FC of T v DE LUXE RED AND YELLOW CABS CO-OPERATIVE (TRADING) SOCIETY LTD & ORS
98 ATC 4466
Full Federal Court
Judgment date: Judgment delivered 15 April 1998
Beaumont, Foster and Sackville JJ
Section 221C(1A) of the Income Tax Assessment Act 1936 (``the Tax Act'') provides for deductions by an employer from salary or wages as follows:
``(1A) Where an employer pays to an employee salary or wages, the employer shall, at the time of paying the salary or wages, make a deduction from the salary or wages at such rate (if any) prescribed [by regulations made for the purposes of enabling the collection by instalments of income tax].''
``Salary or wages'' is defined by s 221A(1) to mean-
``salary, wages, commission, bonuses or allowances paid... to an eligible person as such, and, without limiting the generality of the foregoing, includes... any payments made:
- (a) under a contract that is wholly or principally for the labour of the person to whom the payments are made, where:
- (i) the person making the payments under the contract is not a natural person; or
- (ii) the payments under the contract are not wholly or principally of a private or domestic nature.''
``Eligible person'' is defined by s 221A(1) to mean, inter alios-
``(a) a person who is an employee within the ordinary meaning of that expression.''
By s 221A(2)(b) it is provided, for the purposes of the definition of ``salary or wages'' in s 221A, that-
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``(b) a payment made to a person under a contract that is wholly or principally for the labour of any person shall be taken to be a payment made under a contract that is wholly or principally for the labour of the person to whom the payment is made if:
- (i) in the case of a payment that is made in respect of labour that has been performed, in whole or in part, before the time when the payment is made - the whole or principal part of the labour that was performed before the time when the payment is made was performed by the person to whom the payment is made; and
- (ii) in the case of a payment that is made in respect of labour the whole of which is to be performed after the time when the payment is made - the person making the payment can reasonably be expected to believe that the person to whom the payment is made will perform the whole or principal part of the labour in respect of which the payment is made;''
The respondents are taxi operators, taxi co- operatives, and taxi plate owners operating in several States under State legislation regulating taxis. The appellant, the Federal Commissioner of Taxation (``the Commissioner''), claimed that each of the respondents paid amounts to taxi drivers which fell within the meaning of the term ``salary or wages'' in s 221C(1A) of the Tax Act, so that the respondents were bound to make a deduction as required by that PAYE provision. The Commissioner also claimed, for similar reasons, that the respondents were liable to pay a superannuation guarantee charge under the Superannuation Guarantee (Administration) Act 1992, which contains similar provisions to those in the Tax Act: see ss 11 and 12. The respondents contended that no relationship of employment existed with drivers and, in consequence, no liability arose to deduct PAYE tax, or to pay a superannuation guarantee charge. The respondents' principal contention was that the relationship was one of bailment.
The respondents commenced proceedings for appropriate declaratory relief. A Judge of the Court (Hill J) upheld the respondents' claim and made declaratory orders accordingly (see
De Luxe Red and Yellow Cabs Co-operative (Trading) Society Ltd v FC of T 97 ATC 4770). The Commissioner now appeals from these orders.
The respondents operate in New South Wales, Victoria, Queensland and Western Australia. The primary Judge made findings about the operations of each of the respondents, although ultimately holding that such differences as existed were immaterial to the result. By agreement of the parties, the argument on appeal was confined to the position in New South Wales, it being common ground that the position of the respondents in other States did not differ, in principle, in any material respect.
Three of the respondents operate in New South Wales. For present purposes it is necessary only to consider the position of the first respondent, De Luxe Red and Yellow Cabs Co-operative (Trading) Society Limited (``De Luxe''). The facts relating to De Luxe's operations were not in contention on the appeal.
(a) The factual context
De Luxe is a Sydney-based co-operative with approximately 1,500 licensed members and shareholders who operate approximately 2,000 taxis. De Luxe also manages a fleet of approximately 54 taxis. It is the arrangements concerning the managed fleet that give rise to the question in the present case.
De Luxe offers various services and facilities to its members at its base in Sydney, including a service station, a tyre bay, a radio repair shop, a repair and maintenance operation area, a brake bay, a cafeteria, an area for drivers to wait during shift changes, storage and parking facilities and a smash repair operation. A wholly owned subsidiary of De Luxe, Taxis Combined Services Pty Limited, owns and operates a computerised radio communication and dispatch system to facilitate bookings for drivers of taxis owned and operated by members and licensees of De Luxe as well as taxis in the managed fleet. De Luxe also provides separate communication facilities for other Sydney-based operators. De Luxe has about 70 permanent drivers and between 80 to 100 casuals. About three-quarters of its casual drivers are regulars. Almost all day drivers are permanents, and the majority of night drivers are regular casuals.
