Employee or contractor? Fair work tests

 

These passages from a recent decision of the Federal Court set out the legal principles currently used in Australia to distinguish between a contract of service and a contract for services, often critical in fair work law cases.

 

“E.1    The principles for determining whether there is an employment relationship

 

28    The decisions of the High Court in Personnel Contracting and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2; (2022) 275 CLR 254 have laid down the principles to be applied in the determination of the existence of an employment relationship where the rights and duties of the parties are “comprehensively committed to a written contract” and that contract is not a sham: Personnel Contracting at [43]-[44].

 

29    However, it does not follow that in cases where there is no written contract, or it is partly written, that the identification of the contract and its terms have no role to play in the determination of the essential question as to whether the relationship is one of employment. As Lee J stated in EFEX Group at [52], the decisions of the High Court in WorkPac Pty Ltd v Rossato [2021] HCA 23; (2021) 271 CLR 456, Personnel Contracting and Jamsek make plain that the “key determinant of the character of any given work relationship is to be found in the terms of the contract between the parties”.

 

30    Where there is no written contract, the identification of the parties’ contractual rights and duties must proceed somewhat differently but the fundamental task remains the same as where a written contract exists: the parties’ contractual rights and obligations are to be ascertained and characterised: EFEX Group at [7] (Katzmann and Bromwich J) citing Personnel Contracting at [177] (Gordon J, with Steward J agreeing) and Chiodo v Silk Contract Logistics [2023] FCA 1047 at [9] (Kennett J); see also EFEX Group at [52]-[56] (Lee J). The terms of such a contract must be determined on the application of orthodox principles. The terms may be inferred from all the circumstances, including by reference to the parties’ words and conduct at the time of the formation of the contract, a course of dealing or implied where necessary by reason of business efficacy: EFEX Group at [9] (Katzmann and Bromwich J) and at [56]-[59] (Lee J), both citing Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39; (2022) 406 ALR 678 at [21]-[22] (Kiefel CJ and Gageler J). In certain circumstances, it may be permissible, within limits, to have regard to post-contractual conduct where it is admissible in seeking to resolve what was said in the formation of the contract, to infer the existence of the contract from the acts and conduct of the parties, or to identify its necessary terms: EFEX Group at [56]-[59] (Lee J).

 

31    It follows that, whether the contract between the parties is written or not, or is oral in whole or in part, the characterisation of the relationship between the parties depends on their contractual rights and duties: EFEX Group at [7] (Katzmann and Bromwich J) and [52] (Lee J).

 

32    Application of the so-called “multifactorial” test has been eschewed. The judgment of Kiefel CJ and Keane and Edelman JJ in Personnel Contracting makes it clear at [47] and [55] that the “multifactorial” test or approach has no role to play where the relevant contract is comprehensively in written form. That is because that “test” approached the terms of the relevant contract as but only one factor that had to be balanced against all the dealings between the parties: Personnel Contracting at [55] (Keifel CJ and Keane and Edelman JJ). Gordon J (with whom Steward J agreed) considered the “multifactorial” approach at [186]ff and concluded at [189] that it must be “put to one side”.

 

33    In this regard, it is also well to refer to the observations made by Kiefel CJ and Keane and Edelman JJ in Personnel Contracting at [33]-[34]:

 

A multifactorial approach is open to the objection that it “does not provide any external test or requirement by which the materiality of the elements may be assessed”. As Lee J recognised in this case, without guidance as to the relative significance of the various factors the “multifactorial test” is distinctly “amorphous” in its application, is “necessarily impressionistic”, and thereby is “inevitably productive of inconsistency”. Such a test is apt to generate considerable uncertainty, both for parties and for the courts. That uncertainty is exacerbated where it is contended that the test is to be applied in respect of the parties’ conduct over the whole course of their dealings with each other.

 

In Stevens v Brodribb Sawmilling Co Pty Ltd and Hollis v Vabu Pty Ltd, it was said that the characterisation of a relationship as being either one of employment or one of principal and independent contractor is to be determined by reference to “the totality of the relationship between the parties”. It was not suggested that this assessment should proceed as if the court is running down items on a checklist in order to determine a balance of ticks and crosses. It has never been suggested that the factors identified to be relevant are of equal weight in the characterisation of the relationship. Some understanding as to the relative significance of the various factors is desirable, both to minimise the extent to which application of the test may produce an impressionistic and subjective outcome on the one hand, and to avoid the injustice of a mechanistic checklist approach on the other.

 

(Footnotes omitted).

