Fair work cases; employee or contractor

Historically, the legal distinction between the relationships of employer and employer and of principal and independent contractor have been terribly important to employment and fair work law but has been mired in legal controversy and differing tests. Recently the High Court handed down two very important decisions which have at least for the time being settled some of the doubts about the tests to be applied. Here is the issue is practical application in this extract from a recent unfair dismissal decision of the Fair Work Commission.

“Legal principles

[52] In two judgements delivered on 9 February 2022 the High Court of Australia pronounced on the law that applies in determining whether, absent a specific statutory rule, a person is an employee or contractor. 10 In doing so, the Court reviewed past decisions of the Court (and other courts) and set out afresh relevant legal principles.

[53] In important respects the law as expressed by the High Court in Jamsek and Personnel Contracting has modified, if not replaced, former approaches. In particular, the past approach of the Commission (itself based on past court authority) as outlined in the leading full bench case of French Accent 11 is, with some limited caveats, no longer good law.

[54] The High Court, via the combination of judgements in both Jamsek and Personnel Contracting, has largely rejected an approach whereby the relationship between parties across its life span is examined (including how the relationship operates in practice). The Court has stated that contractual terms and not performance, where those terms can be ascertained and where the contract is not a sham, will determine the true nature of the relationship. 12 However, the Court has observed that the manner in which the relationship is worked in practice may be relevant for certain limited purposes, such as to find contractual terms where they cannot otherwise be ascertained13 or to determine the nature of any variation to agreed terms.14

[55] Indicia (such as those identified in earlier cases in the Court 15) may be relevant but only insofar as the terms of the contract give voice to them.16 One approach, to be used as a guide, is to look at whether, under the contract, the worker is engaged to work in the business of another17, though this may not necessarily be useful in all cases.18 The extent of a contractual right to control, as evident from the terms of the contract itself, remains a major signifier of an employment relationship.19 That an arrangement was brought about by the superior bargaining power of one party has no bearing on the meaning and effect of the contract.20

[56] Amongst the caveats expressed by the Court, is that a mere label acting as a subterfuge to the true nature of the contractual relationship will not determine the status of the parties. 21 In this respect at least, the law remains unchanged by these recent decisions.

Application of law to the facts

[57] There is an evident lack of clarity as to the terms under which Mr Waring worked prior to the intended joint venture getting off the ground. Aside from the January 2020 Agreement (considered below) both Mr Waring and Hage Retail failed to specify the nature of their relationship or the terms under which Mr Waring would be working in the interim for what turned out to be an eighteen month period (February 2020 to November 2021).

[58] As a consequence, determining whether the relationship was one of contractor or employee, even with the recent guidance of the High Court, is fraught. The arrangement, whatever it was, was vague, opaque and amorphous.

[59] That task of characterisation has an added degree of difficulty given the disputed facts.

[60] What is unaltered by the recent High Court decisions is that ultimately this question must be determined objectively, not by subjective belief. An evaluative judgement is to be made giving primacy (and in most instances exclusivity) to the terms of the contract(s) (written or oral) under which work was performed.

[61] What is clear from the recent High Court decisions is that, aside from applicable statutory terms (including those from industrial instruments) or terms varied by subsequent conduct, terms of a purported employment relationship can only be discerned from the contract itself. Thus, it is necessary to determine what agreement (or agreements) existed that governed the work performed by Mr Waring over this eighteen month period.

[62] The January 2020 Agreement was a signed written agreement and as such had contractual force. A question which arises is whether the terms of that Agreement created an employment relationship between Mr Waring and Hage Retail for the interim work undertaken in advance of the intended joint business venture commencing.

[63] For the following reasons, I think not.

[64] Firstly, the Agreement is a contract for the sale and purchase of services associated with the intended business venture. Mr Hage is described as the “buyer” and Mr Waring the “seller”. Whilst these descriptors and the label ‘Agreement to Incorporate’ do not determine the nature of the relationship, the terms are consistent with a business arrangement. It should be noted however that the fact other matters (such as commercial terms) are included in a contract (as they are here) does not necessarily mean that terms regulating the performance of work cannot be characterised as terms of employment. 22

[65] Secondly, the Agreement is not solely between Mr Hage and Mr Waring. Two other persons are expressed as “parties” though only Mr Waring and Mr Hage signed the agreement. Whilst the existence of multiple parties does not exclude the potential that one such person performs work as an employee, employment relationships are ultimately singular – between an employer and an employee. The existence of multiple parties leans towards the agreement having the character of a business arrangement, not an employment contract.

