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Edited version of administratively binding advice

Authorisation Number: 1012430512268

Superannuation guarantee obligations in respect of the workers aboard fishing vessels

Question 1

Are the workers considered common law employees of the principal as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the financial year ended 30 July 2013?

Advice

No, Please refer to 'why we have made this decision'

Question 2

Are the workers employees of the principal by virtue of subsection 12(3) of the SGAA?

Advice

No, Please refer to 'why we have made this decision'

This advice applies for the following period:

1 July 2012 - 30 June 2013

The arrangement commences on:

1 July 2012

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

Skipper's duties:

Deckhand's duties:

The Agreement states that:

It is agreed as follows:

The Schedule to the Share Fishing Agreement states that the proportion of the catch payable to the Vessel is X% and the proportion of operating expenses is X%.

You provided copies of a recipient created tax invoice and two completed share fishing agreements. Included in these documents was a requirement for the workers to provide their Australian Business Number (ABN).

§ The workers sign share-fishing agreements with the principal;

§ The workers are responsible for providing their own food, sleeping equipment and wet weather gear;

§ The skipper does not lease the boat from the principal;

§ Each trip is for approximately one month;

§ There is an OH&S manual on board - the skipper is required to show new deckhands the manual and all the safety equipment and the deckhand must sign a form stating that this has occurred.

The principal also supplied a copy of a voluntary withholding agreement which states that the Agreement

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3).

Reasons for decision

Upon considering all the available information we are satisfied that the facts and evidence support the proposition that the workers do not come within the ordinary meaning of 'employee' nor the expanded definition of 'employee' used for the purposes of the SGAA.

Question 1

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its eligible employees or they are liable to the Superannuation Guarantee Charge (SGC). The term 'employee' is defined in section 12 of the SGAA. It includes common law employees but also extends to include certain other categories of workers including persons who are engaged under a contract that is wholly or principally for their labour. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in SGR 2005/1 Superannuation Guarantee: Who is an employee? (SGR 2005/1) from a 'contract for service' which is typically a contractor and principal type of relationship that does not attract any SGC liability.

Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law test is not met or is inconclusive, whether the extended definition of 'employee' in subsection 12(3) of the SGAA applies.

Common law employee

The courts have developed a method for determining whether a person is an ordinary (common law) 'employee'. Their approach is to look at a wide range of factors. For example, if the employer provides the place of work, this might indicate an employment relationship, while the absence of holiday pay might suggest the opposite. The courts' decisions tend to be taken on balance, after considering all the relevant factors.

The common law meaning of the term 'employee' was stated by the High Court in Stevens v. Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16. It is clear from that case that there is no single objective test which will give the answer:

…it is the totality of the relationship between the parties which must be considered...the question is one of degree for which there is no exclusive measure.

It is necessary in each case to examine all the terms of the contract and to determine whether, on balance, the person is working in the service of another (as an employee) or is working on his or her own behalf (as an independent contractor).

A clause in a contract that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee must be considered with all the other terms of the contract. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole. That is, the parties cannot deem the relationship between themselves to be something that it is not. The parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label. Subsequent conduct of the parties may demonstrate the relationship has a character contrary to the terms of the contract.

The main factors that are used by courts to determine this question are explained in appendix A. The application of the factors to this particular arrangement is discussed below.

Share fishing arrangements

A share fisherman carries on with another, or others, a business of fishing operations. A genuine or true share fishing arrangement is a joint venture business and is usually evidenced by a written contract which specifies the rights and obligations of the parties. It is usual for a contract to provide that the parties shall share the gross proceeds of the sale of fish and that they each bear a proportion of the operating expenses of the vessel whether or not the gross proceeds exceed operating expenses. Where an agreement of this nature is entered into and the parties observe the terms of the agreement, they are each in the business of fishing operations.

A person participating in a true share fishing arrangement is considered an independent contractor and any provision for superannuation is their responsibility.

The fact that a crew member's remuneration is based on a percentage of the value of a catch is not, in itself, conclusive evidence of a true share fishing arrangement. Where the facts do not support the inference of a true share fishing arrangement, it will be necessary to determine if the individual crew member is engaged as an employee. If the crew member is found, on objective assessment, to be an employee of the person or persons responsible for and in control of the fishing enterprise, that person or persons will be required to provide superannuation support.

Through consultation with the fishery bodies, it is our understanding that the following facts are common for such operations:

§ The parties involved in the fishing operations are the vessel owner/skipper and fishermen/crew.

