed to the issue of long service leave or payment in lieu thereof and the evidence does not support a conclusion that this course of action was pursued.

85 Where the parties to a contract of employment have agreed that a sum of money will be paid and received for express purposes it is questionable whether the employer can claim subsequently that payments made pursuant to the contractual obligation can be relied upon in satisfaction of entitlements arising outside the agreed purpose of the payment: Logan v Otis Elevator Co Pty Ltd [1999] IRCA 4.

86 However, for present purposes, it is not necessary, in my view, to review the evidence bearing upon this aspect of the matter in order to resolve the issue raised by the third ground of appeal. I am of the view that s 11(1)(b) does not in its terms purport to confer a discretionary power to determine whether the respondent was entitled to any payment for long service leave. It may prove necessary in certain cases for some careful calculations to be made as to the extent of the entitlement, if any, in a particular case but the careful exercise of a power to award relief in that manner does not, of itself, establish that the Industrial Magistrate is empowered to exercise a discretion.

87 It follows that I am not prepared to allow the appeal on this ground.

88 I indicated in my introductory observations that an issue was raised at the hearing as to whether the Industrial Appeal Court had jurisdiction to deal with an appeal upon the grounds reflected in the notice of appeal. In dealing with this issue it will be useful to look briefly at the relevant provisions of the Industrial Relations Act 1979 and some recent amendments to the same.

89 Section 85 of the Industrial Relations Act deals with the constitution of the Western Australian Industrial Appeal Court, being a Court consisting of four members. The members of the Court shall be such Judges as the Chief Justice of Western Australia shall from time to time nominate to be members of the Court. Section 86 provides that subject to the Act, the Court has jurisdiction to hear and determine appeals under s 90 and s 96K. It is not necessary to look at s 96K for present purposes.

90 Until comparatively recent times s 90(1) provided that, subject to the section, an appeal lies to the Industrial Appeal Court in the manner prescribed from any decision of the President, the Full Bench or the Commission in Court Session on the ground that the decision is erroneous in law or is in excess of jurisdiction but upon no other grounds.

91 On 19 February 2002 the Minister for Consumer and Employment Protection introduced in the Legislative Assembly the Labour Relations Reform Bill 2002 which reflected a considerable number of proposed amendments to the Industrial Relations Act. In the course of his second reading speech the Minister referred to amendments affecting the Industrial Appeal Court and observed that under the new legislation, the Industrial Appeal Court's role would be limited to important legal and jurisdictional matters. Further, the Court will be required to dismiss an appeal that is technically correct, if the Court finds that the appellant has not suffered an injustice. The reforms were intended to ensure that the discretionary exercise of power by the Industrial Relations Commission was not overturned by the Court unless there was some significant specified error. This would reduce the increasing tendency to legal technicality that detracts from the proper role of the commission in conciliating and arbitrating industrial matters in a practical manner.

92 The Labour Relations Reform Act 2002, in so far as it affected s 90 of the Industrial Relations Act, took effect on 1 August 2002, that is to say, shortly before the appeal was instituted in the present case. The former s 90(1) was replaced by a new provision which now reads as follows:

"(1) Subject to this section, an appeal lies to the Court in the manner prescribed from any decision of the President, the Full Bench, or the Commission in Court Session -

(a) on the ground that the decision is in excess of jurisdiction in that the matter the subject of the decision is not on an industrial matter;

(b) erroneous in law in that there has been an error in the construction or interpretation of any Act, regulation, award, industrial agreement or order in the course of making the decision appealed against; or

(c) on the ground that the appellant has been denied the right to be heard,

but upon no other ground."

93 It is apparent that in the context of the present case the question that arises is whether, having regard to the new s 90(1)(b) the present appeal is advanced upon the ground that a decision of the Full Bench is erroneous in law in that there has been an error in the construction or interpretation of the Long Service Leave Act. I note in passing that the grounds of appeal in the present case have clearly been prepared with an eye to the restrictions reflected in the new provision. The first and third grounds of appeal assert that the Full Bench erred in its interpretation of the Long Service Leave Act.

94 Statutory provisions have frequently sought to limit the right of appeal from specialised tribunals with a view to ensuring that the tribunal is not impeded in the exercise of its functions and that it becomes the principal arbiter of disputes within its own field. However, the principles according to which the jurisdiction of the Appeal Court is limited are not always easy of application. Distinctions between a question of fact and a question of law can be elusive. The question of what constitutes an error of law has been considered by the courts on various occasions.

95 In Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 an appeal was brought against a decision of the Administrative Appeals Tribunal that held that certain goods were not free of import duty. The right of appeal was limited to appeals on questions of law. The principal question in the appeal was whether the Full Court erred in finding that it is an error of law to construe a phrase in a legislative instrument by giving a trade meaning to some words in the phrase and the ordinary meaning to the rest of the words in the phrase.

