Virdis and Moffet: a reminder that superannuation guarantee obligations apply to a broad range of ‘contractor’ relationships

Dr Moffet ran a dental practice through his family trust. The dental practice was sold to Dental Corporation, with Dr Moffet agreeing to continue working in the practice under the terms of a services agreement.

The issue before the Full Federal Court was whether, because of the terms of the services agreement, Dr Moffet fell within the expanded definition of employee under section 12(3) of the SG Act on the basis that the agreement was ‘wholly or principally for the labour of the person’, in this case Dr Moffett.

The Full Federal Court held that the inquiry into whether a contract is wholly or principally for the labour of the person should be determined by enquiring what benefit did the ‘quasi-employer’ receive? Based on the facts, the court concluded that Dental Corporation received two benefits, being Dr Moffet’s:

• personal services as a dentist and practice manager; and
• promise that the practice would achieve a minimum cash flow.

On this point, the Full Federal Court stated that:

In our opinion, these two benefits which Dental Corporation received under the Services Agreement were what it was ‘for’ insofar as s 12(3) is concerned. Dr Moffet’s obligation to provide personal services as a dentist, manager and so forth may be said to be ‘for labour’; his promise – secured against his monthly drawings – that the practice would generate the minimum cash flow, may not.

Ultimately, the Full Federal Court stated that while these two benefits remained conceptually distinct, they could not be disentangled, and that, from Dental Corporation’s perspective, the services agreement was wholly or substantially ‘for’ Dr Moffet’s labour. Specifically, the Full Federal Court stated that:

To answer that question in the negative would require one to conclude that the fact that Dental Corporation also received the important benefit of the minimum cash flow promise meant that the labour component could not predominate (ie was not the whole or principal benefit that the Services Agreement was ‘for’).

Dental Corp’s application in the High Court for special leave was unsuccessful. This case highlights the SG risks that arise in the context of medical practice acquisitions, and in the allied health sector.

In Virdis, the Taxpayer (Virdis Family Trust trading as Rickard Heating Pty Ltd) conducted a business selling and installing cooling and heating systems.

It engaged a number of employees, as well as Mr Pirie. However, Mr Pirie was treated differently in that (among other things) no superannuation contributions had been made by the Taxpayer on his behalf.

While there was some dispute about the terms and basis upon which Mr Pirie was engaged, it was agreed that he was engaged to do work, and that he did that work as result of his engagement.

Some of the key terms on which My Pirie was engaged, as found by the Administrative Appeals Tribunal (AAT), are set out below:

• Mr Pirie was on a set hourly rate for prescribed work per week;
• Mr Pirie was told where he was required to work and he would then complete that work;
• Mr Pirie was responsible for expenses such as petrol, mobile phone, insurance for his van, tolls and clothes, although the arrangement regarding petrol changed towards the end of the relationship;
• materials were arranged by either party depending on the job, but they were always paid for by the Taxpayer where work for the Taxpayer was concerned;
• Mr Pirie took time off when he wanted to but when he did, he was expected to give notice of any period of absence. Mr Pirie did not arrange a replacement to do his work or delegate his work to someone else. The AAT rejected any suggestion that, based on these facts, Mr Pirie could delegate his work; and
• Mr Pirie was able to work for others while working for the Taxpayer.

Applying the test in Moffet, the AAT found that Mr Pirie fell within the expanded definition of employee under section 12(3) of the SG Act, stating that the contract in this case:

was the paradigm kind of agreement that would be caught by the expression ‘works under a contract that is . . . principally for the labour of the person’.

The AAT also stated that whether Mr Pirie was conducting his own business or not was irrelevant, as Mr Pirie contracted to give to the Taxpayer only his labour.

This case confirms the decision in Moffet, and highlights that contractors required to provide labour personally are likely to be employees for SG purposes pursuant to the expanded definition of employee under section 12(3) of the SG Act.