§ The vessel owner/skipper arranges the basic provisions and essential supplies, and takes the cost of these from the fishermen/crew's remuneration.

§ The vessel owner/skipper coordinates the fishermen/crew

§ Upon return to the shore, the catch is sold to buyers, with the proceeds then being divided according to agreement.

In your case

The principal operates a trawl fishing operation in Australia.

The principal engages the workers and each worker signs a share fishing agreement (Agreement) which states that rate of remuneration will be determined by the principal after subtracting the proportion of the catch payable to the vessel and the worker's share of the operating expenses. The Agreement states that the contract of share fishing shall be deemed to have been commenced from the time the crew member steps on board the vessel to commence fishing operations and the agreement may be terminated upon not less than a specified number of days notice by a party to each of the other parties or forthwith by any party in the event of a breach of any of the terms of this agreement.

Nevertheless an analysis of the whole relationship is required to determine the workers' status. If the majority of factors indicate an employer/employee relationship, then the workers will be considered employees, regardless of the terminology used in the agreements. As Gray J stated in Re Porter: re Transport Workers Union of Australia (1989) 34 IR 179 at 184:

In a contractor/principal relationship, it would not be expected that the contractor would need to be told in great detail how to do their work and be given a large list of duties to be undertaken. It would also not be usual for an independent contractor to be expected to help other independent contractors to fulfil their responsibilities. Supervision of other workers is a responsibility that is usually found in an employment relationship.

The principal has contended that they have no capacity to exercise control over the workers as they are not in the same geographical location as the workers when they are out at sea. The skipper independently determines whether he goes to a particular location, subject to license constraints. However, control is determined by the right of a person to exercise it, that is, who has the ultimate authority to control. The High Court in Zujis v. Wirth Brothers Proprietary Ltd (1955) 93 CLR 561 stated:

What matters is lawful authority to command as far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.

The principal has control over the selling of the catch and calculating the amount payable to each worker. The Agreement provides that the catch will be sold at the conclusion of each voyage by the vessel owner. The catch shall always remain the property of the principal. The catch may be sold to any buyer chosen by the owner as long as the price received for the product is at market price being paid for similar product on the date of sale. The fishermen shall receive the proportion of the catch as set out in the Agreement. The principal agrees to supply the share fisherman with a calculation of the share fishing payment from each unload. The condition that the catch must be sold at market value means that control test on this point is inconclusive.

The workers have rights that must be considered when completing the catch sale which ultimately leads to the final remuneration calculation. The proportion of the catch going to the workers (as per the fishing agreement) has been negotiation with the vessel owner by way of a meeting and discussion of outcomes. The workers may potentially negotiate a higher or lower proportion depending upon their bargaining position.

The principal maintains that the skipper has total control in regards to:

We consider the decision of McCabe M in Brinkley v Federal Commissioner of Taxation [2002] AATA 218 (Brinkley) is relevant to this case. In this decision, the skipper was considered to be an employee of the vessel's owner, as the owner retained the power to exercise control over the workers, despite the skipper being given a great deal of autonomy over the operations on the fishing vessel. McCabe M also found that the workers were not operating their own businesses and were an integral part of the owners business and subject to their direction.

The principal has stated that the workers are not subject to their direction while out at sea as the job description of the skipper shows that they are responsible while the vessel is out at sea.

This is very similar to the decision in Brinkley as the workers are integral to the principal's business, further indicating the working relationships are similar to that in Brinkley.

However, the decision in Brinkley can be distinguished on the basis that the applicant retained the power to retain and dismiss the deckhands. Whilst it appears that in the current matter, the decision to retain and dismiss deckhands is a decision made by the skippers, rather than by the principal.

Therefore, an overall analysis of the factors indicates that the issue of control is inconclusive, particularly given the level of control exercised by the skipper.

A requirement to produce a given result can be indicative of an independent contractor status. The term 'production of a given result' is defined in SGR 2005/1 as:

The Principal has stated the workers are paid to produce a specific result, being to obtain a catch. Simply being engaged to obtain a catch is not conclusive on its own. Each worker is primarily engaged to provide their labour, skills and expertise. The complete 'result' of a fishing trip cannot be achieved by one worker alone. It takes all of the workers to produce the catch and it also requires the capital and expenditure of the principal. In this case it is noted that remuneration is not linked to the effort exerted or hours involved. If there is no catch there is no pay. In that regard, from the worker's perspective, they must produce a result. This situation is different from arrangements where the fishing team are not exposed to risk of a loss or do not share in the costs of a trip.

