Fair work laws; employee or contractor?

This is an extract from a very recent unfair dismissal decision of the Fair Work Commission which deals with the current state of the law in Australia about the distinction between an employee and a contractor.



Is the Applicant an Employee or an Independent Contractor?


[38]    The principles to be applied in distinguishing between employees and independent contractors has been summarised in recent authorities. The High Court recently revised the applicable legal principles to determine whether a person is an employee or an independent contractor in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (‘Personnel Contracting’)22 and ZG Operations Australia Pty Ltd v Jamsek (‘Jamsek’).23 A useful analysis was applied in the Commission decision of Waring v Hage Retail Group Pty Ltd (‘Hage’):24


“[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. 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 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. 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 ascertained or to determine the nature of any variation to agreed terms.


[55]    Indicia (such as those identified in earlier cases in the Court) may be relevant but only insofar as the terms of the contract give voice to them. 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 another, though this may not necessarily be useful in all cases. 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. 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.


[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. In this respect at least, the law remains unchanged by these recent decisions.” (footnotes omitted)


[39]    In respect of the Applicant’s assertion that the previous agreement and SDM Agreement (the Contracts) were sham contracts25 I reject this claim. The High Court upheld an appeal from the Full Court of the Federal Court in respect of the Sham Contracting provisions of the Act.26 The High Court expressed the view that the purpose of the protection against Sham Contracting in the Act was not intended to be frustrated by a narrow interpretation.27 The High Court concluded that a representation that a person who is actually an employee is instead an independent contractor would offend the protection afforded by the Act.28


[40]    The various terms of the Contracts between the Respondent and the Company of which the Applicant is a Director, demonstrate a business to business relationship. The role of the Applicant as a Director of the Company with which the Respondent is engaged encompasses a range of duties and obligations under the Corporations Act. It is uncontested that the Applicant has held that role since December 2021. I do not accept that some 3 years later the Applicant having not ever challenged his role as a Director in that relationship and having fulfilled his many obligations as a Director over that period of time, can possibly suggest now that the relationship has come to an end, that he was not a Director of a Company doing business with the Respondent but is rather now an employee of the Respondent. The Applicant has for example fulfilled entirely different taxation obligations over the previous 3 years as he would have if he was an employee. The arrangements in place have not been challenged by the Applicant until the cessation of the arrangement.


[41]    In this case I consider that the contractual terms are clear and in accordance with the High Court authorities, it is unnecessary to consider the indicia. The Applicant is not an employee of the Respondent. If I were to consider the indicia, on the evidence before me and as set out in this decision, I would also find that they do not point to an employment relationship.




[42]    I am therefore satisfied that there is no employment relationship between the Applicant and the Respondent. That being the case, it is unnecessary for me to determine whether the Applicant’s employment was terminated at the initiative of the Respondent. The Applicant’s application for unfair dismissal is therefore dismissed.”

Santoro v Be Pay Australia Limited (2024) FWC 848 delivered 3 April 2024 per Dobson DP