All registration and maintenance costs for the taxis in the managed fleet are borne by De Luxe
98 ATC 4469
and almost all drivers take taxis on the basis that they are responsible for fuel and the cost of washing the car. All mechanical repairs for taxis are performed by De Luxe at the base and all panel beating repairs are done at Taxis Combined smash repairs at the base or at De Luxe's other smash repair premises at Alexandria. Electrical and automatic transmission repairs are sub-contracted to licensees who also operate from the base. De Luxe pays hiring duty to the Office of State Revenue on hiring the cars to drivers by reference to moneys received from drivers of its managed fleet.
De Luxe expects its drivers to accept from passengers Cabcharge and various other recognised credit cards, including Motorpass, JCB, Diners Club, Citycabs and American Express. Some cabs are presently trialling Eftpos. Drivers receive full credit for the face value of the amount charged to these credit cards. If charge dockets exceed the ``pay-in'' amount (a term explained below), drivers are reimbursed in cash for the excess at the time of pay-in. Credit card dockets and an imprinting machine to process them are left in the taxis. De Luxe advertises its credit card facilities on the side of its cabs. Drivers may accept charge cards other than those just mentioned, but De Luxe does not give a credit to drivers in respect of dockets for such cards in relation to their pay-ins. Credit facilities for approved cards are arranged for by the cab owner and in the case of the managed fleet, by De Luxe.
De Luxe requires any taxi driver who uses the network to comply with the Computer Dispatch Operating Rules of Taxis Combined and breaches of these rules are dealt with by Taxis Combined's Customer Service Department. Complaints from the public about drivers are also handled by that Department.
Shirts bearing the Taxis Combined logo are available for purchase by drivers from the base but are not provided to drivers by De Luxe. De Luxe expects the drivers to wear these shirts as well as to comply with dress standards contained in the New South Wales Taxi Industry Code of Conduct. Reference is made below to the Executive Fleet Drivers' Code of Conduct.
De Luxe gives no directions to its managed fleet drivers regarding how they must operate their taxis and drivers are free to choose how they wish to operate, subject to applicable legislation. In particular, drivers are free to choose whether they obtain work via the De Luxe network, from ranks or off the street. Approximately 25 per cent of drivers now use mobile phones, which they provide themselves, to obtain work.
De Luxe does not limit the area where managed fleet drivers can operate. If, however, a driver wishes to take a fare outside the Sydney metropolitan area he or she is expected to notify the base by radio. De Luxe does not require drivers to perform any particular hiring apart from metro taxis which are designed specifically for disabled people.
(b) Executive Fleet Drivers' Code of Conduct
Some of De Luxe's managed fleet drivers are classified (by the drivers' own choice, upon application to De Luxe) as ``Executive Fleet'' drivers. Such drivers are given first opportunity to bid for certain account work, where account customers or radio hiring customers indicate a preference for a better quality taxi and driver. The manager of the fleet gives them leaflets entitled ``Executive Fleet Drivers Code of Conduct'' and ``Minimum Dress Standards''. ``The Code of Conduct'' is in these terms:
``DRIVERS CODE OF CONDUCT
1. All drivers must be licensed and Authorised in accordance with the Regulations of the Passenger Transport Act, 1990.
2. Drivers must always be courteous and provide all reasonable assistance to passengers.
3. Drivers must always be neat, clean and tidy and properly attired to meet the standards of dress and cleanliness required by the Executive Fleet Service, and that when and where Taxis Combined Services identification clothing is available, it will be worn.
4. Drivers must ensure they drive in accordance with all Traffic Regulations and that their passengers are guaranteed a smooth, safe and comfortable ride.
5. Drivers must ensure that they provide a reliable and punctual service and abide by the procedures of the TCS radio network as provided in the TCS Drivers Manual.
98 ATC 4470
6. Drivers must ensure the interior of the taxicab is clean and tidy and regularly check for litter and lost property.
7. Drivers must accept all charge cards authorised by Taxis Combined Services.
8. Drivers must ensure all Lost Property is handed promptly to the TCS Network.''
(c) No written contract
There is no written contract between De Luxe and the drivers.
(d) The statutory framework in New South Wales
Before the primary Judge, the case was conducted on the basis that the Taxi Industry (Contract Drivers) Determination 1984 (the ``1984 Determination''), made pursuant to the Industrial Arbitration Act 1940 (NSW) required that there be a bailment relationship between the owner of the taxi licence and the driver. The terms and conditions governing the bailment relationship were set out in a Schedule to the 1984 Determination, which was made by consent under the 1940 Act.
On the appeal it was accepted by both parties that the position in New South Wales at the relevant time was governed by Chapter 6 of the Industrial Relations Act 1996 (``the IR Act 1996''). The IR Act 1996 repealed the Industrial Relations Act 1991 (NSW), which had in turn repealed the Industrial Arbitration Act 1940 (NSW). The provisions of Chapter 6 of the IR Act 1996 are similar, but not identical to those contained in Chapter 6 of the Industrial Relations Commission Act 1991 (NSW). The determination in force at the date the present proceedings were instituted was the original 1984 Determination, which continued in force until the later legislation, but which was amended in a number of respects. By 1996, the schedule referred to by the trial Judge had been deleted from the 1984 Determination.
Chapter 6 of the IR Act 1996 makes provision for ``Public Vehicles and Carriers''. Part 1 of this Chapter deals with the application of the Chapter. The Chapter applies to contracts of bailment and contracts of carriage (s 306). A contract of bailment is defined to include a contract under which a public vehicle that is a taxi cab is ``bailed'' to a person to enable the person to ``ply for hire'' in a transport district established under the Transport Administration Act 1988 (NSW) (s 307(1)(a)). For the purposes of Chapter 6, a bailor ``is the bailor under a contract of bailment to which this Chapter applies'' (s 308). Curiously, there is no definition of ``bailee''.
Part 2 of Chapter 6 deals with contract determinations. The Industrial Relations Commission may inquire into any matter arising under contracts of bailment and may make a contract determination. Such a determination may be made on the application, inter alia, of a bailor under a contract of bailment or an association of contract drivers that represents bailees who are, or some of whom are, parties to contracts of the class concerned (s 311(1)(a), (d)). The Commission may make a contract determination with respect to any of, inter alia, the following matters under those contracts:
``(a) the remuneration of bailees under those contracts (including by way of a minimum rate of commission expressed as a percentage of the chargeable fares earned),
(c) annual or other holidays, sick leave and long service leave for the bailee or payments to the bailee instead of any such leave,
(d) the minimum number of hours per day, per week or for any longer period during which the bailor is to bail the vehicle, if drivable, to the bailee,
(e) if satisfied that it is imperative to do so in the interest of bailors, bailees and the public - the maximum number of hours per day, per week or for any longer period that a bailee may drive a public vehicle''
The Commission may, after inquiry, make a contract determination with respect to the reinstatement of a contract of bailment or contract of carriage that has terminated (s 314(1)). Reinstatement of a contract includes re-engagement under a similar contract (s 314(2)).
Subject to such exemptions and conditions as the Commission may direct, a contract determination is binding on all bailors and bailees or all principal contractors and carriers who are parties to contracts of the class to which the determination relates as the Commission may direct (s 317(1)).
A contract determination applies for the period specified in it as its nominal term and, after that period, until rescinded by the
98 ATC 4471
Commission. However, the Commission may specify that the determination ceases to apply at the end of its nominal term (s 319(1)). The nominal term of a determination must not be more than 3 years (s 319(2)).
The Commission may vary or rescind a contract determination and, when it rescinds a determination, it may replace that determination with a new determination (s 320).
The Commission may, on application, grant an exemption from the whole or any part of a contract determination if satisfied that it is not contrary to the public interest (s 321(1)). An exemption may be granted for a period not exceeding 3 years at any one time (s 321(2)).
(e) The Commission's contract determination
The Commission has made (and varied from time to time) determinations under Chapter 6, or its precursor. By the 1984 Determination (as varied in 1996), Part A (cll 1-30) deals with the ``Arrangement''; and Part B deals with ``Monetary Rates''. The specific topics dealt with by Part A include matters such as ``minimum conditions'', ``method of payment'' and ``right to terminate bailment'', to which reference is made below. It was accepted by the parties that, although the proceedings were instituted in February 1996, variations made in April 1996 should be taken into account. (The hearing before the primary Judge took place in August 1997.) The conditions were also varied by a determination made in July 1997, but in respects not material to the case.
Relevantly, Part A of the Determination provides as follows:
``1. MINIMUM CONDITIONS TO BE OBSERVED
The bailor shall bail and the bailee shall take on bailment such duly registered and licensed taxi cab and/or cabs as during the term of this determination the bailor may make available from time to time to the bailee together with the equipment belonging thereto on the terms and conditions hereinafter appearing. (varied 24.4.96).''
Clause 2 provides for these, amongst others, definitions:
``(a) Casual Bailee - A casual bailee means a bailee who is not a permanent bailee. Notation: A casual bailee is not entitled to any sick, annual or other leave.
