Determining Contracts of Service through the eyes of the SAET: an assessment of Vartto v RTWSA & Condesa Electronics

Top Tips

1. Look for a written agreement or contract

Always consider the written terms of any contract, agreement or understanding between the prospective employer and worker, noting the relationship should be interpreted according to those terms.

2. If there’s nothing in writing, look for evidence of an oral agreement to apply the multifactorial test

Absent evidence of clear contractual terms, it is still appropriate to consider the nature of the working relationship between an individual and a potential employer to determine whether it resembles, on balance, an employment arrangement or a third-party arrangement.

Also keep in mind that employment arrangements are not static and can often fluctuate over time depending on the needs of the parties.

3. All factors are not equal

The Court considered the degree of control a person is subject to, and the degree of integration into the business of a putative employer, as particularly significant when exercising their evaluative judgement. The test to be adopted involved a balancing act, so a thorough analysis of the relationship from a financial and operational perspective is recommended.

The South Australian Employment Tribunal’s recent decision in Vartto v Return to Work Corporation of South Australia & Condesa Electronics Pty Ltd [2023] SAET 82 (Vartto) represents a recognition of recent leading High Court authorities, which provided guidance on the difference between a worker and a contractor, as well as steps towards integration of those principles into the RTW scheme.

While both High Court decisions serve to emphasise a shift to the primacy of the written contract in characterising the nature of employment relationships as a first port of call, Vartto itself represents a useful authority in setting out what should be considered in the absence of a written contract, arrangement or understanding between a prospective employer and worker to determine an individual’s employment status.

Background

First and foremost, the Vartto decision directly discusses the recent decisions of the High Court in ZG Operations¹ and Personnel Contracting² which provide that:

• when assessing whether an individual is an employee or an external contracting party and has comprehensively committed that arrangement to writing, any contract or written agreement or understanding will generally define the nature of the relationship, regardless of the way in which the parties conducted themselves after the fact, and
• where a contract does not exist, the Court will then be tasked with evaluating whether the relationship between the parties resembles that of a traditional employment relationship, by evaluating the post-contract conduct of the parties and considering whether their relationship (on balance) resembles an employee/employer relationship or a different type of arrangement. 

The High Court’s recent commentary is important because the SAET has, in recent memory, had a tendency not to consider in detail whether a contract was in existence, prior to proceeding to consider the nature of the relationship between a prospective employer and employee. This has led to a weakening of the essential boundaries of the scheme to compensate only workers, and not external contractors of an employer.

Facts

Mr Vartto entered into a verbal arrangement with Condesa Electronics Pty Ltd to manufacture and repair electronic music equipment in exchange for an hourly payment, in or around November 2015.

Mr Vartto’s work duties initially included equipment repairs and electronics manufacturing, but shifted over time to involve electronic board assembly. These tasks were said to be performed pursuant to a strict methodology and under the guidance and supervision of Condesa. By 2021, Mr Vartto had developed ‘De Quevains tensosynovitis’ – a condition affecting the tendons of his right thumb – and accordingly lodged for medical expenses and weekly payments under the Return to Work Act 2014 (SA) (RTWA).

The matter eventually proceeded to trial, as Condesa argued that the worker was an independent contractor and thus was precluded from any entitlements to compensation.

Decision

In determining the nature of the engagement between Mr Vartto and Condensa, the Court first considered whether or not a contract existed between the two parties. This approach is consistent (as discussed by the High Court in both ZG Operations and Personnel Contracting) with the shift away from automatically considering the nature of the relationship between the parties, back to a firmer focus on the intention behind any ascertainable contractual terms.

As there was no written contract and very little evidence of any oral terms, in this particular matter DP J Calligeros concluded that no contract existed between the parties.

It was only after this finding was made that he proceeded to consider the post-contract conduct of the parties (i.e. the working relationship itself) to ascertain the nature of their relationship. Use of the traditional multifactorial test was considered appropriate, where factors, or ‘indicia’ would be evaluated to determine whether Mr Vartto better resembled an employee or contractor.  

However, DPJ Calligeros’s interpretation of the leading common law authorities suggests that not all indicia should be evaluated equally. His Honour attaches particular significance to the degree of control exercised by the putative employer on a person, and the degree by which a person is integrated into its business. His Honour’s emphasis on this being a question of degree is clear, and as such, caution should be taken in attempting to form a definitive or exhaustive list of indicia in mind of future considerations.

Nonetheless, Mr Vartto succeeded in making out a contract of service noting that the  following factors were considered: -

• Mr Vartto adopted highly detailed and frequent instructions and directions as to how to perform the work required
• his work was subject to continuous and long-term quality checks, and his role changed from general manufacturing to performing one niche part of the assembly process
• he was paid for time spent training and for travel
• it was not proven that Mr Vartto had the right to delegate work to others
• there was no ability to generate goodwill – all manufactured products were badged as ‘Condesa’ products, with no acknowledgement of contributions made by Mr Vartto, and
• he devoted most of his income-earning-efforts to performing work for Condesa, noting that in any full financial year, not less than 80% of his income came from Condesa.

The factors suggestive of a contract for service (or independent contractor relationship) were as follows: -

• Mr Vartto registered, provided and received payments into his own ABN
• he supplied most of his own tools
• had freedom in terms of work hours and time off, and
• he performed work for Condesa at home, rather than in a premises owned or leased by Condesa.

Conclusion

The Tribunal’s decision in Vartto largely demonstrates an adoption of the slew of recent High Court decisions reiterating the primacy of written contractual terms over and above all other factors.

It also stands for the notion that conventional thought processes remain useful when assessing the nature of employment relationships in the absence of such written terms, but leaves open the possibility that future decisions can build upon the decisions in ZG Operations and Personnel Contracting to reinforce the boundaries of the scheme, and ensure that any contractual terms between the parties are given primary consideration when determining whether an individual meets the definition of a worker under the RTWA.

1. ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (ZG Operations).
2. Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting).