How to test whether a person is an employee or a contractor

The following is an excellent summary of the egal principles which are used by the Fair Work Commission to determine whether a relationship is that of employer and employee or principal and contractor.

“Consideration

[38] We consider that it is in the public interest to grant permission to appeal in this case. The question of whether an applicant for an unfair dismissal remedy was, at the time of the alleged dismissal, an employee of the party against which a remedy is sought is one of jurisdictional fact. This means, for the purpose of the exercise of the appellate function, that the decision is not be treated as one involving the exercise of a discretion; rather it involves the application of a legal standard to a given set of facts. Appealable error will be found if on appeal a different conclusion on the facts and the law is reached than that arrived at by the primary decision-maker. 16 Further, notwithstanding the conclusion we reach later in this decision, it cannot be said that the question of whether Ms Peel was an employee of Aster or performed services for Aster in the capacity of an independent contractor has an easy and obvious answer. Appellate review is appropriate in these circumstances. Accordingly, permission to appeal is granted.

[39] For the most part, Aster’s grounds of appeal invite us to reach a different conclusion concerning Ms Peel’s status than the conclusion reached by the Commissioner by reconsidering the proper conclusion to be reached on a number of the factors relevant to the multi-factor test identified in a number of High Court decisions, most notably Stevens v Brodribb Sawmilling Co Pty Ltd. 17 We will turn to consideration of the relevant factors shortly. However, it is necessary at the outset to consider Grounds 2, 3 and 16 of the appeal, by which Aster contends that primacy in the analysis is to be given to the characterisation of the relationship between Aster and Ms Peel in the 2020 Contract and its predecessors, and that the way in which the contracts were implemented in practice should not have been given more significance than the contractual labelling.

[40] We do not accept this contention, and we agree with the approach taken by the Commissioner whereby he considered the substance of the rights and obligations under the 2020 Contract, and how those rights and obligations were applied in practice, to be the primary considerations. The correct approach, derived from the relevant court authorities, was described in the recent Full Bench decision in Gupta v Portier Pacific Pty Ltd 18 as follows:

“[39] However all the above provisions may be regarded as merely labelling or characterising the nature of the contractual relationship between Ms Gupta and Portier Pacific/Uber; none of them set out the substantive rights and obligations of that relationship. It is well established that such labels cannot alter the substantive nature of the relationship. As was stated by Isaacs J in Curtis v Perth & Fremantle Bottle Exchange Co Ltd ([1914] HCA 21, 18 CLR 17):

‘Where parties enter into a bargain with one another whereby certain rights and obligations are created, they cannot by a mere consensual label alter the inherent character of the relations they have actually called into existence. Many cases have arisen where Courts have disregarded such labels, because in law they were wrong, and have looked beneath them to the real substance.’

[40] More recent decisions of the Federal Court Full Court have elucidated this principle in the context of the identification of whether an employment relationship exists. In ACE Insurance Limited v Trifunovski, Buchanan J (with whom Lander and Robertson JJ agreed) said that “the nature of the relationship may be legitimately examined by reference to the actual way in which work was carried out” ([2013] FCAFC 3, 209 FCR 146, 235 IR 115 at [91]).  In Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd, North and Bromberg JJ (with whom Barker J relevantly agreed) said that: “…appellate courts in Australia and the United Kingdom have been particularly alert, when determining whether a relationship is one of employment, to ensure that form and presentation do not distract the court from identifying the substance of what has been truly agreed. It has been repeatedly emphasised that courts should focus on the real substance, practical reality or true nature of the relationship in question…” ([2015] FCAFC 37 at [142], Barker J agreeing at [316]). And in WorkPac Pty Ltd v Skene the Full Court said “The conduct of the parties to the employment relationship and the real substance, practical reality and true nature of that relationship will need to be assessed ([2018] FCAFC 131 at [180]).”

[41] To the above summary might be added the following statement made by the High Court majority (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ) in Hollis v Vabu Pty Ltd: 19

“It should be added that the relationship between the parties, for the purposes of this litigation, is to be found not merely from these contractual terms. The system which was operated thereunder and the work practices imposed by Vabu go to establishing “the totality of the relationship” between the parties; it is this which is to be considered.”

[42] Accordingly, although not irrelevant, the characterisation of Ms Peel’s status in the 2020 Contract and its predecessors as that of an independent contractor and not employee is of lesser significance in the face of substantive contractual rights and obligations which, as applied in practice, point in a different direction.