Whether the worker would be viewed by a third party as carrying on their own business is also a relevant consideration. This involves an assessment of whether the worker's activities are perceived as part of the business of the principal and whether they could be expected to generate goodwill in their own right. The principal has advised that the public's view would be that the workers are independent contractors as they do not exclusively enter into share fishing agreements with the principal. They are free to enter into share fishing agreements with any vessel owner.

The evidence provided indicates the workers are an integral part of the principal's business. In General Aviation Maintenance Pty Ltd v FC of T 2012 ATC 10-235 (General Aviation), the tandem master was found to be an integral part of the applicant's business as they were in the business of providing tandem parachute jumps, and would not have a business without the tandem master's services. This is similar to this situation where the principal is in the business of trawl fishing, and without the workers, they would not be able to catch any goods to sell.

The principal has also argued that the workers are dependent upon each other with regard to maximising their remuneration as it is linked to the size and quality of the catch. The fact that the workers must rely upon each other to produce the best possible catch does not indicate they are independent contractors. Independent contractors are not generally reliant upon each other to ensure their own remuneration. That type of arrangement is more consistent with employees.

An independent contractor is exposed to commercial risk in the same way as any other business operator. An employee on the other hand, wouldn't be exposed to such risks. In this case, the principal has advised that the workers only provide their personal items (i.e. wet weather gear) and not any of the fishing equipment. The principal is responsible for major maintenance and repairs whereas the fishing team look after the routine maintenance tasks.

The Agreement states that all the parties share both income and expenditure. The fishing team may incur a loss if revenue does not exceed expenses. The business risk is shared by all the parties to the agreement. The principal stated that in the past there has been a loss incurred by the skipper and deckhands but in recent times this has not occurred. It appears that the workers are exposed to business risks similar to that of an independent contractor. They are not guaranteed a return for their service. The fishing team may be personally liable for up to the specified percentage of the operating expenses of a trip if their percentage share of the revenue is not sufficient to cover costs.

In Brinkley, McCabe M said the fishing arrangement fell short of a partnership. His Honour found that it was significant that there was not a sharing of both profits and losses. The skipper took his share (20%) from the gross and did not bear the costs. He did not get paid if he had an unsuccessful trip but he was not liable for costs associated with the trip. McCabe said that the absence of an agreement to share losses was a relevant factor in determining that an employer/employee relationship existed in that case.

The provision of tools test has limited usefulness in share fishing arrangements. The vessels, licences and equipment involve a large capital outlay. The licences are subject to strict legislative control, including catch limit quotas. There is little scope for an employee or contractor to provide their own tools and equipment. Although the workers are provided with tools and equipment that is consistent with an employee/employer relationship they are also exposed to a level of commercial risk that is higher than would be expected to be borne by an employee.

In conclusion we consider that in all the circumstances of this particular case the share fishing agreement is not consistent with the workers being classified as employees under the common law rules. We are now required to consider the expanded definition under subsection 12(3) of the SGAA.

Question 2

To determine whether the contract is wholly or principally for the labour of the person, we examine the terms of the contract, in light of the subsequent conduct of the parties. We consider whether:

§ the individual is remunerated (either wholly or principally) for their personal labour and skills;

§ the individual must perform the contractual work personally (there is no right to delegate); and

§ the individual is not paid to achieve a result.

In your case

The members of the fishing team were contracted to provide their labour and skills. However, the basis of their remuneration was to provide a result, the catch. The consideration they received under the contract was determined by the profit made on a catch. It was possible for the fishing team to be personally liable for costs associated with a loss. There was no guarantee of payment for the labour and skills provided. This was the case even though the likelihood of suffering a loss may have been remote considering past performances.

A skipper could not delegate their responsibilities. However, the turnover of deckhands was under the skipper's control, not the principal. The proportion of remuneration did not alter in line with changes to the composition of the fishing team.

Accordingly, as the workers do not satisfy all three components of the expanded definition under subsection 12(3) of the SGAA, they are not included in the expanded definition of employee as set out in subsection 12(3) of the SGAA.

Conclusion - overall

Upon considering all the available information we are satisfied that the facts and evidence confirm that the workers are not eligible employees for the purposes of the SGAA.


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