Fair work cases; employee or contractor?

This Fair Work Commission case decision contains a summmary of the lergal principles which determine whether a person is an employee or independent contractor.

“Consideration

[21]    The question of whether Mr Brophy was an employee is to be determined by reference to the test at common law. The High Court considered that question in the decisions of cfmmeu

  1. Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Pty Ltd and Jamsek [2022] HCA 2.

 

[22]    The principles set out by the Court in those decisions have been conveniently distilled1 by Wigney J in the matter of JMC Pty Limited v Commissioner of Taxation [2022] FCA 750 at

[17] – [27]. That decision was successfully appealed, JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76, however, his Honour’s summary was accepted by the parties to the appeal as accurate.

 

[23]    Having regard to those matters, I consider the following relevant to the current application:

 

  1. a) The parties did not commit the terms of their relationship to writing and so there is no written contract that will be decisive of the character of the relationship.
  2. b) In order to ascertain the relevant legal rights and obligations here, the contractual arrangements must be construed in accordance with the established principles of contractual interpretation.
  3. c) Regard may be had to the circumstances surrounding the making of the contract, as well as to events and circumstances external to the contract which are objective, known to the parties at the time of contracting and which assist in identifying the purpose or object of the contract.
  4. d) The characterisation of the relationship between the parties is not affected by circumstances, facts or occurrences arising between the parties that have no bearing on their legal rights.
  5. e) Arrangements that deal with the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, and the deduction of income tax will all be relevant.
  6. f) In characterising the relationship there is a need to consider first the extent to which Debt Fix had the right to control how, where and when the Mr Brophy performed

 

 

 

the work. The second is the extent to which Mr Brophy can be seen to work in his or her own business, as distinct from the business of Debt Fix.

  1. g) The characterisation of the relationship as being either one of employer and employee, or one involving the engagement of an independent contractor, is ultimately an evaluative judgment that takes into account the totality of the parties’ contractual rights and obligations.

 

[24]    I am satisfied that the three conversations at the end of 2018 and the beginning of 2019 gave rise to an oral contract. The first step is to ascertain the relevant legal rights and obligations arising from those conversations.

 

[25]    Guidance on determining the terms of an oral contract is provided in a recent case in the Equity Division of the NSW Supreme Court in Douglas v Mikhael [2023] NSWSC 979 which was upheld by the Court of Appeal in Douglas v Mikhael [2024] NSWCA 89. Put briefly, that guidance includes that it was essential to demonstrate that there was a relevant conversation with an intention to form a binding contract with a mutual intention by the parties for it to be legally binding. The history of the relationship between the parties involved may be considered so far as it may shed light on the nature of the agreement and the intentions of the parties. The behaviour of the parties both before and after the formation of the oral contract is also relevant. This includes actions and communications that occurred during the time of the contract’s formation and any subsequent conduct that might indicate the terms of the agreement.

 

[26]    I consider the three conversations that led to Mr Brophy performing the cleaning work amounted to an oral contract between Mr Brophy and Debt Fix. The terms of that contract as agreed and confirmed by the subsequent conduct of the parties were simply:

 

  1. a) Mr Brophy perform the work of cleaning Ms Malzard and Mr O’Donnell’s home.
  2. b) Debt Fix pay Mr Brophy $80.00 per hour to perform the work.
  3. c) Mr Brophy spend 5 hours per week performing the work.
  4. d) Mr Brophy ensure he had a current ABN.
  5. e) Mr Brophy invoice Debt Fix for the work.
  6. f) Debt Fix make payment to Mr Brophy’s designated bank in the amounts provided for in the invoice.

 

[27]    The second step is to determine whether the oral contract amounted to an employment contract or a contract for services.