96 The Tribunal had found that the phrase "silver dye bleach reversal process" in a tariff concession order had no technical or trade meaning but that the words "silver dye bleach process" did have such a meaning. The Tribunal construed the composite phrase by reference to the technical or trade meaning of "silver dye bleach process" and the ordinary meaning of "reversal". The High Court held that the Tribunal's construction involved no error of law. It held that it was sufficient to raise a reviewable question of law that the composite phrase was identified as being used in a sense different from that which it had in ordinary speech.

97 In the course of a joint judgment the High Court observed at 395 that in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 five general propositions had been identified as bearing upon the distinction between law and fact in a statutory context. The five general propositions were as follows:

"1. The question whether a word of phrase in a statute is to be given its ordinary meaning or some technical or other meaning is a question of law.

2. The ordinary meaning of a word or its non-legal technical meaning is a question of fact.

3. The meaning of a technical legal term is a question of law.

4. The effect or construction of a term whose meaning or interpretation is established is a question of law.

5. The question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law."

98 The High Court went on to observe that in Collector of Customs v Pozzolanic Enterprises Pty Ltd (supra) the Full Court had qualified the fifth proposition. The High Court said that, when a statute uses words according to their ordinary meaning and it is reasonably open to hold that the facts of the case fall within those words, the question as to whether they do or do not is one of fact. The High Court said further that such general expositions of the law were helpful in many circumstances. But they lost a degree of their utility when, as in the case before the High Court, the phrase or term in issue was complex or the inquiry that the primary decision-maker embarked upon was not clear.

99 Let me now apply reasoning in these cases to the circumstances of the present case. Section 90(1) in its amended form clearly reflects a parliamentary intention to limit the jurisdiction of the Industrial Appeal Court to certain prescribed areas of disputation and that intention must be respected. For myself, I cannot see that the new phrase "erroneous in law" represents any significant departure from the former concept of "error in law". The term "erroneous in law" seems to have been used principally so that the grammar conforms to the structure of the provision.

100 It follows from this view of the matter that the restriction intended to be imposed is to be found principally in the following words "in that there has been an error in the construction or interpretation of any Act...". This clearly suggests that it is not enough for the prospective appellant to point to some error of law according to common law principles. That which is said to be "erroneous in law" must be linked to the presence of a statutory provision which purports to govern the situation.

101 Thus, in the present case, counsel for the respondent contended, as to the first ground of appeal, that the requirements of s 90(1)(b) of the Industrial Relations Act had not been satisfied. In essence, he submitted that in the context of the present case the question of whether the respondent was an "employee" during the relevant period ultimately had to be resolved by common law principles of the kind reflected in the decided cases mentioned earlier with the result that the decision appealed from was not erroneous in law in that there had been an error in interpreting the Long Service Leave Act. In any event, once it was accepted that the respondent was an employee initially the only issue remaining was the factual question of whether there had been any change in his circumstances sufficient to interrupt the requirement of continuity.

102 As to the first ground of appeal, I recognise that much of the reasoning of the Full Bench is devoted to a review of common law principles bearing upon the contentious issue. Nonetheless, it is quite clear that both the Industrial Magistrate and the Full Bench were conscious that at the end of the day the operative point of reference was the definition of "employee" in the Long Service Leave Act. The issue presented to the Industrial Magistrate by the respondent's particulars of claim at the outset was whether he could be characterised as an employee within the meaning of the Long Service Leave Act during the relevant four year period. It is well known that in the field of industrial legislation including statutes concerning workers compensation that special and extended meanings are given to terms bearing upon master and servant relationships. Accordingly, a term such as "employee" cannot be regarded simply as a term with an ordinary meaning so that, in accordance with proposition two of the Collector of Customs' case mentioned earlier, the ordinary meaning of the word can be regarded as a question of fact.

103 In the circumstances of the present case, I consider, having regard to the propositions set out in the Collector of Customs' case, that the meaning of the term "employee" as it is used in the Long Service Leave Act is a technical legal term which should be characterised as a question of law. It was not possible ultimately to resolve that question of law without being conscious of and giving proper weight to the way in which the term "employee" was defined and used in the Long Service Leave Act. Likewise, it was not possible to determine whether there had been sufficient continuity of employment without taking account of and construing the provisions concerning that concept set out in s 6 of the Long Service Leave Act.

104 It follows that, in my view, the Industrial Appeal Court has jurisdiction to deal with the first ground of appeal upon the basis that it is an appeal against a decision which is said to be erroneous in law in that there has been an error in the interpretation of the Long Service Leave Act.

105 Similar considerations apply when I turn to a consideration of the third ground of appeal. What I have just said in respect of the term "employee" applies in this context also. Additionally, in this case, a question was raised as to the nature of the power being exercised by the Industrial Magistrate under s 11 of the Long Service Leave Act. That issue could only be resolved by close attention to the language used in the relevant statutory provision. It therefore seems to me that this too represented a challenge to a decision which was said to be erroneous in law in that there has been an error in the interpretation of the legislation in question.

106 I consider that the Industrial Appeal Court has jurisdiction to deal with the appeal instituted by the notice of appeal dated 9 September 2002. However, for the reasons previously given, I consider that the appeal should be dismissed.