 

34    The central question remains whether the relevant person is an employee, but it may be useful to consider that question by reference to whether the person is working in their own business or the business of another. Kiefel CJ and Keane and Edelman JJ in Personnel Contracting stated at [39]:

 

While the “central question” is always whether or not a person is an employee, and while the “own business/employer’s business” dichotomy may not be perfect so as to be of universal application for the reason that not all contractors are entrepreneurs, the dichotomy usefully focusses attention upon those aspects of the relationship generally defined by the contract which bear more directly upon whether the putative employee’s work was so subordinate to the employer’s business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise. In this way, one may discern a more cogent and coherent basis for the time-honoured distinction between a contract of service and a contract for services than merely forming an impressionistic and subjective judgment or engaging in the mechanistic counting of ticks on a multifactorial checklist.

 

(Footnotes omitted).

 

35    As to these matters, Gordon J (with whom Steward J agreed) stated at [181]-[184]:

 

Asking whether a person is working in their own business may not always be a suitable inquiry for modern working relationships. It may not take very much for a person, be they low-skilled or otherwise, to be carrying on their own business. The reality of modern working arrangements, the gig economy, and the possibility that workers might work in their own business as well as one or more other businesses in the same week, suggest that focusing the analysis on “own business” considerations distracts attention from the relevant analysis — whether the totality of the relationship created by contract between the person and a purported employer is one of employee and employer. The parties to, and the terms of, the contract may show that the purported employee entered into the contract as part of their own business.

 

Another reason for not asking whether a person is carrying on a business of their own is that that inquiry will ordinarily direct attention to matters which are not recorded in the contract, such as what “the parties said or did after it was made”. For instance, in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd, North and Bromberg JJ said that some of the “hallmarks of a business” are conducting a commercial enterprise “as a going concern”, the “acquisition and use of both tangible and intangible assets in the pursuit of profit”, the “notion of system, repetition and continuity”, and “operat[ing] in a business-like way”. But, unless those matters are provided for in the contract, they are not relevant and should be put to one side.

 

The better question to ask is whether, by construction of the terms of the contract, the person is contracted to work in the business or enterprise of the purported employer.

 

That question is focused on the contract, the nature of the relationship disclosed by the contract and, in this context, whether the contract discloses that the person is working in the business of the purported employer. It invites no inquiry into subsequent conduct. A consequence of a negative answer to that alternative question may be that the person is not an employee. Another consequence may be, but does not have to be, that they have their own business. As five judges of this Court said in Hollis v Vabu Pty Ltd, both employees and contractors can work “for the benefit of” their employers and principals respectively, and so that, “by itself”, cannot be a sufficient indication that a person is an employee (emphasis added). That does not detract from the fact that where the contract is oral, or partly oral and partly in writing, subsequent conduct may be admissible in specific circumstances for specific purposes — to objectively determine the point at which the contract was formed, the contractual terms that were agreed or whether the contract has been varied or discharged.

 

36    In EFEX Group, Katzmann and Bromwich JJ considered the abovementioned principles and stated at [12]-[14]:

 

The central question that remains, under an unwritten contract as in a written contract, is whether or not a person is an employee. As was observed in Personnel Contracting at [39] per Kiefel CJ, Keane and Edelman JJ (see also [113] per Gageler and Gleeson JJ), while the dichotomy between a person’s own business and the putative employer’s business may not be perfect so as to be of universal application, because not all independent contractors are entrepreneurs, that approach is still useful. That is because it focuses attention on whether the putative employee’s work as contracted to be performed was so subordinate to the putative employer’s business as not to be part of an independent enterprise. It also avoids the danger of an impressionistic and subjective judgement, or ticking off a checklist, running counter to objective contractual analysis.

 

Once the contours of the legal relationship are identified, its characterisation as one of employment or not often hinges on two considerations identified in Personnel Contracting, in particular by Kiefel CJ, Keane and Edelman JJ at [36]–[39], each of which may involve questions of degree, namely:

 

(a)    the extent to which the putative employer has the right to control how, when and where the putative employee performs the work; and

 

(b)    the extent to which the putative employee can be seen to be working in their own business as distinct from the putative employer’s business.

 

However, as a cautionary note, in some circumstances the proper analysis may be more nuanced than that. As Gordon J pointed out in Personnel Contracting at [181]–[183] (Steward J agreeing), asking whether a person is working for their own business may not always be a “suitable inquiry for modern working relationships”, given that it may not take much for even a low skilled person to be carrying on their own business. Analysis based on this dichotomy may distract from the relevant underlying analysis of the totality of the relationship created by the contract. It may also direct attention to non-contractual considerations, which are not relevant unless forming part of the contract itself. The better question may be to ask whether, by the terms of the contract, the person is contracted to work in the business or enterprise of the purported employer, so as to maintain the correct focus. That is, if the contract does not lead to the conclusion that the person was working in the business of the asserted employer, then the person will not be an employee. This approach has some traction in this case.