[66] Thirdly, and crucially, the Agreement was conditional on a confirmed wholesale contract for the supply of goods and two legal entities being created through which the joint venture would operate: a company (Blue Landing Provisions Pty Ltd) to be established and a partnership agreement to be entered into. Mr Hage’s evidence was clear in this regard. 23 It is not in dispute that no such entities were created and no confirmed contract to supply was secured. This being so, the capital injection contemplated by the agreement on the venture commencing (payment of a deposit and further lump sum) did not occur.

[67] Fourthly, and also crucially, whilst the Agreement contemplated that Mr Waring would “start employment” (cl 7), that clause specified that this employment would start “at the commencement of the first contract order”. No contract order was placed by Starbucks or other major café operator. As the joint venture did not get off the ground (as neither of the legal entities were established nor a contract order placed), Mr Waring was not employed under cl 7.

[68] For these reasons, I conclude that whilst working with Mr Hage between February 2020 and November 2021, Mr Waring was seeking to give effect to the terms of the January 2020 Agreement but was not working as an employee under that Agreement.

[69] Whilst not of direct relevance to work by Mr Waring but providing contextual support, I note that cl 11 of the January 2020 Agreement provided that in whatever relationship “remaining partners” would work for the venture (“employ/contact”), it would be to “the company”. This is a reference to the company that was intended to be (but was not in fact) jointly registered and incorporated under cl 3, being Blue Landing Provisions Pty Ltd.

[70] If Mr Waring was not working as an employee under the January 2020 Agreement, was a separate agreement made under which he was working in that capacity for Mr Hage or Hage Retail?

[71] There is no other written agreement.

[72] Both Mr Waring and Mr Hage gave evidence that verbal discussions occurred following the signing of the January 2020 Agreement in which Mr Waring would start working on getting the joint venture off the ground. In that sense, I find that an oral agreement was reached for the performance of work in that interim period.

[73] I do not however find that Mr Hage and Mr Waring agreed terms by which Mr Waring’s work in that interim period would be as an employee or on the same terms specified in cl 7 of the January 2020 Agreement.

[74] Mr Hage’s evidence as to what was agreed at that time was plausible. 24 He said that there were regular discussions with Mr Waring at that time about the joint venture and its proposed legal entities, business plans and prospective clients, but not an arrangement to be employed. He said that the agreement was for Mr Waring to travel to South Australia to work on the venture and make sample product to secure confirmed wholesale supply to a major café client for the venture. Manufactured sample product was necessary to secure a confirmed agreement with a proposed client. Travel to South Australia was necessary because no manufacturing facility had been leased in Queensland whereas sample product could initially be manufactured using Mr Hage’s facilities in South Australia. In this period, and consistent with the common pursuit of the joint venture goals, Mr Hage also travelled with Mr Waring to Brisbane to meet other prospective clients.25

[75] However, that does not dispose of the matter.

[76] The specific terms under which this interim work was to be performed were not the subject of any express agreement, oral or written. Yet work was nonetheless performed and agreed to be performed; over an eighteen month period no less.

[77] The question then is, was work performed by Mr Waring during this period (and more materially, at the date of alleged dismissal) as an employee of Hage Retail?

[78] In order to answer that question, this is one of the rare matters contemplated by the High Court in Personnel Contracting where the manner in which the relationship is worked in practice remains relevant to find contractual terms that cannot otherwise be ascertained by the agreement between the parties. 26

[79] I have found that from February 2020 Mr Waring was seeking to give effect to the January 2020 Agreement. This was the reason why he was flown to South Australia. His work primarily involved seeking out a major café retail client, manufacturing samples of product to get that client (or other clients) over the line, establish the legal entities to commence the venture, to develop business plans and ideas for business plans, and to undertake administrative and regulatory work related thereto.