[43] Aster, in Ground 4 of its appeal, seeks that significant and indeed decisive weight be placed on the fact that Ms Peel arranged her affairs as if she were an independent contractor, consistent with the contractual characterisation of her relationship with Aster. This included that she operated with an ABN, issued tax invoices to Aster, eventually charged Aster with GST, and declared in her tax returns that she was a contractor. It is to be accepted that these are matters which weigh to some degree in favour of a conclusion that Ms Peel was a contractor. However, we do not consider that these matters are to be given the decisive weight contended for by Aster since they are all consequential upon the contractual characterisation of the relationship – a characterisation in substance determined by Aster through the standard-form contracts it used as the sole basis for the engagement of its in-home nursing staff, including Ms Peel. As was stated in the Federal Court Full Court decision in ACE Insurance Limited v Trifunovski 20 (per Buchanan J, with whom Lander and Robertson JJ agreed):

“One of the strongest arguments in favour of the appellant’s position was that the agents themselves had organised their affairs on the basis that they were not employees, an arrangement which met Combined’s requirements. The arrangements to which the trial judge referred, whereby for taxation purposes the agents were treated as non-employees, are clearly not decisive in their own right. They follow the prior assumption about employment (or more correctly non-employment). That assumption led to what was done about income tax deductions, GST, payroll tax, superannuation contributions and the like.”

[44] Buchanan J added:

“It is also difficult, in my view, to give much independent weight to arrangements about taxation, or even matters such as insurance cover or superannuation. These are reflections of a view by one party (or both) that the relationship is, or is not, one of employment. For that reason, in my view, those matters are in the same category as declarations by the parties in their contract (from which they often proceed). They may be taken into account but are not conclusive.” 21

[45] In respect of Ms Peel’s tax returns, Aster submitted that the work expenses claimed by Ms Peel as deductions from her taxable income should have been treated as a substantial indicator of her being a contractor. We disagree, for a number of reasons. First, the mere fact that a person performing work for another claims expenses incurred in the performance of that work as tax deductions, even when the amounts claimed are of significance, is not of itself determinative of the person’s status, as the decisions in ACE Insurance Limited 22 and Jamsek v ZG Operations Australia Pty Ltd23 demonstrate.

[46] Second, the expenses claimed were primarily for the provision of Ms Peel’s motor vehicle and for her home office. It is not uncommon for workers who are undeniably employees to use their personal motor vehicle for work travel, and also to establish home offices for the purpose of working from home. In this connection it may be noted that clause 16.5(a) of the Nurses Award 2010 provides for an allowance of $0.80 per kilometre for an employee “required and authorised to use their own motor vehicle in the course of their duties”. The tax expert called by Aster to give evidence, Mr Molesworth, said that there is no distinction in the capacity of employees or contractors to claim tax deductions for the cost of personal motor vehicle and home office use for work purposes. He gave the following evidence:

MR BROWN: …So I guess the better way to phrase the question would be, if the person was – if the person, or the employee, was entitled to a travel allowance, that still wouldn’t have any bearing on what she could claim?—That’s correct, if I understand the question correctly. The ability to claim a deduction for motor vehicle expenses is – by an employee or a contractor, is not, in the case of the employee, determined by whether a travel allowance or a motor vehicle allowance is received or not.

Thank you, Mr Molesworth. The next question is in relation to office and, you know, the normal things, computers and the normal things that Lisa has claimed for in her tax returns. It’s fair to say that a lot of employees would also claim similar deductions?—That is correct, where the use of the equipment is for income producing purposes, where that is in the course of an employee’s employment, yes, they can claim deductions for those types of expenses, yes.

So there is, effectively, no difference between the employee and a contractor, when it comes to claiming expenses, either for the vehicle or for home office equipment?—That’s correct. That is correct. 24

[47] The motor vehicle provided by Ms Peel was not a specialised piece of equipment requiring particular skill or expertise to operate, but simply a car which could equally be used for private purposes. There is no basis to conclude that it constituted a capital investment of significance for the purpose of the operation of a business. The same can be said of the establishment by Ms Peel of a home office. 25 The evidence as to the “tools of trade” did not establish that any substantial cost was involved in their purchase.

[48] Third, Aster’s characterisation in Ground 4, 8 and 11 of its appeal of the amount of expenses claimed as deductions as being “substantial” or “significant” requires scrutiny. The tax returns for the earlier years of her engagement with Aster, which nominally show a high proportion of her income being consumed in business expenses, are problematic. In those years Ms Peel was also earning income from Home Support Services, with this appearing to be her primary income source initially, so they do not necessarily provide an accurate picture with respect to her engagement with Aster. Additionally, in the 2014/15 financial year, Ms Peel seems to have obtained an instant asset write-off for the purchase of a car, which added $14,692 to her deductions for that year, resulting in an unusually high 63.9% of her income being deductible in that year. The later years for which tax returns were available, during which Ms Peel was working exclusively for Aster, give a more consistent picture: in 2016/17, Ms Peel earned $96,420 and had expenses of $13,858 and, in 2017/18, Ms Peel earned $104,155 and had expenses of $15,493. We do not regard tax deductions of this order necessarily to be indicative of a contracting rather than employment relationship.