 

[28]    I find that the oral contract gave rise to a contract for Mr Brophy’s services as an independent contractor. It was not employment. The matters which lead me to that conclusion include the nature of the initial discussion, which was for Mr Brophy to replace the cleaning contractors who had previously performed the work. I also accept the evidence that in later discussions requests were made by Mr O’Donnell that Mr Brophy have a current ABN and that he invoice for the work. Mr Brophy agreed to do so and arranged to have his ABN current for the work. The rate for payment for the work was the rate agreed in the first discussion. It was the same rate paid to the outgoing contractors, $80 per hour. While those payments were to be made by Mr O’Donnell’s company, Debt Fix, the work to be performed was at Ms Malzard and Mr O’Donnell’s home. Mr Brophy was not asked to work in the business conducted by Debt Fix.

 

[29]    The subsequent conduct of the parties, in the early stages of the arrangement, indicates that Mr Brophy had the sort of flexibility associated with performing work under a contract for services rather than in employment. The work to be performed was the cleaning of the home. It was not the cleaning of business premises. Accordingly, initial instructions were made by Ms Malzard as to what was to be cleaned and her preference for how the cleaning was to be done. There was little supervision. Ms Malzard did not control the work. Mr Brophy applied his skills to the tasks to produce outcomes that met Ms Malzard’s expectations. What equipment was to be used was a matter for discussion between Ms Malzard and Mr Brophy. The hours in the initial weeks were in excess of the 5 hours in the discussions suggesting flexibility to work as needed.

 

[30]    The initial payments were made pursuant to invoices provided by Mr Brophy. No tax was deducted. In the first invoice Mr Brophy provided details of his ABN and described the services as having been supplied by S B Cleaning. The services were described as 5 hours “cleaning (indoors)” and 8 hours “Outdoor Cleaning”. The first item was charged at $450 and the second $900. The second invoice similarly provided Mr Brophy’s ABN, referred to S B Cleaning and specified the work as 5 hours of cleaning services. The rate was recorded as $80 per hour. The totals in the early invoices were for amounts that did not always accord with the work described and were often not in multiples of $80. This suggests that the payments at the commencement of the work did not strictly accord with the arrangements made in early 2018. By April 2018 the payments in the invoices were in line with the original arrangements. Thereafter, the amounts paid were largely in multiples of $80. No explanation was provided for the discrepancies in the early weeks of the arrangements. I infer that the informality of the arrangements was such that Mr Brophy had some latitude what work was performed and what charges would apply in the early weeks of the contract.

 

[31]    For his part, Mr Brophy was also providing cleaning services to others. Mr Brophy’s bank statements suggest that during the course of the arrangement with Debt Fix he had a number of clients to whom he provided cleaning services. Debt Fix did not deduct and remit taxations payments as if Mr Brophy was an employee. Mr Brophy’s tax records at the commencement of the arrangement and throughout the term of the contract give no indication that he was employed by Debt Fix.

 

[32]    My assessment of these factors is that Mr Brophy was not, nor was ever intended to be, an employee of Debt Fix. The arrangement was for Mr Brophy to provide cleaning services in his own cleaning business. The initial offer to perform the work was made by Mr Brophy in circumstances where he was to replace a cleaning contracting firm. The rate of pay he was to receive was a commercial rate based on the earlier contract rate. While Ms Malzard provided some instruction about how she wanted her home cleaned the work was performed without direct supervision.

 

[33]    There was flexibility about when the hours would be worked and how the cleaning was to be done. Agreements were in place as to when Mr Brophy was expected to be working in the home, but the evidence suggests these arrangements were flexible. There were no pay slips provided by Debt Fix. Nor were they sought. No time sheets were kept recording when the work was done. The agreed position was that he perform the work as a contractor working under an ABN and invoicing for payment. The arrangement a contract for services.

 

[34]    For these reasons Mr Brophy was not employed by Debt Fix. Consequently, he was not dismissed and is not entitled to bring an application for an unfair dismissal remedy.

 

[35]    The Respondent’s objection is upheld. The application is dismissed.”

 

Brophy v Debt Fix Pty Ltd (2024) FWC 1451 delivered 4 June 2024 per Slevin DP