(b) Permanent Bailee - A permanent bailee is a bailee who regularly takes a taxi cab on bailment, from the one bailor, for five shifts per week, or a bailee who regularly takes a taxi cab on bailment, from the one bailor, for night shifts at a rate of night shifts per week which would achieve 220 night shifts per year. For the purposes of this definition absences occasioned by illness, annual leave, public holidays or other authorized leave shall be counted as shifts in determining whether a bailee is permanent.
(g) Day Shift - Day Shift means a shift of at least 9 hours but not exceeding 12 hours at least 75 per cent of which hours are between 3 am and 3 pm.
(h) Night Shift - Night Shift means a shift of at least 9 hours but not exceeding 12 hours at least 75 per cent of which hours are between 3 pm and 3 am.
(i) Bailee's Percentage - The Bailee's percentage in the case of a first year permanent bailee shall be 45 per cent. The bailee's percentage in the case of a casual bailee and in the case of a second year permanent bailee shall be 50 per cent. Notation: The casual bailee's percentage includes compensation to him for not having sick, annual or other leave.''
Clause 3 deals, so far as material, with method of payment as follows:
``3. METHOD OF PAYMENT
(a) (i) A bailee shall elect whether he/she will operate under method I or method II as set out in paragraph (b) of this clause. The bailee shall also (without affecting the validity of the election) sign and leave with the bailor a record of that election.
(ii) If a bailee fails to elect a pay-in method as required by clause 3(a)(i) the bailee shall be deemed to operate under method 2.
(b) (i) Method 1
If the bailee operates under method 1 the bailee shall make a pay-in to the bailor of an amount equal to the chargeable fares less the amount of the bailee's percentage of the chargeable fares. The bailee's percentage is as set out in item 1 of part B of this determination.
98 ATC 4472
(ii) Method 2
A bailee operating under method 2 shall make a pay-in to the bailor of such amount as may be agreed between the bailor and the bailee from time to time but in any case not more than the maximum pay-in amount for the shift as set out in item 2 of part B of this determination. Under this method the bailee shall be responsible for the fuel used by the taxi cab and for any wash at the end of the shift.
(g) The monetary amounts in part B of this determination may be varied upon application by the NSW Taxi Industry Association or by the Transport Workers' Union of Australia NSW Branch. (varied 24.4.96)''
Part B provides for payment of:
DAY SHIFT MAXIMUM PAY-IN KILOMETRES
All days 97 260
Monday 105 300''
Clauses 9, 10 and 11 provide:
``9. TRANSPORTATION OF PASSENGERS AND LUGGAGE
Subject always to the provisions of this agreement, the bailee must use taxi cab for the transportation of fare-paying passengers and luggage only, in accordance with any acts, regulations or by-laws relating to taxi cabs.
10. RIGHT TO TERMINATE BAILMENT
The bailor or the bailee shall have the right at any time to terminate the bailment contract without notice or giving any reason in the case of a casual bailee. A bailor will not terminate the bailment of a permanent bailee who has driven for the same bailor for more than three calendar months without giving one week's notice or one week's payment at the rate prescribed in Table B3 in lieu of notice except in the case of a substantial breach by the bailee of this determination or serious and wilful misconduct, in which event the bailment can be terminated at will. (varied 24.4.96)
11. OBSERVANCE OF ACTS, etc
The bailee shall at all times during the bailment-
- (a) Comply with all acts, regulations, by- laws, ordinances and all legislative provisions for the time being in force in regard to motor vehicles, motor traffic and taxi cabs;
- (b) Exercise proper care for and control of the taxi cab; and
- (c) Comply with all rules and by-laws of any co-operative in association with which the taxi cab is operated or any company or other group associated with the co-operative.
- (d) At the conclusion of each shift or the earlier termination of the bailment, the bailee shall return the taxi cab to the garage or depot then being used by the bailor.''
Clause 16 provides:
``16. FAILURE TO REPORT FOR DUTY
If a bailee fails to attend to take a taxi cab on bailment at a time and place previously rostered or agreed to, and fails to report to the bailor at least 2 hours
98 ATC 4473
prior to such time his inability to attend, the bailor shall not, after the expiration of 30 minutes from the agreed commencement time of the rostered shift, be under any obligation to keep a taxi cab available for the bailee for that rostered shift. If the bailee fails, within a further 24 hours, to notify the bailor of satisfactory reasons for his failure to attend at the rostered time, the bailor may terminate the bailment contract forthwith and without notice, but without in any way restricting the generality of clause 10, Right to Terminate Bailment, of this determination.''
The line of authority holding the relationship between owner and driver to be one of bailment
The provisions of the Industrial Relations Act and the 1984 Determination as amended are not at all in conflict with the position under the general law. In fact, its provisions are harmonious with the view long taken by the courts in this country, and in earlier high authority in England, that the relationship between a taxi owner and the driver is one of bailment, rather than one of employment.
