Fair work laws; employee or contractor

These passages from a recent unfair dismissal decision of the Fair Work Commision are an excellent summary of the legal principles involved when determing whether a person is an employee or contractor.

“Was the Applicant an employee of the Respondent?

[24] The High Court of Australia in Jamsek and Personnel Contracting pronounced on the approach to be adopted under the law in determining whether, absent a specific statutory definition or rule, a person is an employee or contractor. 16 The characterisation of the relationship is to be determined by reference only to the parties’ legal rights and obligations.

[25] Where a comprehensive written contract is in place, this will be the primary source of the parties’ legal rights and obligations, and these will be decisive of the characterisation of the relationship. This will apply unless the contract is a sham, or has been varied after it was made, or post agreement conduct, or context demonstrates that a term is legally ineffective. 17

[26] In Jamsek, the High Court stated that the “multifactorial” test remains appropriate in applying the legal right and obligations not the post contract conduct. 18 Therefore, a multifactorial approach is to be adopted in the absence of the employment contract. This will rely upon a considerable body of case law developed from applying the general legal principles to specific circumstances.19 Multiple indicia are to be considered, though none alone are determinative. One must also analyse the totality of the relationship between the parties to determine whether the relationship was one of employee or independent contractor.

[27] The often-cited passage penned by Windeyer J in Marshall v Whittaker’s Building Supply Co 20 and then quoted by the High Court of Australia in Hollis v Vabu reads:

“the distinction between an employee and an independent contractor is ‘rooted fundamentally in the difference between a person who serves his employer in his, the employer’s business, and a person who carries on a trade or business of his own’.” 21

[28] In Roy Morgan Research Pty Ltd v Commissioner of Taxation, the Full Court of the Federal Court quoted with approval the following passage from Hall (Inspector of Taxes) v Lorimer:

“The object of the exercise is to paint a picture of the relationship from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another”. 22

[29] The Full Bench of this Commission adopted this passage in Jiang Shen Cai trading as French Accent v Michael Anthony Do Rozario. In that case, the Full Bench helpfully went on to summarise the general approach taken to distinguish between employees and independent contractors as follows:

“(1) In determining whether a worker is an employee or an independent contractor the ultimate question is whether the worker is the servant of another in that other’s business, or whether the worker carries on a trade or business of his or her own behalf 23: that is, whether, viewed as a practical matter, the putative worker could be said to be conducting a business of his or her own24 of which the work in question forms part? This question is concerned with the objective character of the relationship. It is answered by considering the terms of the contract and the totality of the relationship.25

(2) The nature of the work performed and the manner in which it is performed must always be considered. This will always be relevant to the identification of relevant indicia and the relative weight to be assigned to various indicia and may often be relevant to the construction of ambiguous terms in the contract. 26

(3) The terms and terminology of the contract are always important. However, the parties cannot alter the true nature of their relationship by putting a different label on it. 27 In particular, an express term that the worker is an independent contractor cannot take effect according to its terms if it contradicts the effect of the terms of the contract as a whole:28 the parties cannot deem the relationship between themselves to be something it is not.29 Similarly, subsequent conduct of the parties may demonstrate that relationship has a character contrary to the terms of the contract.30

(4) Consideration should then be given to the various indicia identified in Stevens v Brodribb Sawmilling Co Pty Ltd and the other authorities as are relevant in the particular context. For ease of reference the following is a list of indicia identified in the authorities:

  • Whether the putative employer exercises, or has the right to exercise, control over the manner in which work is performed, place or work, hours of work and the like.

Control of this sort is indicative of a relationship of employment. The absence of such control or the right to exercise control is indicative of an independent contract. While control of this sort is a significant factor it is not by itself determinative. In particular, the absence of control over the way in which work is performed is not a strong indicator that a worker is an independent contractor where the work involves a high degree of skill and expertise. 31 On the other hand, where there is a high level of control over the way in which work is performed and the worker is presented to the world at large as a representative of the business then this weighs significantly in favour of the worker being an employee.32

“The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter’s order and directions.” 33 “[B]ut in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which work is performed for another. That was made clear in Queensland Stations Pty. Ltd v Federal Commissioner of Taxation, a case involving a droving contract in which Dixon J observed that the reservation of a right to direct or superintend the performance of the task cannot transform into a contract of service what in essence is an independent contract.”34

  • Whether the worker performs work for others (or has a genuine and practical entitlement to do so).

The right to the exclusive services of the person engaged is characteristic of the employment relationship. On the other hand, working for others (or the genuine and practical entitlement to do so) suggests an independent contract.

  • Whether the worker has a separate place of work 35and or advertises his or her services to the world at large.
  • Whether the worker provides and maintains significant tools or equipment. 36

Where the worker’s investment in capital equipment is substantial and a substantial degree of skill or training is required to use or operate that equipment the worker will be an independent contractor in the absence of overwhelming indications to the contrary.  37

  • Whether the work can be delegated or subcontracted. 38

If the worker is contractually entitled to delegate the work to others (without reference to the putative employer) then this is a strong indicator that the worker is an independent contractor. 39 This is because a contract of service (as distinct from a contract for services) is personal in nature: it is a contract for the supply of the services of the worker personally.