[49] There are, as the Commissioner found, a number of indicia which firmly point to the existence of an employment relationship. The first is that it cannot be said that Ms Peel was conducting a business of her own. The patients she provided services to were obtained by Aster through its commercial contractual arrangements and allocated to Ms Peel. There was no evidence that Ms Peel had the capacity on her own initiative to increase the number of her patients and thus increase her income. The patients had no separate contractual or commercial relationship with Ms Peel and the 2020 Contract expressly restrained Ms Peel from such arrangements. As a consequence, Ms Peel acquired no goodwill or saleable asset. Aster did not challenge the conclusions reached in this regard by the Commissioner.

[50] The second is that there was no effective right for Ms Peel to subcontract or delegate the performance of the services under the 2020 Contract or its predecessors, as the Commissioner found, with the consequence that the arrangement was in substance one for personal service. Under clause 13.8 of the 2020 Contract, Ms Peel was not permitted to sub-contract her obligations under the contract without the prior approval of Aster, and there was no evidence that such approval was ever sought or obtained. She was not permitted or required to supply another nurse to replace herself if she was sick or injured, since clause 2.2 simply required her to immediately notify Aster in this eventuality so that Aster could arrange another contractor to provide the services. In practice, Ms Peel was required if absent to arrange for another nurse contracted to Aster to replace her. However, we reject the contention advanced by Aster in Ground 9 that this amounted to a right of delegation. The proper characterisation of this practice is that Aster assigned to Ms Peel its administrative task under clause 2.2 of arranging another contracted nurse to replace her. The evidence showed that she was certainly not allowed to arrange anyone external to Aster to replace her. We also reject Aster’s contention that the requirement for Ms Peel to communicate instructions and advice to another contracted nurse if handing over a patient was in some way indicative of a right to delegate. This was a sensible administrative arrangement required by Aster to ensure quality and continuity of care, and is indicative of Ms Peel being employed in a business conducted by Aster.

[51] Third, Aster controlled the work of Ms Peel in important ways. The legal means of control were provided by the 2020 Contract (and its predecessors). Clause 2.3 of the 2020 Contract gave Aster the power to determine the quantity and nature of the services to be provided by Ms Peel, and under clauses 2.1 and 3.1(a) Ms Peel was required to perform those services promptly to a commercially acceptable and professional and industry standard and to dedicate an appropriate time for the provision of the services. Clause 3.1(g) required Ms Peel to follow any lawful direction made by Aster as to the provision of those services. Assessed cumulatively, these provisions gave Aster legal control over what amount of work was to be performed by Ms Peel, what the nature of the work was to be, and how it was to be performed.

[52] The evidence showed that, in practice, Aster gave considerable latitude to Ms Peel as to when and how the work was to be performed. This may be regarded as consistent with allowing Ms Peel to exercise quasi-professional judgment as to the degree and timing of the nursing care to be provided to individual patients. However, Aster certainly did exercise its legal powers of control over the allocation of work, to the extent that in or about 2016 it instructed or requested that Ms Peel resign her engagement with Home Support Services in order for her to provide services to additional patients. Additionally, it exercised control through the arrangements required to be made when Ms Peel was sick or injured, as previously discussed, the requirement that Ms Peel attend staff meetings from time to time, and the requirement for her to obtain permission from Aster before taking any period of unpaid leave. We therefore agree with the Commissioner’s conclusions that the extent of Aster’s control over the performance of work by Ms Peel was indicative of the existence of an employment relationship, and we reject the contentions advanced in Ground 4 of Aster’s appeal.

[53] Fourth, Aster had the legal right to, and did in practice, require Ms Peel to work exclusively for Aster. Although, as Aster submitted, clause 5.2 of the 2020 Contract allowed Ms Peel to engage in other work provided that this did not conflict with her duties and responsibilities to Aster, clause 5.4 empowered Aster to require Ms Peel to give absolute priority to the provision of services to Aster under the contract over any other work or assignments. This provision, together with the capacity of Aster under clause 2.3 of the 2020 Contract to require Ms Peel to provide a quantity of services amounting to full-time work, meant that Aster had the legal means to require exclusivity. The evidence did not establish that Aster invoked its equivalent powers under earlier contracts to achieve exclusivity, but it is clear that this is what it did by increasing the allocation of patients to Ms Peel to a level that required a full-time commitment and instructing or her requesting her to resign from her engagement with Home Support Services. We consider that the Commissioner was correct in concluding that this indicium supported a finding that an employment relationship existed, and we reject Aster’s contention to the contrary in Ground 6 of its appeal.