 

37    Having regard to the above, what then is the role, if any, of the “multifactorial” approach or “test” in circumstances where the contract is not wholly in writing or is only partly in writing?

 

38    In EFEX Group, which was a case where there was no written contract, Katzmann and Bromwich JJ (with whom Lee J agreed) referred at [42] to the “multifactorial analysis” as having been “now proscribed”.

 

39    In Secretary, Attorney-General’s Dept v O’Dwyer [2022] FCA 1183; (2022) 177 ALD 113, which was another matter in which it was found that there was no written contract and the contract was entirely oral, Goodman J found at [28]-[34] that the Administrative Appeals Tribunal had erred by applying the “multifactorial” approach which had been “disapproved” in Personnel Contracting and Jamsek (see at [28]). Goodman J reasoned as follows at [29]-[33]:

 

… [T]he appeal turns on whether the approach to be taken to determining whether an employment relationship has been created as explained in Personnel Contracting and Jamsek is limited to written contracts or extends to oral contracts (as in the present case) or to contracts which are partly written and partly oral. In my view, the approach taken in Personnel Contracting and Jamsek also applies where there is no wholly written contract, for the following reasons.

 

First, the foundational reasoning of the plurality in each of Personnel Contracting and Jamsek (Kiefel CJ, Keane and Edelman JJ) is that the focus of the inquiry is upon the legal rights and obligations created by the contractual relationship between the parties, rather than upon the history of the relationship between them (including the manner of performance of the contract).

 

Secondly, in the context of that foundational reasoning, there is no reason to distinguish between wholly written contracts and other contracts. This is so despite there being greater scope in the case of oral contracts for subsequent events to be considered as part of the process of identification of the terms agreed between the parties (see Personnel Contracting at [177], [183], [188] and [190] per Gordon J).

 

Thirdly, in Personnel Contracting at [57], the plurality noted that Hollis involved a contract that was partly oral and partly in writing and approved an observation that Hollis “does not alter or even challenge the orthodox principle that courts are not concerned with what has ‘actually occurred’ in a relationship, but rather with ‘the obligations by which the parties [are] bound’”. See also Gordon J at [190]. Further, at [59], the plurality stated that a reason why a wide-ranging review of the entire history of the parties’ dealings is unnecessary and inappropriate is that the task of the court is to enforce the parties’ rights and obligations, not to form a view as to what a fair adjustment of those rights might require. These observations apply with equal force to contracts which are not wholly in writing.

 

Thus, the fundamental task — the ascertainment and construction of the terms of the legal rights and obligations of the parties, rather than an assessment of the history of the relationship between the parties throughout the life of the contract, including the manner of performance of the contract — remains the same regardless of the form of the contract in question.

 

40    It follows that both a Full Court and another single judge of this Court have determined that the foundational reasoning in Personnel Contracting and Jamsek apply with equal force to the determination of the question as to whether a person is an employee where the relevant contract is not in writing or not wholly in writing. Not only am I bound to follow these earlier decisions, I consider them to be correct: see Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v FAK19 [2021] FCAFC 153; (2021) 287 FCR 181 at [21], [30]. That is not to say that the Court does not consider indicia which may point in one direction or another as to the character of the relationship, but the indicia so considered are those found in the contract between the parties and do not entail a wide-ranging enquiry that rakes over the history of the dealings between the parties. Where there is no written contract or it is only partly written, there may be “greater challenges” as it will first be necessary to identify the contract and its terms: EFEX Group at [56] (Lee J). However, the task remains to determine the character of the relationship by reference to that contract and its terms. For example, in EFEX Group, it was by reference to the terms of the contract that the Full Court determined that particular indicia weighed in favour of the conclusion that the worker there was an independent contractor and not an employee: per Katzmann and Bromwich JJ at [38]-[49] and per Lee J at [53].

 

E.3    The contract between the parties

 

41    In the present case, there was no written contract between the parties: PJ [45]. In those circumstances, the primary judge had regard to the “conduct of the parties” to determine the terms of the contract and whether it was one of employment: PJ [45]. The primary judge concluded that the contract was not one of employment: PJ [51].

 

42    I have examined the evidence that was before the primary judge in order to make my own assessment as to the correctness of the conclusion reached by the primary judge. I have found no error in that conclusion.