A convenient starting point is the decision of the New South Wales Industrial Commission in
Yellow Cabs of Australia Limited v Colgan (1930) AR (NSW) 137, where it was held that a driver could not sue for wages under an award as an employee. Street and Cantor JJ said (at 163):
``... in all arrangements where the parties occupy a relationship in the nature of that of joint adventurers, there is necessarily involved a certain degree of direction and control arising out of the nature of the relationship created by the agreement itself. But this does not necessarily create the relationship of employer and employee, that question, all the surrounding circumstances having been taken into consideration, being mainly determined by the degree and extent of the detailed control vested in one party over the acts of the other party in the actual execution of the work contemplated in the joint venture.''
Their Honours went on to say (at 165):
``Under the new system the drivers kept the cab at the company's garage or not, according to their own convenience, and they worked whatever days or hours they liked without control by the company. They were not bound to start from or finish at the company's garage, nor were they required to record their time on the bundy clock. They were not compelled to furnish any record of their hours, nor to work from any specified rank or under any orders as to the place or direction in which they should cruise for work. They paid for their own petrol and they were liable to repay to the company the costs of repairing any damage to the cab or its equipment.''
In concluding that no employment relationship had been established, Street and Cantor JJ said (at 169):
``Such a system does not appear to establish that the drivers were subject to the commands of the company as to the manner in which they shall do their work, but were independent in that, though they embarked upon the carrying out of a joint enterprise, each driver was substantially in the position of an independent contractor `who undertakes to produce a given result, but so that in the actual execution of the work he is not under the order or control of the person for whom he does it, and may use his own discretion in things not specified beforehand.'... Moreover, this system was necessary to further the interests of both parties to the joint adventure, and `in order to ensure compliance with the statutory rules, as well as to secure the due ascertainment of the sum properly payable each day to the proprietor.'...''
Yellow Cabs was approved and applied by Williams J in
Dillon v Gange (1941) 64 CLR 253. His Honour said (at 265):
``Apart from clause 3(a), which provided that the lessor should indemnify the lessee to the extent therein mentioned against liability for any damage whether to passengers or otherwise assessed by conciliation or by process of the law in respect of any collision or accident in which the cab might be involved whilst being driven by the lessee as a hired taxi-cab, the agreement was substantially to the same effect as the agreement referred to in such decisions as Yellow Cabs ... In all these cases the agreement was held to constitute the driver at common law a bailee of the car and not an employee of the owner.
98 ATC 4474
Clause 10 of the agreement of 13th September specifically provided that whilst the cab was in the possession of the lessee he should have the sole control of the cab, and of the running and management thereof; and should be at liberty to use the same for the purpose of transportation of passengers and luggage in accordance with any Acts and regulations or by-laws relating to taxi- cabs in such times and such places as the lessee in his absolute discretion should deem fit. This clause showed that during the times when Linehan was entitled to the exclusive possession of the cab he was not to be subject to the control of the respondent. The agreement made Linehan a bailee of the cab and not a servant of the respondent.''
Rich ACJ said (at 259):
``... The result of the Victorian cases is that, not only as between the proprietor and the driver, but also quoad third parties, the relationship constituted by the agreement is that of bailor and bailee.''
Starke J said (at 263):
``It was then suggested that the agreement by reason of its terms operated as an agreement for service. The earnings of the taxi are divided so as to secure to the owner a fair return out of the earnings of the cab and to the driver a fair rate of wages, dependent upon his own efforts, and, further, the owner undertakes the upkeep and maintenance of the cab and indemnifies the driver to a limited extent against liability for damage. But, whatever the weight of the argument was in 1872, when Fowler v. Lock ... was heard, the cases are decisive that the relationship created by the agreement of 13th September 1939 is that of bailor and bailee and not that of master and servant...''
Northern District Radio Taxicab Co- operative Ltd v Commissioner of Stamp Duties  1 NSWLR 346, Sheppard J said (at 347-348):
``... in most cases drivers of taxicabs owned by other persons are not employees of such owners, but are bailees of the cabs which they drive. I refer, inter alia, to
Smith v General Motor Cab Co Ltd  AC 188 at p 192 and
Dillon v Gange (1941) 64 CLR 253.
... the relationship of master and servant does not exist between the owner of a taxicab and a driver thereof...''
The decision at first instance
The learned primary Judge held that the payment arrangements in question did not give rise to the payment of ``salary or wages'', and that no relationship of ``employer'' and ``employee'' existed between the respondents and their drivers. His Honour held that the agreement between the operators and the drivers was one of bailment and not one of employment; and that the drivers did not receive payments under contracts for their ``labour'' within the meaning of the legislation. In essence, Hill J concluded that although ``no single factual matter'' was ``determinative'', the ``cumulative weight of all the facts'' indicated that the relationship was one of bailment rather than employment (at 4785).