[54] Fifth, the payment system is one more relatable to Ms Peel being an employee rather than an independent contractor. Under the 2020 Contract, the rate of payment was as provided for in Item 3 of Schedule 1, or as varied by Aster on notice pursuant to clause 4.2. There was no capacity for Ms Peel to set or bargain for a price for the provision of her services to Aster. The rate structure provided for in the 2020 Contract was a hybrid of a piece rate and a time-based rate, in that Ms Peel was paid per visit to patients at their homes, but the payment varied depending on the length of the visit. Because, as earlier explained, the 2020 Contract was in substance one for personal services, the payments were made for the provision of Ms Peel’s personal labour, and not for the production of a result by whatever means Ms Peel selected. Accordingly, we agree with the Commissioner’s conclusion in this respect.

[55] Finally, to a limited degree, Ms Peel presented herself to the patients as an emanation of Aster in that she had an Aster-branded name badge, business card, folder and paperwork and, at the time of the termination of her engagement, she had Aster uniforms on order. There was no countervailing evidence to the effect that she presented herself to the patients or the public at large as operating her own business. There was no error in the Commissioner’s conclusion in respect of this factor, and accordingly we reject Ground 10 of the appeal. If the Commissioner made an error with respect to whether Aster supplied Ms Peel with a bag, as alleged in Ground 12 of the appeal, it was an error of no significance to the question to be determined.

[56] The other grounds of Aster’s appeal concern matters which we consider to be of little import as to Ms Peel’s status. The essential nature of her work required her to perform it at the home of the patients, so that little significance can be attached to the fact that she did not perform work on Aster’s premises. We therefore reject Ground 7 of the appeal. As to Grounds 14 and 15 of the appeal, the evidence did not support the proposition that the requirements in the 2020 Contract and its predecessors for Ms Peel to obtain her own insurances and provide indemnities to Aster meant that she realistically bore a “risk of loss” in relation to the performance of the work. We accept that these contractual requirements do not weigh in favour of a finding of the existence of an employment relationship, but their significance is limited since they are merely reflective of and consequential upon the subjective characterisation of the nature of the relationship in the 2020 Contract.

[57] There is one conclusion reached by the Commissioner with which we disagree. In paragraph [113] of the decision, the Commissioner found that because Ms Peel, as a Registered Nurse, held a tertiary level qualification and exercised specialist skills, this “tends to favour the prospect of the engagement being a contracting relationship rather than employment”. This cannot be correct. The same proposition is true of all nurses, as well as other occupations such as teachers, engineers and lawyers, the large majority of whom work as employees. In the absence of evidence that Ms Peel performed her work as a nurse in a business of her own, we consider that this must be treated as a neutral consideration. This conclusion is, of course, not one that favours Aster in its appeal.

[58] The degree of control which Aster had over Ms Peel’s work, its capacity to require her to work exclusively for Aster, the system by which she was remunerated, her lack of capacity to subcontract or delegate her work, the lack of any evidence that Ms Peel ran a business on her own account, and her presentation as working in Aster’s business rather than her own, lead us to conclude that she was an employee of Aster. These are matters going to the substance of the relationship. Ms Peel’s conduct of her tax affairs and the fact that she held an ABN, charged GST (at Aster’s insistence) and rendered tax invoices are matters of lesser weight because they are merely consequential upon the contractual label given to the relationship – a label which arose because Aster required its nurses to contract with it on that basis.

[59] Accordingly, we agree with and affirm the Commissioner’s conclusion that Ms Peel was, at the time of her alleged dismissal, an employee of Aster and thus was a person protected from unfair dismissal.

[60] We do not necessarily agree with Aster’s submission that this conclusion is inconsistent with the decision of Asbury DP in Leffanue v Southern Cross Community Healthcare. 26 That case turned on its own facts which, in some instances, were significantly different from the facts of this case. In particular, we note that in Leffanue it was found that the applicant claiming to be an employee could accept or reject work offered by the respondent as she pleased, and performed the same work for a number of different entities as a contractor.27 Beyond this, it is unnecessary for us to express any view about the correctness of the conclusion reached in that matter.

Orders

[61] We order as follows:

(1) Permission to appeal is granted.

(2) The appeal is dismissed.”

Aster Home Nursing Service Pty Ltd v Peel  [2020] FWCFB 6760 delivered 17 December 2020 per Hatcher VP, Mansini DP and McKinnon C