Employee or contractor in fair work system?

One of the most important legal issues in fair work law is the distinction between a contract of services (that of employer and employee) and a contract for service (principal and agent) thus;

“[6]    The relationship between the Applicant and the Respondent commenced in February 2021, and it is common ground that the Applicant was initially engaged as a contractor to provide commercial consulting services. There is a dispute between the parties as to whether they entered into an employment agreement on 19 April 2021. The Applicant asserts this claim is supported by a signed employment contract which he filed with his initial material on 22 April. The Respondent states this alleged employment contract was only signed to assist Mr Brown in obtaining a rental property and did not actually operate as a contract of employment. This contract stated that the Applicant was employed as a project manager, with a yearly salary of $125,000.

[7]      To support the Respondent’s case that there was in fact no employment contract entered into in April 2021, it pointed to the method of payment remaining as a sum of money paid to the Applicant with GST. The Respondent contended the amount being paid to the Applicant did not reflect the amount identified in the April 2021 contract and additionally, that there was no net amount with PAYG tax deducted like the Respondent does for its employees or superannuation contributions paid.

[8]      I asked Mr Brown whether there was a discussion with the Respondent about wanting a contract to support an application for a rental agreement in April 2021. Mr Brown said there may have been one of two instances during his employment where he needed contracts. He said it would be “partially true,” however, he said he had never worked for a company without a contract. This answer was somewhat cryptic however it appeared to me Mr Brown was indicating he had asked the Respondent for a contract to support his application for a tenancy agreement.

[9]      A further agreement was prepared by the Respondent for the Applicant and sent to the Applicant on 8 December 2021 (the December 2021 Agreement). The Respondent acknowledged that this agreement was not executed by the parties and Mr Taylor did not follow up in relation to it but argues that the relationship between the parties was governed by the terms of the agreement, which came into effect following an email sent to the Applicant from Mr Taylor on 14 December 2021. That email stated as follows:

“Dear Alex,

Further to our discussion of today I would like to take the opportunity to outline the proposal moving forward:

  • We will continue to pay $2,500 a week, with the last week being 22nd – 28th January 2022
  • Bonus will be paid for the periods 6th – 12th December and 13th – 19th December 2021.
  • In the period between now and 28th Jan we will formalise a plan of work and agreed deliverables.
  • You can produce all this work from home.
  • Moving forward, we would like you to continue to consult for us with regard to data analytics, spreadsheets etc.
  • We understand this will need to be planned, so that your time on other projects can be managed too.
  • For this we would need to know your hourly and daily rate
  • We will use the period between now and the end of January to try and project how many hours/days a week we may need you in the future.

Let me know if you have anything to add at this stage. Regards”

[10]    The Applicant says he declined this contract and ceased with working for the Respondent in January 2022. However, in March 2022, the Applicant states he recommenced with the Respondent and acknowledged this was as an independent contractor. The Respondent denied that the December 2021 Agreement ended at any time.

[11]    Mr Brown contends that in August 2022, he was told by Mr Taylor that he could no longer contract at his consultant rate and that if he wanted to continue with the Respondent, he would need to do so as a full-time employee. He also claims he accepted a reduction in pay of approximately 40% upon commencing as a full-time employee. The Respondent denies this, saying that such a discussion never occurred. According to the Respondent, pursuant to the December 2021 Agreement, Mr Brown’s daily contracting rate was $640.

[12]    Mr Brown says he requested a new contract reflecting his full-time employment status but did not receive one. Therefore, he assumed his employment was subject to the terms of the 19 April 2021 contract. Mr Taylor states he had a conversation with the Applicant, where they agreed to reduce the Applicant’s rate to $600 per day ($3,000 per week).

[13]    On 23 December 2023, Mr Taylor sent an email to the Applicant, informing him of his termination. The email relevantly stated as follows:

“Dear Alex

We write with reference to our meeting on Tuesday and subsequent meeting on Wednesday, where you declined the change in contract conditions to an hourly rate. We therefore regret to inform you that, in accordance with the terms specified in our contract, your services with Teknation Pty Ltd will are (sic) terminated and we are obliged to pay you one week’s notice. However, we have decided that we pay you two weeks notice, and this payment will be made on Friday 29th December.

Please note we maintain the right to review this given your unlawful conduct since Wednesday by contacting other parties and disparaging the company and some individuals. We have clear evidence of such conduct. At this stage we have elected to pay an increased notice period but reserve our rights to claw it back if we deem appropriate or if such conduct continued. We will also defend any such claim you have alluded to for any other entitlements, in any forum, and will defend the action to the fullest extent possible. Additionally, we would like to draw your attention to the post-contract obligations outlined in our agreement. These obligations include return of any company property, confidentiality obligations and obligations concerning intellectual property…”

Was the Applicant an employee or an independent contractor?