Accordingly, his Honour made the following declaratory orders [at 4786]:
``1. The arrangements described in paragraph 7* of the Statement of Claim filed herein (hereafter referred to as the `payment arrangements') do not give rise to the payment of `salary or wages' within the meaning of that term in subs 221A(1) of the Income Tax Assessment Act 1936.
2. There is no obligation under subs 221C(1A) of the Income Tax Assessment Act 1936 upon the applicants to deduct any amount under the payment arrangements with their drivers.
3. The applicants and those drivers who make payments under the payment arrangements are not in the relationship of `employer' and `employee' within the meaning of those terms in s 12 of the Superannuation Guarantee (Administration) Act 1992.
4. The payment arrangements between the applicants and their drivers do not give rise to a liability to pay a superannuation guarantee charge under s 16 of the Superannuation Guarantee (Administration) Act 1992.''
(*By para 7 of the respondents' statement of claim, the following was pleaded:
- ``7. Drivers provide the plaintiffs with valuable consideration for the use of the taxis under varying terms and conditions and
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drivers receive valuable consideration from customers (`payment arrangements').'')
His Honour said (at 4786):
``Whether a contract is wholly or principally for the labour of a person will largely depend upon whether the contract is one for the production of a result, or whether it really is one for the performance of labour. If the former, then like the contracts in
World Book (Australia) Pty Ltd v FC of T 92 ATC 4327; (1992) 27 NSWLR 377 the arrangement will not fall within the extended definition. So, too, the couriers in
Vabu Pty Limited v FC of T 96 ATC 4898; 33 ATR 537, were engaged to perform a result, the delivery of parcels, etc, rather than engaged to perform labour. They were thus employed in their own business, on their own account, and were not employees of a business conducted by the appellant in that case. Their contracts were not contracts wholly or principally for their labour.
In the present case, even if there could be said to be a payment made by the operators to the drivers, contrary to the facts, that payment could not be said to be one for the labour of the drivers. The real relationship between operators and drivers is that the drivers make payment to the operators for the right to bail the cabs and ply them in their own business. They are neither employees in the ordinary sense, nor do they receive payments under contracts for their labour.''
The Commissioner's grounds of appeal
The Commissioner now appeals on the following grounds:
- · It should have been held that the evidence established: (a) that each respondent carried on the business of operating taxi-cabs; and (b) that each driver engaged by the respondents drove the taxi-cab as part of the business of the particular respondent concerned. Moreover, it should not have been held that the business of each respondent was the hiring of taxi-cabs or that the real relationship between the respondents and the drivers was one of bailment.
- · In any event, even if it were the case that the relationship was one of bailment, this did not preclude a finding of employment as an aspect of that relationship.
- · It should not have been held that the drivers carried on their own businesses given the following circumstances: (a) the right to ply for hire conferred by statutory licence is held by the respondents, and not by the drivers; (b) in plying for hire, each driver is involved in the exploitation of the licence held by the particular respondent concerned; (c) the vehicle is owned and maintained by the respondent operator; (d) credit facilities are provided to customers by or on behalf of the respondent operator; and (e) the radio and computer booking networks utilised by drivers are provided for and on behalf of the respondent operators.
The Commissioner's argument on the appeal
In developing his grounds of appeal, counsel for the Commissioner argued that the question whether a given person is an employee or an independent contractor of one of the respondents, is to be determined by an approach which, ``though not confined to a rigid `control' test, is not amorphous''. The focus of attention is ``whether the given person conducts his or her own business operation''. It was submitted that the relationship between the respondents and their drivers is ``characterised by factors which suggest that... a driver does not conduct his or her own business operation, but works as an integral part of the [respondents'] business operation''.
The Commissioner's counsel (as his grounds of appeal had foreshadowed), relied on the circumstances that the taxi industry in NSW (and in other States) is regulated by statute; that the right to ply a vehicle for hire is conferred by a statutory licence issued under a statutory regime; and that the cab licence is not owned by the driver. It was submitted that the right to ply for hire conferred by the licence is ``critical'' to the lawful operation of the business of plying for hire. That is, the argument ran, the licensing system does not permit the driver to carry on a business of plying for hire: the driver is merely permitted to drive a licensed vehicle. (Moreover, in NSW it is also a statutory requisite to be an ``accredited service operator''.) Reference was made by the Commissioner to the NSW licensing requirements as follows: By s 29(1) of the Passenger Transport Act 1990 (NSW), it is provided that a person who carries on a public passenger service by means of a taxi-cab otherwise than under the authority of a licence
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for the taxi-cab, or otherwise than in accordance with the terms and conditions of such a licence, is guilty of an offence. ``Taxi-cab'' is defined in s 3 to mean a motor vehicle ``(a) which is used to provide a public passenger service...; and (b) which, for the purpose of procuring passengers, is made to ply or stand for hire in a public street...''.
