An Australian insurance firm has been fined by the Federal Court after it wrongfully engaged five former insurance sales representatives as independent contractors rather than as employees.
ACE Insurance has been fined $10,000 and ordered to pay significant compensation to the reps for accrued leave entitlements and interest, even though the Court found the company relied on the advice of Queen's Counsel that the insurance sales representatives were not employees.
According to reports in SmartCompany.com.au, the contractual provisions covering the ACE Insurance sales reps had several factors indicating that they were independent contractors, including:
the agents understood themselves to be contractors;
they were payment by commission;
the agents used their own vehicles and some employed their own administrative staff;
the agents were permitted to carry on other businesses;
and some agents had incorporated themselves.
However, the court ruled against the insurer on the basis that it was able to exercise some control over how the agents did their work, required long hours of work so the agents were unable to realistically carry on other businesses and the agents were not conducting their own business but were instead enhancing the goodwill of the insurer.
The Court determined that payment of accrued leave entitlements should arise at the termination of employment and usually at the "actual salary rate the employee was receiving immediately prior to termination."
On this basis, a long-serving sales representatives at ACE Insurance of seven years and on a salary deemed to be $127,683 based on commission earnings in his last financial year of service was awarded $325,671 and the Court recognised accrued leave entitlements for his entire period of service.
Sarah Yu, special counsel at law firm Freehills, told Insurance Business: “The decision was handed down last year and now the penalty has been enforced. There was a breach of the superannuation legislation. I have not heard if they [ACE Insurance] will appeal the penalties, but I would be surprised if they do.
“The lesson here is even if you call people individual contractors, they may be employees for SuperGuarantee purposes and you might have to pay superannuation for them. Plus new legislation that has passed means that directors can be personally liable for unpaid superannuation amounts, so we are asking employers to do due diligence on who they are paying superannuation,” added Yu.