Unfair dismissal; employee, contractor, volunteer or friend?

The following extract from a recent decision of the Fair Work Commission is an excellent summary of the legal principle which are used to determine whether a person is an employee, independent contractor, volunteer or friend in the eyes of the law, particularly in the unfair dismissal and general protections jurisdictions.

“The basis for the jurisdictional objection arises from s 382. Relevantly that section provides:

382 When a person is protected from unfair dismissal

A person is protected from unfair dismissal at a time if, at that time:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period;…

[33] As noted, the Commission applies well-established common law principles to determine whether a person was an employee or an independent contractor. 39 It can be difficult to attempt to categorise a relationship as was recognised by the Full Bench in of Jiang Shen Cai T/A French Accent v Do Rozario (Jiang Shen Cai):

…The nature of the established general law approach to distinguishing between employees and independent contractors may be seen as contributing to the problem precisely because the nature of the general law test is such that it does not admit a clear answer in every case. Once one adopts the position, as the general law has done, that the distinction is rooted in the objective character of the work relationship two things follow. First, the infinite variety of human affairs means that work relationships present as a spectrum, some of which are clearly relationships of employment and others of which are clearly relationships of independent contract but some of which are less clear cut. Secondly, that character of a work relationship is what it is and cannot be changed simply because the parties agree to label it differently (unless, of course, the relationship is sufficiently ambiguous that a clear determination is not possible, the situation addressed by the Massey Proposition). That is a matter clearly recognised by the courts and tribunals. 40

[34] In Kimber v Western Auger Drilling Pty Ltd (Kimber), 41 the Full Bench addressed the factors to consider in assessing whether an applicant was an employee or an independent contractor during the relevant period.42 It endorsed the general approach to distinguishing employees and independent contractors provided in Jiang Shen Cai:

(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: that is, whether, viewed as a practical matter, the putative worker could be said to be conducting a business of his or her own 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.

(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.

(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. 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: the parties cannot deem the relationship between themselves to be something it is not. Similarly, subsequent conduct of the parties may demonstrate that relationship has a character contrary to the terms of the contract.

(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. 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.

“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.”  “[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.”

  • 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 and or advertises his or her services to the world at large.
  • Whether the worker provides and maintains significant tools or equipment.

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.

  • Whether the work can be delegated or subcontracted.

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. 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.
  • Whether the putative employer presents the worker to the world at large as an emanation of the business.

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.
  • 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.

(6) 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. 43 (footnotes omitted, emphasis in original)

[35] The ultimate question to be answered 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’. 44 To summarise, the determination of the ultimate question will inevitably require a ‘consideration of the nature of the work performed, the terms of the contract, and the so-called indicia must always be directed to the ultimate question’.45

Indicia of employment relationship

Exercise of control

[36] The evidence of Ms Ashley showed that she was able to determine her working hours, when she worked, where she worked, and what she worked on. It was evident as the hearing progressed that it was quite difficult to ascertain exactly what it was that Ms Ashley did regarding work performed. It was all rather nebulous. While it is true that three documents were produced to demonstrate that Ms Ashley had assumed the position of Marketing Manager, there was little else to evince the service provided or work performed. Further, it seemed that part of the work that Ms Ashley appeared to do was a melange of duties for Mr John personally, such as taking his children on outings or collecting things, rather than for Cyber Recycling.

[37] Mr John and Mr Thomas gave evidence that a reason for seeking to employ Ms Ashley was so that they might regulate her conduct within work and confine her to working within one area of the business. I appreciate Ms Ashley cast doubt on the legitimacy of Mr Thomas expressing a view, asserting he was not a director of Cyber Recycling. However, the ASIC report provided, which was not disputed, had Mr Thomas as an office holder of Cyber Computer Recycling & Disposal Pty Ltd, and he referred to himself as the business partner of Mr John. Mr Thomas was quite vocal regarding the difficulty he experienced in providing any form of direction to Ms Ashley, because she was a friend of Mr John and not an employee.

[38] There was evidence that Ms Ashley had acquired business cards and was holding herself out to the world at large as the Marketing Manager of Cyber Recycling. Mr John agreed that Ms Ashley was initially providing assistance to attract businesses to Cyber Recycling. However, he denied ever authorising the purchase, or use, of business cards for Ms Ashley. It appears that Ms Ashley most likely organised the purchase of the cards for herself.

