Fair work law; employee or contractor

This extract from a decision of a Full Court of the Federal Court contains a very useful summary of the current state of the law in Australia about the distinction between an employment relationship (a contract of service) and a relationship of principal and agent (a contract for services) which of course is of critical importance in employment law and practice.

 

“Principles for determining whether there is an employment relationship

5    The restatement of employment relationship principles in Personnel Contracting, as opposed to their application to this case, is not in dispute. On any view, this was a challenging exercise for the primary judge, having heard the matter and received closing submissions on one basis, only to have to ultimately decide it on quite a different basis, relying upon written submissions as to the impact of the change.

6    Where the rights and duties of the parties are “comprehensively committed to a written contract”, and the contract is not a sham, varied, waived or the subject of an estoppel, the obligations established by that contract are decisive of the character of the legal relationship: Personnel Contracting at [43]–[44], [59] per Kiefel CJ, Keane and Edelman JJ; and at [183] per Gordon J (Steward J agreeing). In order to ascertain the relevant rights and obligations, the written contract is to be construed in accordance with established principles of contractual interpretation generally: Personnel Contracting at [60] per Kiefel CJ, Keane and Edelman JJ; and at [173] per Gordon J (Steward J agreeing).

7    This case did not involve any written contract at all, much less a comprehensive written contract. It was a wholly oral contract, with sparse details of the agreement reached expressed in the lead up to its formation. In the absence of a written contract and no evidence of a particular conversation during which the contract was made, “evidence of the parties’ conduct must necessarily be considered in order to draw inferences as to whether the meeting of minds necessary to create a contract has occurred and what obligations they have thereby undertaken”: Personnel Contracting at [177] per Gordon J (Steward J agreeing), as summarised in Chiodo v Silk Contract Logistics [2023] FCA 1047 at [9].

8    As Kennett J explained in Chiodo at [8]–[9], where there is no written contract, the identification of the parties’ contractual rights “must proceed somewhat differently but the fundamental task is the same: the parties’ contractual rights and obligations are to be ascertained and characterised”; and the focus is on the ascertainment of the legal rights and obligations of the contracting parties, “rather than how they behaved in the performance of their contract”.

9    The terms of an oral contract may be able to be inferred from the circumstances, including in whole or in part from the parties’ conduct or a course of dealing between them, or implied where necessary for business efficacy: Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39; 406 ALR 678 at [21]–[22] per Kiefel CJ and Gageler J.

10    Thus, whether the contact 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 not on circumstances, facts or events that do not affect those rights. It follows that a “wide-ranging review of the entire history of the parties’ dealings” is neither necessary nor appropriate for the purpose of characterising the relationship: Personnel Contracting at [59] per Kiefel CJ, Keane and Edelman JJ; see also [185]–[189] per Gordon J (Steward J agreeing).

11    The principles of contract interpretation also apply to the terms of an unwritten contract that are able to be ascertained, inferred or implied. They allow regard to be had to circumstances surrounding the making of the contract and events and matters, known to the parties at the time of contracting, which assist in identifying the object or purpose of the contract. The nature of the work contracted for and the arrangements of the supply or provision of any tools or equipment to the putative employee may also be relevant. Generally, things said or done after a contract was made are not legitimate aids to its construction. In a case such as this, for a matter with no necessary connection to the contractual obligations of the parties to have any bearing on the characterisation of their relationship, “it must be concerned with the rights and duties established by the parties’ contract, and not simply an aspect of how the parties’ relationship has come to play out in practice”: Personnel Contracting at [61] (Kiefel CJ, Keane and Edelman JJ).

12    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.

13    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.

14    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.”

 

EFEX Group Pty Ltd v Bennett [2024] FCAFC 35  delivered 15 March 2024 per Katzmann, Bromwich and Lee JJ