High Court truckies reach the end of the road – Full Federal Court refuses superannuation award

On remittal from the High Court, ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, the Full Federal Court considered the last outstanding issue in this long-running saga.

Were the truck drivers entitled to compulsory superannuation under the extended definition of “employee” in section 12(3) of the Superannuation Guarantee Administration Act 1992 (Cth) (SGA Act)?

In Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48, channelling the ‘contract is king’ approach (adopted by the High Court in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2), the Full Court decided they were not.

What is the section 12(3) extended employee definition?

Section 12(3) of the SGA Act provides that a person who works under a contract that is wholly or principally for their labour will be an employee of the other party to the contract. Independent contractors who fall under this definition are deemed by the SGA Act to be employees (for superannuation purposes), and as such, are entitled to compulsory superannuation.

For the truck drivers in this case, the central question was whether the provision of trucking services through a partnership structure fell within this extended employee definition.

The Full Court said three elements needed to be satisfied for s 12(3) and two were not.

First, there was no contract with a natural person in their individual capacity.

Second, the contracts were not wholly or principally for the labour of a person.

There was no contract with a person

The Full Court said that a contract under s 12(3) must be with an identified natural person who is party to the contract in their individual capacity.

However, the truck drivers (and their wives) were parties in another capacity, as partners in a partnership. This meant the contract was not covered by section 12(3).

The deeming of a partnership as a legal person under section 72(1) of the SGA Act, so that obligations, liability and penalties can be imposed on a partnership as an employer, did not change this position. Section 72(1) did not make a partnership capable of being an employee under section 12(3).

Additionally, the Court observed that the requirement of a “natural person contracting in their individual capacity” does not automatically mean that a tripartite contractual arrangement will always fall outside the extended employee definition. Rather, the key focus is on whether there is a bilateral exchange of promises between a natural person (who provides their labour) and another party to the contract (who provides payment for this labour).

It is not simply a matter of counting the number of parties to a contract and looking at who the named parties to a contract are (as this would permit parties to circumvent the superannuation guarantee regime by simply forming contracts with more than two parties). In this regard, the Full Court referred to its earlier judgment in Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 as an example of a case where an individual was found to be an employee under section 12(3) despite being party to a tripartite services agreement.

The contract was not wholly or principally for the labour of a person

The Full Court agreed that the contracts were not wholly or principally for the labour of a person.

This was to be assessed from the “employer’s” perspective, and the starting point for the enquiry was the terms of the contract.

The contractual terms key to the Court’s conclusion were:

  • While the contracts required the provision of labour, they also required the drivers to provide functional and properly maintained equipment, namely their trucks. This was described as “a substantial capital asset” for which the drivers’ partnerships were wholly responsible (this included making arrangements to insure the trucks).
  • The partnerships could delegate the drivers’ work to a substitute driver (although this was only with the consent of ZG Operations).

These contractual terms demonstrated that the truck drivers had undertaken to provide a goods delivery service and not a labour service. Labour was a component of the service but was not the “principal benefit” received by ZG Operations (although the Full Court did observe that the truck drivers had failed to adduce evidence of the market value of their labour vis-a-vis the market value of their equipment).

Tips for principals

This is an important case providing principals with guidance on the operation of section 12(3) of the SGA Act.

The case demonstrates that if principals wish to avoid compulsory superannuation, a partnership structure may assist. However, the terms of the relevant engagement contract must be closely scrutinised and must not disclose a bilateral exchange of promises for the provision of, and payment for, an individual’s labour. Of course, care must be taken with this approach as a partnership is not a legal entity distinct from its members.

Even where interposed legal entities such as corporations are utilised, principals need to be careful to ensure that the terms of any services agreement do not entail a bilateral exchange with an individual for their labour. Where possible, and particularly where a principal wishes to avoid liability for compulsory superannuation, it would be wise for a principal to refrain from entering into tripartite arrangements of this kind (which are different to a traditional labour hire arrangement) altogether. Rather, the safest approach may be for a principal to contract directly with a corporate entity, with the parties’ written agreement not making any references to services or labour provided by an individual.

Getting this right is important, particularly as the issue of superannuation underpayments has received significant attention in recent years. The introduction of the Fair Work Legislation Amendment (Protecting Worker Entitlements) Bill 2023 (Cth) into Federal Parliament on 29 March 2023 demonstrates this shift, as this bill seeks to make superannuation entitlements an enforceable right under the National Employment Standards. That said, as currently drafted, this new right under the bill only applies to individuals who fall within the ordinary meaning of “employee” under the Fair Work Act 2009 (Cth) and does not apply to individuals who are employees by virtue of the extended meaning of employee under the SGA Act.

Kingston Reid can assist with any issues relating to the engagement of workers within your organisation, including advising on the most appropriate labour engagement model for your business and assisting with any entitlement-related questions or issues that may arise.

 

Duncan Fletcher
Partner
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Yoness Blackmore
Executive Counsel – Knowledge
+61 2 9169 8419
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Tae Kim
Lawyer
+61 8 6381 7068
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