 

43    By way of summary, the relevant evidence was as follows (mostly drawn from Mr Rizk’s evidence):

 

(a)    Mr Rizk had been a builder’s labourer since he was 16 and although he had no formal trade qualifications, he had speciality in concreting and carpentry. Mr Rizk provided essentially these types of services to other licensed building tradesmen;

 

(b)    the vast majority of work Mr Rizk performed was fitting of internal carpentry and cabinetry, such as doorways, door fittings, architraves and skirtings;

 

(c)    the Dorahy Street site in Dundas was, in fact, Mr Rizk’s parents’ residence. His parents had transferred their interest in that property to BB Dundas for the purpose of re-development of the site into two properties, with the freehold in one such property to be transferred back to Mr Rizk’s parents;

 

(d)    Mr Rizk’s brother introduced him to Mr Boustany in or about late 2016;

 

(e)    at some point, Mr Rizk performed work at Mr Boustany’s private residence;

 

(f)    in March 2018, Mr Boustany informed Mr Rizk that Mr Basseal was renovating his own home and asked whether Mr Rizk would be able to help him with that work;

 

(g)    Mr Rizk then performed work at Mr Basseal’s private residence in March and April 2018 in respect of which he was paid cash;

 

(h)    in late May 2018, Mr Boustany asked Mr Rizk whether he would be interested in performing work at the Dorahy Street site and would be paid in cash at the rate of $400.00 per day, and Mr Rizk agreed to do so;

 

(i)    the work involved installing and fitting doors, handles, skirtings and architraves at the two houses being constructed on the Dorahy Street site;

 

(j)    the materials including the doors and fittings were purchased by Mr Boustany;

 

(k)    Mr Rizk supplied his own tools and was not required to wear a uniform;

 

(l)    Mr Rizk did not provide an ABN, issue invoices or charge GST;

 

(m)    Mr Rizk did not provide a TFN or his superannuation details, and Mr Rizk was not asked to do so.

 

44    There was other evidence, which included that:

 

(a)    Mr Rizk chose which days to work, when he worked and how long he would work for;

 

(b)    as noted above, Mr Rizk kept the Notebook as a record of the days on which he allegedly worked, but the entries upon which Mr Rizk relied in the proceedings contained significant gaps in the work he performed for BB Dundas during the relevant period, which suggested that the was performing work for others during this period;

 

(c)    after he had completed work at the Dorahy Street site or that work had come to an end, Mr Rizk later approached Mr Basseal to perform further ad hoc work;

 

(d)    both before and after his engagement with BB Dundas, Mr Rizk has worked from job to job for various builders.

 

45    There was a dispute between the parties as to whether Mr Rizk was supervised by Mr Boustany and Mr Basseal, but this was resolved against Mr Rizk and those findings are not the subject of challenge in this appeal.

 

46    It is relevant that Mr Rizk’s pleadings neither asserted nor claimed that the work he performed at Mr Boustany’s private residence and later at Mr Basseal’s private residence was work performed as an employee of BB Dundas, or as an employee of, respectively, Mr Boustany or Mr Basseal. Rather, this was work which appears to have been accepted by Mr Rizk as having been performed on his own account, which Mr Rizk’s legal representative, in effect, accepted was the case in the hearing before me. The same position applied in respect of the subsequent work that Mr Rizk performed for Mr Basseal on an ad hoc basis.

 

47    It will be apparent that the evidence as to the contract and its terms was scant. On the basis of this evidence, the contract was an oral one as between Mr Rizk and BB Dundas, and its terms were no more than that Mr Rizk would perform carpentry related work at the Dorahy Street site in Dundas for which he would be paid in cash, and in respect of which he would perform work on days and at times that suited him. That was the extent of the contract and its terms.

 

48    In my view, the terms of the contract, viewed in context of the evidence, supported the finding that Mr Rizk was not an employee of BB Dundas, but worked on his own account as a tradesperson. Mr Rizk performed work at various sites and, for a time, performed work for BB Dundas at the Dorahy Street site at Dundas. The features of the contract (such as it was) between the parties were consistent with this fact. Although Mr Rizk was not an “entrepreneur”, in my view he was engaged in a business of his own account and was not engaged in the business of BB Dundas: EFEX Group at [14]. Although this is not the central question, I am satisfied that on the basis of the contract that was formed, the true character of the relationship was not one of employment. The primary judge did not err in so concluding.”

 

Rizk v Basseal [2024] FCA 647 delivered 19 Jun 2024 per Shariff J