Fair work laws; employee or contractor?

This is an excellent summary of the current state of the law in the fair work system about the distinction between an employee and a contractor.

 

“Employee v Independent Contractor: the case law

  • In JMC Pty Limited v Commissioner of Taxation [2022] FCA 750 Justice Wigney provided the following helpful summary of the significance of the two High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, (2022) 312 IR 1, (Personnel Contracting) and ZG Operations Australia Pty

Ltd v Jamsek [2022] HCA 2, (2022) 312 IR 74 (Jamsek):

 

“[17] First, where the rights and duties of the parties are comprehensively committed to a written contract, the legal rights and obligations established by the contract are decisive of the character of the relationship provided that the validity of the contract has not been challenged as a sham, or that the terms of the contract have not been varied, waived or are subject to an estoppel: Personnel Contracting at [43], [44], [47], [59] (Kiefel CJ, Keane and Edelman JJ), [172] (Gordon J, Steward J relevantly agreeing at [203]). The task is to construe and characterise the contract made between the parties at the time it was entered into: Personnel Contracting at [174] (Gordon J).

 

  • Second, in order to ascertain the relevant legal rights and obligations, the contract of employment must be construed in accordance with the established principles of contractual interpretation: Personnel Contracting at [60] (Kiefel CJ, Keane and Edelman JJ), [124] (Gageler and Gleeson JJ), [173] (Gordon J). In that respect, 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: Personnel Contracting at [174]-[175] (Gordon J); Jamsek at [61] (Kiefel CJ, Keane and Edelman JJ), referring to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352. The nature of the specific job that the putative employee applied for and the nature and extent of any tools or equipment they have to supply for that job may also be relevant: Personnel Contracting at [175] (Gordon J). It is, however, generally not legitimate to use in aid of the construction of a contract anything which the parties said or did after it was made: Personnel Contracting at [176] (Gordon J).

 

  • Third, and flowing from the first two principles, 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: Personnel Contracting at [44] (Kiefel CJ, Keane and Edelman JJ), [173]-[178] (Gordon J); Jamsek at [109] (Gordon and Steward JJ). A “wide-ranging review of the entire history of the parties’ dealings” is neither necessary nor appropriate: Personnel Contracting at [59] (Kiefel CJ, Keane and Edelman JJ); see also [185]-[189] (Gordon J). For a “matter to bear upon the ultimate characterisation of a 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 but bearing no necessary connection to the contractual obligations of the parties”: Personnel Contracting at [61] (Kiefel CJ, Keane and Edelman JJ) (emphasis added).

 

  • It follows that the fact that the parties’ subsequent conduct may not have precisely aligned with their contractual rights and obligations, or the fact that a particular contractual right may have never been exercised or utilised, will generally be irrelevant when it comes to characterising the relationship. That is so unless the manner in which the parties conducted themselves after entering into the contract was such as to establish that the contract was a sham, or that the contract had been varied, or that certain rights under the contract were subject to an estoppel.

 

  • Fourth, the contractual provisions that may be relevant in determining the nature of the relationship include, but are not limited to, those 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, the deduction of income tax, the delegation of work and the right to exercise direction and control: Personnel Contracting at [113] (Gageler and Gleeson JJ); [174] (Gordon J), referring to Brodribb at 24 (Mason J); see also 36-37 (Wilson and Dawson JJ).

 

  • In Brodribb, Wilson and Dawson JJ said (at 36-37) that the indicia which suggested an employment relationship included “the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like”, whereas those that suggested a contract for services included “work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax”. Their Honours were, however, careful to note (at 37) that “any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant”. It should also be emphasised that the list of possible indicia must now be approached on the basis that the focus is on the parties’ contractual rights and obligations relevant to those matters, at least where the contract is wholly in writing, not on the way in which the work was actually carried out.

 

  • Fifth, the characterisation of the relationship as one of service or employment involving an employer and employee, as opposed to a relationship involving an independent contractor providing services to a principal, often hinges on two considerations. The first consideration is the extent to which the putative employer has the right to control how, where and when the putative employee performs the work: Personnel Contracting at [73]-[74] (Kiefel CJ, Keane and Edelman JJ); [113] (Gageler and Gleeson JJ); see also Brodribb at 24 (Mason J) and 36-37 (Wilson and Dawson JJ). The second is the extent to which the putative employee can be seen to work in his or her own business, as distinct from the business of the putative employer – the so-called “own business/employer’s business” dichotomy: Personnel Contracting at [36]-[39] (Kiefel CJ, Keane and Edelman JJ); [113] (Gageler and Gleeson JJ); cf [180]-[183] (Gordon J). Neither of those considerations are determinative and both involve questions of degree.

 

  • As for the element of control, “the existence of a right of control by a putative employer over the activities of a putative employee serves to sensitise one to the subservient and dependent nature of the work of an employee, so as to assist in an assessment of whether a relationship is properly to be regarded as a contract of service rather than a contract for services”: Personnel Contracting at [73] (Kiefel CJ, Keane and Edelman JJ).

 

  • As for the “own business/employer’s business” dichotomy, it also “usefully focusses attention upon those aspects of the relationship generally defined by the contract which bear more directly upon whether the putative employee’s work was so subordinate to the employer’s business that it can be seen to have been performed as an employee of

 

 

 

that business rather than as part of an independent enterprise”: Personnel Contracting at

[39] (Kiefel CJ, Keane and Edelman JJ); cf [180]-[182] (Gordon J). Another way of framing the question, which focusses more directly on the terms of the contract, is whether the person “is contracted to work in the business or enterprise of the purported employer”: Personnel Contracting at [183] (Gordon J) (emphasis in original). One consequence of answering that question in the negative may be that the person is not an employee.