[39] The evidence before me shows that Ms Ashley had a large degree of autonomy in her role. The evidence is highly persuasive that Ms Ashley exercised a large degree of authority over the performance of what she did. There was little, if any, evidence of Mr John ever having given Ms Ashley orders or directions about the performance of the work. In circumstances where there appeared to have been an issue with one of the clients of Cyber Recycling, which had in part arisen from Ms Ashley’s interaction with a ‘friend’ who had worked with the client, Mr John took no action to discipline Ms Ashley. It appears that because Ms Ashley had succoured him on Cyber Recycling’s inception, was a friend, and had repeatedly declined to fill out employment forms, Mr John considered she was not an employee and therefore he had no authority to discipline her.

[40] Further, it appears that Ms Ashley had negotiated the payments made to her when working for Cyber Recycling. The communication about such payments is not reflective of what one would expect in an employment relationship. Ms Ashley presented as having been quite forthright concerning what she required by way of compensation.

[41] It was abundantly clear to me that Ms Ashley had significant autonomy concerning the type of work she performed, when that work would be performed and where the work would be performed. There was no accountability regarding the completion of time sheets, log in details or providing updates to Mr John on work product or result. The level of control exercised by Ms Ashley, points directly to a relationship other than that of employment.

Did Ms Ashley work for others (or have a genuine and practical entitlement to do so)?

[42] It is difficult to determine whether Ms Ashley worked for others or had a genuine or practical entitlement to do so. There was no tangible evidence of the hours she kept for Cyber Recycling and whether her commitment to its business permitted time for Ms Ashley to dedicate herself elsewhere. There was no evidence to suggest exclusivity regarding the commercial relationship between the parties.

[43] Given this, and that there was no written agreement between Ms Ashley and Cyber Recycling, I am unable to ascertain whether there was a genuine and practical entitlement for Ms Ashley to work for others.

Did Ms Ashley have a separate place of work and/or advertise her services to the world at large?

[44] There is no evidence to show that Ms Ashley advertised her services to the world at large. As outlined in the background of this decision, it was difficult to ascertain where precisely Ms Ashley worked from. Her evidence was such that she worked at the premises of Cyber Recycling, but also on the road and from home. I consider this factor neutral in the circumstances.

Did Ms Ashley provide or maintain significant tools or equipment?

[45] The evidence before me extended to Ms Ashley having been provided with a fuel card and email access. The email access appears to have been granted by Cyber Recycling, whereas evidence was given that the fuel card was paid via Mr John’s personal drawings. However, given the paucity of material adduced, it is extremely difficult to conclude Ms Ashley provided or maintained significant tools or equipment.

Can the work be delegated or subcontracted?

[46] I appreciate that Ms Ashley said she was the Marketing Manager for Cyber Recycling, and the Business Development Manager, however, it should be clear by now that it was very challenging to pinpoint exactly what it was that Ms Ashley did for Cyber Recycling on a day to day basis over at least the period of July 2019 to December 2019. The correspondence referred to at paragraph 28 of this decision, did little to shed light on the duties or work Ms Ashley performed for Cyber Recycling over that period. While I have placed little weight on the evidence provided by the employees of Cyber Recycling (with the exception of the email sent by Ms Pandey attaching an employment form, and Mr John and Mr Thomas) because their evidence at hearing appeared uniform and rehearsed, Ms Ashley’s own evidence did little to enlighten me on what it was that she did.

[47] When one cannot pinpoint what the work actually was, it is quite implausible to arrive at a conclusion on whether the work performed could, or could not, be delegated or subcontracted. The absence of a written contract between the parties further complicated the issue.

Did Cyber Recycling retain a right to suspend or dismiss the person engaged?

[48] As I have observed, any agreement between Ms Ashley and Cyber Recycling was verbal. The evidence given about the arrangement between the parties did not persuade me that Cyber Recycling had retained a right to suspend or dismiss Ms Ashley.

[49] The evidence of Mr John and Mr Thomas was compelling. Both were clearly under the impression that they were unable to regulate Ms Ashley’s conduct because she was not an employee of the business. While both spoke about this factor in rather blunt terms, with Mr John specifically noting to the effect, ‘I wanted to regulate her’, rather than referring to regulating Ms Ashley’s conduct, it was evident neither considered that they could confine Ms Ashley to work in one particular area of the business, discipline her, or to terminate her employment. Mr Thomas clearly thought that as Ms Ashley was a friend of Mr John, and not an employee of Cyber Recycling; he could only report to Mr John the issues he encountered with her.

Did Cyber Recycling present Ms Ashley to the world at large as an emanation of the business

[50] In giving her evidence, Ms Ashley referred to her name being on the email correspondence and business cards of Cyber Recycling. Mr John gave evidence that he had not authorised the use of the business cards and that there was no position in the business of Marketing Manager. However, on Cyber Recycling’s commencement, Mr John accepted Ms Ashley’s assistance to attract clients to the business. He purported that she had informed him that she could help with bringing some clients in and could assist for marketing purposes. I am content to find that implicit in Mr John’s acceptance in this respect, was the presentation of Ms Ashley to the world at large, at that time, as an emanation of the business.

