'1-2-3-4 let's go door-to-door' – chanting stops for employer after independent contractor finding
The engagement of door-to-door sales representatives as independent contractors has proven to be a costly mistake for one insurance company. In this recent decision, the Federal Court of Australia found that the totality of the relationship between the sales representatives and the employer was one of employment and has awarded half a million dollars in accrued annual and long service leave payments to the employees.
The five Applicants were engaged by the insurance company as sales representatives, signing contracts that provided they were 'contractors' and understanding throughout their time with the company that they were 'independent contractors'.
The main role of the sales representatives was to travel door-to-door collecting insurance policies from customers whose policies were up for renewal and seeking to sell new policies to new customers.
As most of the employer's customers were located in rural areas, the sales representatives were allocated to teams, with each team targeting a particular rural area each month.
Typically, the policies written in one particular area would be due for renewal six months later which would be when the sales team returned to that area.
The employer would keep track of which customers' policies were coming up for renewal in any particular month and also generate 'leads' for the sales team through customers whose policies had been cancelled as well as customers from the Employer's other insurance division.
Each week the sales representatives would attend a 'warm-up' meeting which consisted of rhythmic chants ('1-2-3-4 let's go door-to-door') and motivational songs. The sales representatives would also attend a 'cash in' or 'check in' meeting where all the policies they had sold that week were given to the team leader.
Contractor vs. Employee
The central issue before the Court was whether the sales representatives were employees. In reaching its decision, the Court restated the common law test which requires an examination of the 'totality of the relationship' and the weighing up of several indicia of employment.
One of the key indicia identified by the Court was in relation to goodwill and the finding that there was only one business operating, that of the employer. The Court found that the inability of employer's agents to generate goodwill was due to the fact that the only work that they undertook was the work of the employer. They did not generate a client base but instead increased the client base of the employer. There was therefore no separate business that the agents could sell.
Control was another significant factor in this case with the Court discussing the various elements of control the employer had over the sales representatives. This included:
- the employer dictating how and where the agents performed their work, issuing scripts in respect of how sales should be made, providing detailed training and giving direction and undertaking performance management;
- the agents acting on leads provided to them by the employer;
- the agents forming part of a hierarchical structure, with agents at each level being dependent upon the other for their work; and
- whilst not strictly relevant to control, the agents were also ingrained within the culture of the organisation, singing company songs and being involved in company wide sales competitions.
Implications for employers
This decision highlights that employers need to be very cautious when engaging agents as 'independent contractors'. Employers must ensure that the totality of the relationship does not give rise to one of employment. With this case placing greater emphasis on control and goodwill, employers can minimise risks by ensuring representatives engaged as independent contractors have full control over their work, such as the freedom to determine how, when and where the services will be performed and permit representatives to engage in alternative business activities.