Employee successfully claims 21 years of entitlements after employer “recklessly disguised the true legal nature of the relationship” as one of principal and independent contractor. 

Key point

• It is important for employers to understand all the factors that could indicate whether a worker is an employee or an independent contractor, particularly in a long-term working arrangement, as this will have implications for the rights and obligations of both parties to the relationship.

The story

For 21 years, Garo Balemian worked in a cabinet making business, Auscraft Contructions Pty Ltd (Auscraft), owned and run by his friend Bedros Bahar.

By the start of 2015, Mr Balemian had repeatedly complained to Mr Bahar that he was owed superannuation dating back to 2010. Consistent with the actions of an employer, Mr Bahar continued to tell him his superannuation would eventually be paid. In February 2015, Mr Balemian made a complaint to the Australian Taxation Office and sought an investigation about the failure to pay him superannuation.

In March 2015, a liquidator was appointed to Auscraft. In April, Mr Balemian was told by Mr Bahar that Auscraft was no longer trading and that his “entitlements” would be transferred to a new company, Mobilia Manufacturing Pty Ltd.

In May, Mr Balemian advised Mr Bahar that he no longer wished to work for him and in June, he initiated proceedings in the Federal Circuit Court of Australia against Mr Bahar and the new company, Mobilia.

The case

Mr Balemian argued that he had always been an employee of Auscraft and Mobilia, and that Mr Bahar and the companies had contravened various provisions of the Fair Work Act 2009 (Cth) (FW Act) and the Manufacturing and Associated Industries and Occupations Award 2010 (Award).

Mr Balemian’s claims for underpayments and failure to pay annual leave, long service leave, superannuation, and public holiday pay amounted to over $230,000.

Mr Balemian gave evidence that he and Mr Bahar had never really discussed the nature of their relationship. He said that while he was too embarrassed to raise issues to do with money and leave entitlements, he always considered himself to be an employee, and always considered that he would eventually receive these entitlements. The judge accepted his evidence as supporting the existence of an employment relationship, as Mr. Balemian:

• worked regular and long hours, including weekends, often over 50 hours a week;

• submitted weekly invoices or timesheets;

• was paid a flat rate of $16.00 to $21.00 during the course of the working relationship which was considerably lower than the rate that a contractor would charge to perform similar work;

• always informed Mr Bahar if he could not attend for work due to illness;

• always informed Mr Bahar in advance if he ever planned to take a holiday; and

• regularly used the company car and claimed related expenses

Mr Bahar argued that Mr Balemian was a contractor. In support, Mr Bahar pointed to the fact that Mr Balemian had an ABN, was paid GST, and represented himself to the ATO as self-employed for the 21 years he worked for Mr Bahar.

However, Mr Bahar himself told the court that Mr Balemian could not make an unsupervised decision and that Mr Bahar had to authorise any product that Mr Balemian finished. It was accepted that Mr Balemian could not delegate the performance of his work to anyone else and he did not have the power to decide how, when, and what work was to be performed. And when Mr Bahar was cross-examined, he admitted that Mr Balemian was in fact entitled to superannuation. He only decided to stop paying it to Mr Balemian in 2010 “because we were losing money… we didn’t have enough money in the company”. Each of these factors indicated that Mr Balemian was in fact an employee of Auscraft.

The outcome

The judge concluded that the “picture painted from the accumulation of detail” showed that Mr Balemian was at all material times an employee.

It was found that the arrangement set up by Mr Bahar and Auscraft “at the very least recklessly disguised the true legal nature of the relationship”. The arrangement misrepresented Mr Balemian’s employment as an independent contracting arrangement, which was in breach of the FW Act.

Mr Bahar was the sole director and effective manager and owner of each company when the breaches of the FW Act were committed. He was declared to be “involved in”, and therefore liable for civil penalties under the FW Act for each of Auscraft and Mobilia’s breaches. The judge ordered that Mr Balemian was entitled to the following compensation from Mr Bahar and Mobilia:

• rates of payment in accordance with the Award (going back six years);

• 425 days of annual leave;

• 18.42 weeks of long service leave;

• superannuation payable from January 2010; and

• public holidays limited to a period of six years prior to the claim.

The bottom line for employers

• Do not just assume the status of a long-term worker — all the circumstances of a working arrangement are important to determine whether a worker is an employee or an independent contractor.

• Entitlements to unpaid annual leave and long service leave crystallise at the time of termination of employment and therefore the standard limitation period of six years does not apply.