Attention was also drawn on behalf of the Commissioner to two new provisions inserted at the end of s 29 in 1997. By s 29(2) it is provided that the authority of a licence for a taxi-cab, if the licence is let or sub-let, inures to the benefit of the lessee or sub-lessee to the exclusion of the lessor or sub-lessor. Section 29(3) provides that a reference in the Passenger Transport Act or the regulations to the licensee of, or the holder of a licence for, a taxi-cab is a reference to the person having the benefit of the authority of the licence concerned.
Reference was also made on behalf of the Commissioner to the provisions of s 7 of the Passenger Transport Act that a person ``who carries on a public passenger service'' is guilty of an offence unless the person is an accredited service operator.
The Commissioner also pointed out that each of the respondents held licences for taxi-cabs either in their own right, or as agents for the licence holders, or as lessees of such licences; and that the drivers did not hold any such licences.
On behalf of the Commissioner, reliance was further placed upon instruments such as the ``Drivers Code of Conduct'', which indicated, the Commissioner said, a degree of control over the actions of the drivers which was consistent only with a relationship of employment. It was contended that the driver is not engaged ``to achieve a result'', but rather to drive a shift.
Conclusions on the appeal
We have difficulty accepting the Commissioner's arguments.
FC of T v J. Walter Thompson (Australia) Pty Ltd (1944) 7 ATD 401; (1944) 69 CLR 227, it was held that the relationship between a company presenting radio plays and the artists it engaged was that of employment and not that of independent contractor, so that the fee paid to the artist was ``wages'' for the purposes of the Pay-roll Tax legislation.
Latham CJ said (at ATD 405; CLR 233):
``Reference was also made to the definition of a servant in the American Restatement of the Law, Vol. I, Agency, p. 483: `A servant is a person employed to perform service for another in his affairs and who, with respect to his physical conduct in the performance of the service, is subject to the other's control or right to control.' This definition is in accordance with our law. The Restatement proceeds to set out under nine headings various matters of fact which are considered in determining whether one acting for another is a servant or an independent contractor. The decision in a particular case must be determined by a consideration of the facts of that case. The circumstance that a particular fact, absent in that case, was present in another case, should not necessarily lead to contrary conclusions in the two cases. In the present case I regard as the most important and as a decisive element the matter of fact stated in (a) in the Restatement - `the extent of control which, by the agreement, the master may exercise over the details of the work;'.''
The discussion in the Restatement of the Law of Agency 1933, vol. 1, at 483, of ``Who is a Servant'' is as follows:
(1) A servant is a person employed to perform service for another in his affairs and who, with respect to his physical conduct in the performance of the service, is subject to the other's control or right to control.
(2) In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered:
- (a) the extent of control which, by the agreement, the master may exercise over the details of the work;
- (b) whether or not the one employed is engaged in a distinct occupation or business;
- (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
- (d) the skill required in the particular occupation;
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- (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
- (f) the length of time for which the person is employed;
- (g) the method of payment, whether by the time or by the job;
- (h) whether or not the work is a part of the regular business of the employer; and
- (i) whether or not the parties believe they are creating the relationship of master and servant.''
With respect to 2(i), it is plain that the parties in the present relationship believed that they were not creating an employment relationship. On the contrary, it must be accepted from the regulatory framework governing their relationship created by Chapter 6 of the IR Act and the determinations made under it, that consistently with the settled position at common law, the parties themselves must be taken to have determined that a relationship of bailment, to the exclusion of any other (including that of employment), should govern the situation. Especially is this so when there can be no suggestion that the bailment relationship is a sham or a device. It is clear that the legislation proceeds on the basis that the relationship between the owner of the licence and the driver is one of bailment. As has been noted, is harmonious with the position that the general law has long recognised in several jurisdictions including the High Court's decision in Gange.
It is true that, if viewed from one perspective, the statutory licensing system could be seen to proceed upon the assumption that the relevant business is that of the operator, rather than of the driver. But this legislation is directed to an objective, that is, the protection of the public passengers, that is different from the present subject matter, which is the true nature or character of the internal relationship between operator and driver. The licensing requirements do not need to address that question, whereas the industrial legislation does so specifically.