[80] The nature of these activities was directly aligned to Mr Waring’s entrepreneurial ambition to enter into a joint business venture with Mr Hage. They are strongly indicative of work as a contractor. Mr Waring was providing to Mr Hage information and knowledge on how to secure wholesale contracts. 27 Mr Waring was acting as an entrepreneur and, in these respects at least, was undertaking the work of an entrepreneur. This he continued to do.

[81] I take into account that some (but not all) aspects of the prospective future employment relationship contemplated by the January 2020 Agreement (had the venture got off the ground) were similar to the terms under which Mr Waring provided and was remunerated for his services. The monies paid by Mr Hage were paid regularly (weekly, not monthly though), the quantum ($1,100 per week) was close (but not equal to) the annual sum of $75,000, and travel and accommodation was financed by Mr Hage. On the other hand, other future contemplated terms such as payment of superannuation and workcover did not apply.

[82] Materially, I find that Mr Hage did not have nor exercise the right to control the days or hours worked by Mr Waring. Mr Waring exercised discretion in those respects. Nor did Mr Hage have or exercise the right to control which aspect of his services Mr Waring would provide on a given day. Mr Waring exercised discretion in those respects also. Further, in relation to the manufactured products (samples or traded goods), whilst they were made using Mr Hage’s business assets, Mr Waring brought his skills as a pastry chef to that task.

[83] That Mr Waring did not produce an ABN is consistent with an employment relationship, though the fact that he received payments without deduction of PAYG taxation is not consistent with employment.

[84] In combination, these factors and in particular the fact that Mr Waring was primarily working for the purpose of giving effect to his entrepreneurial ambition to bring the joint venture to fruition, do not suggest that the terms of the work arrangement were that of an employer and employee. In his evidence Mr Waring put it this way: 28

“The initial agreement was the goal and in the interim we just started from that position. I guess obviously we were going to become business partners and we discussed things but there was never any agreement as far as my employment situation aside from that Agreement to Incorporate.”

[85] One other material and counterveiling factor must be considered. In addition to the entrepreneurial work Mr Waring undertook, he also manufactured product that was not merely used as samples to secure the joint business venture, but which was also sold in Mr Hage’s retail businesses. This activity was not contemplated by the January 2020 Agreement nor was it necessary to give effect to that Agreement. I find that this work came to occupy around 50% of Mr Waring’s time and thus was significant. The direct beneficiary of that activity was Mr Hage and his retail businesses, though I accept Mr Hage’s evidence that the products being manufactured were commonly larger volumes of the same sample products manufactured for the purposes of the intended joint venture (and some were frozen and put aside for the joint venture).

[86] I find that it became a feature of Mr Waring’s work over the eighteen month period that he would also manufacture product in significant quantities for Mr Hage’s retail businesses as an adjunct to manufacturing sample and frozen products for the intended joint venture. However, when doing so Mr Waring was also fostering the business relationship with Mr Hage and commonly baking the same product as the joint venture samples.

[87] Undertaking this work does not mean that in baking manufactured product (or when doing so) Mr Waring was necessarily working as an employee and not a contractor. It cannot be considered in isolation from the other entrepreneurial services being provided by Mr Waring.

[88] Considered in context and overall, I conclude that the terms under which Mr Waring undertook work between February 2020 and November 2021, including the sizeable portion of time manufacturing product which benefited of Mr Hage’s retail businesses, were in pursuit of his entrepreneurial goals and the joint venture objectives. In this sense Mr Waring was materially acting in his business interests and not just Mr Hage’s; he was, in the words of the High Court, to that extent also “acting on his own behalf”. 29 As such, I conclude that Mr Waring was a contractor and not an employee.

Conclusion

[89] For the aforementioned reasons, no contract of employment existed between Mr Waring and Hage Retail notwithstanding Mr Waring being ‘stood down’ by Mr Hage when the relationship fractured. Following a commercial dispute with Mr Hage over business assets, he was stood down from working as a contractor, not an employee.

[90] Not being an employee at the date of alleged dismissal, Mr Waring was not dismissed within the meaning of the FW Act.

[91] That being so, the application does not invoke the Commission’s jurisdiction. The application must be dismissed. An order 30 giving effect to this decision is issued in conjunction with its publication.”

Waring v Hage Retail Pty Ltd (2022) FWC 540 delivered 23 March 2022 per Anderson DP