[14]    Mr Brown says he did not accept the December 2021 Agreement identified by the Respondent, and says it had no effect. In support of his contention that he was an employee, he submitted the following:

  • he was required to attend the office in West End 3 days per week;
  • his earnings remained the same from every fortnight from 29 August 2022 to 29 December 2023;
  • he did not submit any invoices to the Respondent after August 2022;
  • he did not work for any other entity during the period he claims he was employed, whereas he had other clients in previous years;
  • he held numerous positions with the Respondent;
  • he was required to ask permission to not attend the office or alter his days of work;
  • he was provided equipment, including a laptop;
  • he worked on various projects under direct supervision from Mr Taylor;
  • he could not subcontract nor choose his hours of work;
  • he represented the company at a conference in Las Vegas in January 2022 and is still owed $5,500 in travel expenses; and
  • he accessed paid sick leave in April 2023 and annual leave in August 2023, during which periods he was periodically required to complete some work.

[15]    Mr Brown states that as he did not submit an invoice to the Respondent after August 2022, he would not be remitting GST after that time. In relation to the reimbursement of expenses by the Respondent, Mr Brown noted that all invoices are dated prior to August 2022, being the time when he says he was a contractor.

[16]    The Respondent submitted the following factors weigh in favour of a finding that Mr Brown was an independent contractor:

  • Contractual relationship: The agreement between the parties specified that Mr Brown’s engagement was as a contractor for the provision of services.
  • Degree of control: Mr Brown had autonomy in providing his services and could work from home.
  • Independence: Mr Brown operated as an independent business entity, was responsible for his own taxation and superannuation, had the ability to work for multiple clients concurrently, and had his own ABN.
  • Payment structure: Mr Brown paid in accordance with a weekly invoice which he submitted with GST added.

[17]    Mr Taylor noted that the December 2021 Agreement expressly identified the nature of the relationship as that of an independent contractor. Consequently, Mr Brown was able to work for other entities as a contractor. Mr Taylor states that he is aware that Mr Brown worked as a contractor for another entity, GT Property Holdings Group Pty Ltd (GT Property). Mr Taylor provided a ledger from GT Property, which demonstrates payments made to Mr Brown totalling

$57,200. In response to this, the Applicant noted that he only invoiced GT Property up to August 2022, after which time he contends an employment relationship with the Respondent commenced.

[18]    Mr Taylor states that the Respondent never paid any superannuation to the Applicant, as it was understood that the Applicant was a contractor. In response to this, Mr Brown says that as he had previously been self-employed since 2015, superannuation “was not on my mind at the time. In hindsight it should have been raised.”

[19]    The Respondent states that as part of the independent contract arrangement, Mr Brown was required to represent the company. The Respondent claims that Mr Brown was never paid sick or annual leave. Instead, there was an understanding that Mr Brown would make up any lost hours at a later date or would at least remain on call and contactable during periods of leave. The Applicant claimed he was paid when he had a holiday and had a period of sick leave. Mr Taylor said this was not the payment of annual leave or personal leave and just reflected that the Respondent was generous and could have ceased payments for periods when the Applicant was not working however chose not to, noting that at the times the Applicant claimed he was on leave he stilled performed work for the Respondent.

[20]    The Respondent has provided an ASIC Historical Personal Name Extract in relation to the Applicant, which shows that the Applicant was an officeholder with a number of other organisations during his time with the Respondent. The Respondent also notes that it has claimed the GST for all invoices for the entire contractual period with Mr Brown and that Mr Brown would have been aware of this as it was indicated on the invoices.

[21]    It is claimed by the Respondent that Mr Brown was able to work flexibly, as demonstrated by the fact that he routinely worked from home for various reasons. The Respondent also argues that it is not unusual for a contractor to be repaid monies, and that Mr Brown’s contract provided for the reimbursement of amounts incurred. The Respondent says it requested invoices from the Applicant on many occasions for this purpose, but he only ever provided a spreadsheet.

[22]    Ultimately, the Respondent says that it was commonly understood that the Applicant was a contractor. This is reflected in the December 2021 agreement, and although the relevant contract was not executed, the terms of it were reduced to writing in Mr Taylor’s email of 14 December 2021. Accordingly, the Respondent says the Applicant’s engagement with the Respondent from that time onwards was as an independent contractor, and this was not affected by any conversation between Mr Brown and Mr Taylor in August 2022.

[23]    Mr Brown contends that he did not accept the purported December 2021 Agreement, and it had no effect. He claims he stopped working for the Respondent in any capacity in January 2022, and recommenced as a contractor in March 2022. Mr Taylor argues this relationship was converted to an employment relationship following the conversation he had with Mr Taylor in August 2022, and he remained an employee until his dismissal on 23 December 2023.