The modern general law concerning whether an employment relationship exists is, as Hill J noted (at 4780), more flexible than the older authorities suggest. Particular reference should be made to the observations of Mason J in
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) Aust Torts Reports ¶80-000; (1985-1986) 160 CLR 16 as follows (at Aust Torts Reports 67,446; CLR 24):
``... the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question... Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee.''
See also per Wilson and Dawson JJ at Aust Torts Reports 67,452; CLR 35.
We would be prepared to accept that the Commissioner's contentions might have some force, if they could be viewed apart from: (1) the direction in which the general law has developed, that is, towards bailment and away from employment; and (2) the acceptance of the general law bailment notion in the legislation governing the relationship between licence owner and driver. These considerations apart, there might have been something to be said for a conclusion that the presence here of at least some of the indicia of an employment situation justified the characterisation of the drivers as the providers of labour, and thus within the application of the two Commonwealth statutes now in question. But, in our view, it would be wrong to seek to divorce the issue of the true character of the relationship from its well established general law and statutory setting. When the present circumstances are viewed in that setting or context, a conclusion that the drivers are bailees in a joint adventure is appropriate, notwithstanding the degree of control reserved to the bailor. Such a reservation is not, as was noted in Yellow Cabs, necessarily inconsistent with a bailment relationship.
It may be possible to describe the adoption here of the bailment notion as a legal fiction, operating ``to reconcile a specific legal outcome or result with a premise or postulate involving unexpressed considerations of social and economic policy'' (per Gummow J,
Pyrenees Shire Council v Day; Eskimo Amber Pty Ltd v Pyrenees Shire Council (1998) Aust Torts Reports ¶81-456 at 64,704; (1998) 151 ALR 147
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at 190); Fuller, Legal Fictions (1967) at 71; but even if, as Gummow J observed (at 190), the general spirit of the times is ``unfavourable to the preservation of legal fictions'' under the general law, where, as here, the ``equity of the statute'' points unequivocally to the characterisation of a relationship as one other than that of employment, the courts should accept that result or outcome (see
Nelson v Nelson (1995) 184 CLR 538 per Deane and Gummow JJ at 553-554).
It must follow, in our view, that it should be held that the relevant relationship here was one of bailment, rather than of employment or the provision of labour.
Orders proposed on the appeal
It further follows that, subject to one qualification, the appeal should be dismissed. The qualification concerns the form of the declaratory orders made at first instance. Those orders were not confined by reference to events occurring at a particular time or to the evidence adduced in the proceedings. It is now common ground that, in the event that the Commissioner's appeal should not succeed on the question of principle argued before us, the declarations made by his Honour should be refined.
Accordingly, we propose that those orders be varied, by substituting for the declarations made at first instance, the following declaratory orders:
- 1. That no payment of ``salary or wages'' within the meaning of that term in s 221A(1) of the Income Tax Assessment Act 1936 was made by any of the respondents in the circumstances described in the evidence in these proceedings.
- 2. That there was no obligation on any respondent under s 221C(1A) of the Income Tax Assessment Act 1936 to deduct any amount under the payment arrangements between the respondent and the respondent's drivers which were described in the evidence in these proceedings
- 3. That no respondent and none of the respondent's drivers are in the relationship of ``employer'' and ``employee'' within the meaning of those terms in s 12 of the Superannuation Guarantee (Administration) Act 1992 in the circumstances which were described in the evidence in these proceedings.
- 4. That no respondent is under a liability to pay a superannuation guarantee charge under s 16 of the Superannuation Guarantee (Administration) Act 1992 in the circumstances which were described in the evidence in these proceedings.
Otherwise, the appeal should be dismissed.
The parties have informed us that they had agreed that there should be no order for the costs of the appeal in any event.
1. The following declaratory orders are substituted for the declarations made at first instance:
- (a) That no payment of ``salary or wages'' within the meaning of that term in s 221A(1) of the Income Tax Assessment Act 1936 was made by any of the respondents in the circumstances described in the evidence in these proceedings.
- (b) That there was no obligation on any respondent under s 221C(1A) of the Income Tax Assessment Act 1936 to deduct any amount under the payment arrangements between the respondent and the respondent's drivers which were described in the evidence in these proceedings.
- (c) That no respondent and none of the respondent's drivers are in the relationship of ``employer'' and ``employee'' within the meaning of those terms in s 12 of the Superannuation Guarantee (Administration) Act 1992 in the circumstances which were described in the evidence in these proceedings.
- (d) That no respondent is under a liability to pay a superannuation guarantee charge under s 16 of the Superannuation Guarantee (Administration) Act 1992 in the circumstances which were described in the evidence in these proceedings.
2. Otherwise, the appeal is dismissed.
3. No order for the costs of the appeal.