Employment law issues; contract of service

There are many circumstances in which it is necessary to determine whether the relationship between parties is that of employer and employee. Self-evidently, that is of profound importance to issues which arise under the Fair Work Act and of course the jurisdiction of the Fair Work Commission. But it is also important in tax, superannuation, workers’ compensation, vicarious liability, common law issues such as duty of care and many other situations.

A relationship of employer and employee cannot arise unless there is a contract of employment, known to employment lawyers as a contract of service. This is to be contrasted with a contract for services, which is the legal term to describe the relationship between a principal and contractor.

It is not always a simple matter to determine whether there is a contract of services and thus an employment relationship. A certain level of formality is technically required.

I have included a passage from a recent Federal Circuit Court case to hopefully demonstate how it works.


“In order to create a contract of employment various elements must be present, namely:

  1. a)an intention between the parties to create an enforceable legal relationship;
  2. b)an offer by one party and its acceptance by the other;
  3. c)a contract supported by valuable consideration;
  4. d)the legal capacity to make the contract;
  5. e)genuine consent to the terms of the contract; and
  6. f)that the contract must not be rendered ineffective by reason of conduct which is illegal or contrary to public policy.

See C Sappideen et al, Macken’s Law of Employment (7th Edn) (Pyrmont: Law Book Co, 2011) page 96 at [4.40] (“Macken’s Law of Employment”).

Whether a person is an employee or not is a question of law: ACT Visiting Medical Officers Association v Australian Industrial Relations Commission [2006] FCAFC 109; (2006) 153 IR 228; (2006) 232 ALR 69 (“Visiting Medical Officers Association”); Damevski v Giudice & Ors [2003] FCAFC 252; (2003) 133 FCR 438; (2003) 129 IR 53; (2003) 202 ALR 494; (2003) 54 AILR 100-124 (“Damevski”), and there are many factors which may point to a contract being a contract of employment, with their relative importance varying with the circumstances. Control of the employee exercisable by the employer is a prominent factor, but not the sole criterion, and is one of a number of possible indicia of employment, including but not limited to “the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and the provision of holidays, the deduction of income tax and the delegation of work by the putative employee”: Stevens v Brodribb Sawmilling Company Proprietary Limited (1986) 160 CLR 16; (1986) 60 ALJR 194; (1986) 63 ALR 513 at 24 per Mason J (with whom, on this point, Brennan and Deane JJ agreed at 47 and 49 respectively); Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21; (2001) 75 ALJR 1356; (2001) 47 ATR 559; (2001) 106 IR 80; (2001) 181 ALR 263; [2001] Aust Torts Reports 81-615; (2001) 50 AILR 4-476 at [43]-[45] per Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ; Visiting Medical Officers Association at [19] per Wilcox, Conti and Stone JJ. Payment of wages by a third party is not fatal to the existence of a contract of employment between an employee and an employer: Building Workers Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104; (1991) 37 IR 380; (1991) 99 ALR 735; [1991] ATPR 41-092; (1991) 33 AILR 163; Damevski, and employees may have so-called “host” employers: Damevski at [76] per Marshall J. The rendering of invoices is usually “quite foreign to an ordinary employment relationship”: Climaze Holding Pty Ltd v Dyson & Anor (1995) 13 WAR 487; (1995) 58 IR 260; (1995) 8 ANZ Insurance Cases 61-245; WAR at 495 and 497 per Steytler J (with whom Malcom CJ, WAR at 489 and Rowland J, WAR at 489 agreed). Of course, the rendering of invoices and the labelling of an employment relationship in a particular way has never been determinative of a person not being an employee if the invoices and labelling are part of a sham arrangement designed to avoid the persons being designated as employees: Cam & Sons Pty Ltd v Sargent (1940) 64 CLR 659; (1940) 14 ALJ 162 at 163 per Dixon J; The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No 7) [2013] FCCA 1097 at [282] per Judge O’Sullivan. In a now oft quoted passage the Federal Court in Re Porter; Re Transport Workers’ Union of Australia (1989) 34 IR 179; (1989) 31 AILR 382; IR at 184 per Gray J (“Porter”) it was said “the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.” Section 357(1) of the FW Act now prohibits an employer from misrepresenting to an employee that the employee performs work as an independent contractor under a contract for services with a third party, and in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd & Ors [2015] HCA 45; (2015) 256 CLR 137; (2015) 90 ALJR 107; (2015) 255 IR 229; (2015) 326 ALR 470; (2015) 67 AILR 102-490 at [21] per French CJ, Kiefel, Bell, Gageler and Nettle JJ the High Court adverted to the Porter metaphor in finding that there had been a contravention of s.357(1) of the FW Act.”

Coopes v Daishat Pty Ltd No 2 (2017) FCCA 2210 delivered 13 September 2017 per Lucev J