 

  • Sixth, a “label” which the parties may have chosen to describe their relationship is not determinative of the nature of the relationship and will rarely assist the court in characterising the relationship by reference to the contractual rights and duties of the parties: Personnel Contracting at [63]-[66] (Kiefel CJ, Keane and Edelman JJ); [127] (Gageler and Gleeson JJ); [184] (Gordon J). The parties’ “legitimate freedom to agree upon the rights and duties which constitute their relationship” does not “extend to attaching a ‘label’ to describe their relationship which is inconsistent with the rights and duties otherwise set forth” – to permit otherwise would elevate the freedom to “a power to alter the operation of statute law to suit … the interests of the party with the greater bargaining power”: Personnel Contracting at [58] (Kiefel CJ, Keane and Edelman JJ).

 

  • The characterisation of a 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. The exercise may not necessarily be straightforward because, in some cases at least, the parties’ contractual rights and obligations may point in different directions. The evaluative exercise also should not be approached on the basis that there is some checklist against which ticks and crosses may be placed so as to produce the right Some degree of uncertainty is unavoidable, particularly in the case of many modern-day work or service contracts.

 

  • Justice Wigney’s summary was accepted by the Full Court in JMC Pty Ltd v Federal Commissioner of Taxation [2023] FCAFC 76 at [8]-[9], (2023) 297 FCR 600 at 602-4. Similar summaries are found in Chiodo v Silk Contract Logistics [2023] FCA 1047 at [7]-[9], Waring v Hage Retail Group Pty Ltd [2022] FWC 540 at [52]-[56] and Azad v Hammond Park Family Practice Pty Ltd T/A Jupiter Health Warnbro [2022] FWCFB 66 at [14].

 

  • In Chambers and O’Brien v Broadway Homes Pty Ltd [2022] FWCFB 129 at [74] a Full Bench of the Commission provided the following summary of the key propositions in Personnel Contracting:

 

“(1) When characterising a relationship regulated by a wholly written, comprehensive contract which is not a sham or otherwise ineffective, the question is to be determined solely by reference to the rights and obligations under that contract. It is not permissible to examine or review the performance of the contract or the course of dealings between the parties (Personnel Contracting at [40]-[62], [172]-[178] and [203]);

 

  • The subsequent conduct of the parties may be considered to ascertain the existence of variation of contractual terms (Personnel Contracting at [42], [45], [177]-[178], [188]-[190] and [203]);

 

 

 

 

  • The multifactorial approach only has relevance in respect of the required assessment of the terms of the contract (Personnel Contracting at [33]-[34], [47], [61], [174], [186]-

[189] and [203]);

 

  • It is necessary to focus on those aspects of the contractual relationship which bear more directly upon whether the worker’s work was so subordinate to the employer’s business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise (Personnel Contracting at [39]). The question is: whether, by the terms of the contract, the worker is contracted to work in the business or enterprise of the purported employer (Personnel Contracting at [180]- [186] and [203]);

 

  • Existence of a contractual right to control the activities of the worker (including how, where and when the work is done) is a major signifier of an employment relationship (Personnel Contracting at [73]-[74], [113]-[114] and [121]); and

 

  • The label or characterisation placed on the relationship by the contract is not relevant even as a “tie breaker” (Personnel Contracting at [58], [63]-[66] and [79]), or at least it is not determinative (Personnel Contracting at [127], [184] and [203]).”

 

Consideration: was Mr Kane an employee?

  • In determining whether Mr Kane was an employee of Raiwaqa, I must first look to the terms of the written contract between the In this case there is a comprehensive contract of employment.

 

  • If Mr Kane was in fact an independent contractor, there must have been a seismic shift in the contractual arrangements after the signing of the written employment contract and before the work commenced. It is possible that the contract between Mr Kane and Raiwaqa was a contract for services (meaning an independent contractor arrangement) and that the employment contract was terminated by agreement before work commenced, and that a new contract for services was made between the parties.

 

  • However there is simply no evidence that this in fact
  • The Employment Contract specified an hourly rate of $25. When Mr Kane started sending invoices, his hourly rate was $25.

 

  • There is no proper basis upon which I could find that the “agreed” change regarding invoicing varied, let alone upended, any of the other contractual terms.

 

  • By its terms the Employment Contract was the entire agreement (clause 1) and could only be altered by a further agreement in writing signed by both parties.

 

  • The arrangements between the parties were consistent with the terms of the Employment Contract and consistent with casual employment. Mr Kane was only paid for the hours he worked, he was paid for his time, being the labour he supplied, rather than paid for his output or a product. There is no basis to find that the Employment Contract was a sham.

 

 

 

 

  • There was no evidence at all that the addressee of the invoices, ME5 Pty Ltd, had any role to play in the arrangement except to receive invoices from Mr There was no evidence of any contract for services between ME5 Pty Ltd and Mr Kane, nor was there any evidence of any contract between ME5 Pty Ltd and Raiwaqa (see generally Damevski v Guidice [2003] FCAFC 252, (2003) 129 IR 53).”

 

Extract from Kane v Raiwaqa Pty Ltd (2023) FWC 3087 delivered 23 November 2023 per Easton DP