  • Whether the putative employer has the right to suspend or dismiss the person engaged. 40
  • Whether the putative employer presents the worker to the world at large as an emanation of the business. 41

Typically, this will arise because the worker is required to wear the livery of the putative employer.

  • Whether income tax is deducted from remuneration paid to the worker.
  • Whether the worker is remunerated by periodic wage or salary or by reference to completion of tasks.

Employees tend to be paid a periodic wage or salary. Independent contractors tend to be paid by reference to completion of tasks. Obviously, in the modern economy this distinction has reduced relevance.

  • Whether the worker is provided with paid holidays or sick leave. 42
  • Whether the work involves a profession, trade or distinct calling on the part of the person engaged.

Such persons tend to be engaged as independent contractors rather than as employees.

  • Whether the worker creates goodwill or saleable assets in the course of his or her work.
  • Whether the worker spends a significant portion of his remuneration on business expenses.

It should be borne in mind that no list of indicia is to be regarded as comprehensive or exhaustive and the weight to be given to particular indicia will vary according to the circumstances. Features of the relationship in a particular case which do not appear in this list may nevertheless be relevant to a determination of the ultimate question.

(5) Where a consideration of the indicia (in the context of the nature of the work performed and the terms of the contract) points one way or overwhelmingly one way so as to yield a clear result, the determination should be in accordance with that result. However, a consideration of the indicia is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture of the relationship from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed

picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another. The ultimate question remains as stated in (1) above. If, having approached the matter in that way, the relationship remains ambiguous, such that the ultimate question cannot be answered with satisfaction one way or the other, then the parties can remove that ambiguity a term that declares the relationship to have one character or the other. 43

If the result is still uncertain, then the determination should be guided by “matters which are expressive of the fundamental concerns underlying the doctrine of vicarious liability” including the “notions” referred to in paragraphs [41] and [42] of Hollis v Vabu.” 44

Consideration

[30] I have considered the evidence and submissions provided by each party. And on the evidence before me, the relationship was only ever on a contract basis. The contractual terms of the Applicant and Respondent appear to be an independent contractor. The Consultancy Services Agreement which was signed by the Applicant states:

“15.1 Independent Contractor

The Provider is an independent contractor of AIM and nothing in this document constitutes a relationship of employment, agency, joint venture or partnership between AIM, the Provider and the nominated Consultant. “

[31] Factors which indicate that the Applicant is an independent contractor in the signed Consultancy Services Agreement include:

  1. a) the Applicant was able to sub-contract her services subject to the approval of the Respondent per clause 2.2(a)
  2. b) the Applicant was required to supply equipment necessary to provide services per clause 3.2 and clause 3.5
  3. c) the Applicant is required to provide the Respondent an invoice per clause 5.1
  4. d) the Applicant is responsible in paying their own taxes per clause 3.1

[32] Factors which indicate the Applicant may be an employee in the Agreement are:

  1. a) the Respondent has some form of control over the Applicant in that they prevent the Applicant to provide their individual services to AIM clients per clause 8.1 and ownership of potential intellectual property in Section 7,
  2. b) the Applicant is required to use an email address from the Respondent which may present the worker to the world at large as an emanation of the business per clause 3.1(g).  45

[33] In addressing whether the contract is a sham or addressing indications that the contract had been varied after it was made, or post agreement conduct, or context that’s demonstrates that a term is legally ineffective per Jamsek, 46 I have considered the evidence that was provided by the parties.

[34] The Applicant had acknowledged in her own submissions that she was an independent contractor even though she wrote she could possibly be an employee. Further instances of indicating that she was an independent contractor and not an employee.

  1. a) The Respondent was not her principal employer. The Applicant acknowledged in her own submissions that she had sought private work commitments as a sole trader constantly canvasing for contracts. The Applicant has stated that she had different work during the period she was contracted with the Respondent/
  2. b) The Applicant sends invoices for her services to the Respondent.
  3. c) The Applicant states that she is a sole trader in her submissions with her own ABN number.
  4. d) The Applicant had only worked with the Respondent in delivering her own courses.

Conclusion

[35] I have made a determination on both jurisdictional objections and upon the examination of the material presented in this matter I determine that the Applicant did not meet exceptional circumstances for an extension of time to be granted in filing the Application.

[36] Furthermore, the Applicant’s agreement indicates that the Applicant was an independent contractor for the Respondent, and I would not have the jurisdiction to determine the matter on its merits.

[37] The Jurisdictional Objections are upheld and I dismiss this Application.”

Crowther v Australian Institute Of Management Education And Training (2022) FWC 3379 delivered 30 December 2023 per Lake DP