[24]    The further statement filed by Mr Taylor for the Respondent the day before the hearing said that he only that day discovered further WhatsApp messages by finding them for the first

time on his phone. Mr Taylor said on the 14th of July 2023 he received a WhatsApp message from Alexander Brown stating, “hey how did you go with the contract?”. That message was 11:05am. On the same date at 2:55pm he proceeded to send Mr Brown a contractor document which was a precedent document for another entity. Mr Taylor sent a WhatsApp message that said, “could change that one?”. At 3:02pm after some further discussion Mr Taylor then sent to Mr Brown a contractor agreement. Mr Taylor attached to an email to the Commission the contractor agreement he said was attached to his WhatsApp message to Mr Brown at 3:02pm on 14 July 2023. At 2:58pm on 17 July 2023 Mr Brown said on WhatsApp to him “ill send to you if you can print sign and scan back would be great”. Mr Taylor then replied with “yeah”.

[25]    On 20 July 2023 Mr Taylor said he received a WhatsApp message from Mr Brown enclosing a further contractor agreement which he had populated. Mr Taylor attached a copy of the WhatsApp message and also what he said was a copy of the agreement attached to that WhatsApp message on 20 July 2023 from Mr Brown himself.

[26]    On the morning of the hearing Mr Taylor sent to chambers further WhatsApp messages exchanged between himself and Mr Brown on 20 July 2023 which appeared to indicate a contractor agreement and been signed and executed by both Mr Taylor and Mr Brown. In the course of the determinative conference, I asked Mr Brown about this, and he accepted that the WhatsApp messages were messages exchanged between Mr Taylor and himself.

[27]    Mr Brown said he could not locate a signed copy of the Agreement. Mr Taylor provided evidence to the Commission that his iPhone would not allow him to download a copy of the signed contract referred to in the thread of WhatsApp messages however it did exist. Mr Taylor said he thinks the signed contract was from a defunct email address.

[28]    I asked Mr Brown whether he recalled the messages and signing the document being referred to in these WhatsApp messages. Mr Brown said he did not recall signing it and sending it back however he said he may have. He said he had been requesting the contract for sometime and he was sent a contract with the wrong company on it, however he said if this document was what he populated then he probably signed it out of desperation.

[29]    Mr Taylor asserted that these WhatsApp messages make clear a new contracting agreement was entered into in July 2023 and the terms of payment that was populated in the 20 July contract was exactly the amount that was paid to Mr Brown being $3300, which was $3000 plus GST until the ending of his engagement.

CONCLUSION

[30]    Having considered the evidence it is sufficiently clear to me that the engagement between the Applicant and the Respondent was that of contracting. There was no dispute that the arrangement started as contracting. There was a dispute about whether an employment contract was entered into in April 2021. There were two different documents from April 2021, one being signed and the other not, one being an employment contract and the other contracting. The amounts Mr Brown was being paid for the period from April 2021 to December 2021 does not correspond with the alleged employment contract. Mr Brown was never paid a net amount of a gross salary amount and was not paid superannuation.  The evidence was he was paid

$2750 a week during this period which Mr Taylor said was $2500 plus GST. This indicates the

terms of the alleged employment agreement were not being paid and it supports the conclusion that Mr Brown was continuing to be paid as a contractor.

[31]    In any event, on the Applicant’s case, this engagement ended in December 2021 and both parties agreed a new contracting agreement was struck in March 2022. The Applicant claimed he became an employee in August 2022 because he no longer submitted invoices, and he ceased contracting with other entities and was asked to work full time hours by the Respondent and was told he would be fulltime. The payment arrangement made was $660 per day equally $3300 weekly which Mr Taylor said was $3000 plus GST. Mr Taylor said the Respondent has never been asked for any information by Mr Brown that would allow him to submit tax as an employee.

[32]    The fact that the Respondent has a small number of staff who are engaged on employment contracts where they are paid net amounts with PAYG tax deducted and superannuation contributions while Mr Brown was never paid in that manner favours the Respondent’s case.

[33]    The WhatsApp messages exchanged and the oral evidence concerning a contracting document that I am satisfied was signed by both parties are sufficient for me to be satisfied that whatever may have happened prior to that time, the parties entered a contracting agreement in July 2023. It is also my view on the evidence that it is probable that the arrangement had always been a contracting arrangement. On that basis the Applicant was not an employee at the time of termination in December 2023 and therefore the Commission has no jurisdiction to deal with the application. For that reason, the application is dismissed. An order to that effect will be issued separately and concurrently with this decision.”

-Brown v Tek Nation Pty Ltd (2024) FWC 1154 delivered 3 May 2024 per Simpson C