Was income tax deducted from remuneration paid to Ms Ashley?

[51] No income tax was deducted from the payments made to Ms Ashley – whether by repayment of the loan for $30,000.00 or the somewhat periodic payments through July 2019 to December 2019.

Did Ms Ashley receive a periodic wage or salary by reference to completion of tasks?

[52] During the period of July 2019 to December 2019, there were several payments made to Ms Ashley, amounting to $1,500.00 net on each occasion a payment was made. From the evidence provided it appears that for the month of September 2019, there was only one payment made, as was the case for November and December. While there were more payments made in the other months during that period, it remains that I am unable to ascertain whether those payments were referable to the completion of certain tasks or the provision of a particular service. There was simply insufficient evidence before me to draw those conclusions.

Did Ms Ashley receive paid annual leave or personal leave?

[53] Ms Ashley appeared to have determined when she would be absent from the workplace, and the duration of the absence. The evidence shows that she told Mr John when she would not be accessible. There was no evidence that an application for leave had to be made or that Ms Ashley received paid annual or personal leave.

Did Ms Ashley’s work involve a profession, trade or distinct calling?

[54] While not undervaluing the work performed by Ms Ashley, it is somewhat unclear what work Ms Ashley performed during the entire period of the relationship between her and Cyber Recycling. As far as attracting clientele to the business in the initial start-up period, I am unconvinced that such activity required a particular skill or qualification.

Did Ms Ashley create goodwill or saleable assets in the course of her work?

[55] I do not accept that Ms Ashley created any goodwill or saleable asset in the course of her work.

Did Ms Ashley spend a significant proportion of her remuneration on business expenses?

[56] It is not clear from the evidence whether Ms Ashley spent a significant proportion of her remuneration on business expenses.

Conclusion

[57] The indicia discussed above are not exhaustive. They need to be weighed according to their importance in the circumstances being considered. Further, it must be acknowledged the circumstances before me were highly unusual.

[58] It seemed so very odd that Mr John would cause to have taken from his personal drawings, payments to Ms Ashley for at least the period of July 2019 to December 2019 of $1,500.00 net on each occasion. This is particularly the case when Mr John purported that there was no position in the business for Ms Ashley and that the assistance she had rendered in attracting clientele to the Cyber Recycling business, was a manifestation of their friendship rather than some commercial arrangement (leaving aside the loan for $30,000.00 and the payments for compound interest).

[59] However, I do not accept that Ms Ashley worked for Cyber Recycling in the sense of having an employment relationship with it. There was no written contract between Ms Ashley and Cyber Recycling, and she had declined on multiple occasions to complete the documentation to be included on the payroll and considered an employee. I am unconvinced by Ms Ashley’s evidence in this respect, that she declined to provide the documentation having previously provided it. It appears that the documentation was previously provided to ITS. Further, if it were the case that Ms Ashley pressed to be an employee, it is difficult to comprehend why she would decline to complete the very paperwork that would directly evince such a relationship.

[60] The evidence given did not show Ms Ashley was obliged to undertake work for Cyber Recycling, and while Ms Ashley spoke of there being an agreement between Mr John and her that she would become a full-time employee and be paid $1,000.00 per week based on a 40 hour week, that arrangement appeared to be referable to the relationship she had with ITS, not Cyber Recycling.

[61] While there was an email provided dated 4 July 2019, in which Ms Ashley confirmed that there had been a discussion between her and Mr John about $1,000.00 per week and that the meeting would continue to finalise negotiations, there was, with respect, no evidence of a written contract that Cyber Recycling was obliged to pay her.

[62] However, I do find it highly unusual that Mr John would gift Ms Ashley approximately $15,000.00 over a period of five to six months. Tendered into evidence was an email from Mr John to Ms Ashley dated 18 February 2020, sent just prior to the time that Ms Ashley claimed she considered her ‘employment’ terminated. In that email, Mr John spoke of an email sent in July 2019:

July 2019 you sent an email that you needed to get paid $2000 as a contractor and account number was shared in the email. I agreed for $1500 fortnightly below are the payments done accordingly. Annual pay, superannuation etc are meant for employees on the payroll.

[63] However, the email referred to in the above quotation appeared not to have been provided, and again I am unable to draw a conclusion that such payments constituted a wage. Further, given the timing of the email, I am hesitant to accept the assertion within it that Ms Ashley was a contractor, noting that in all the circumstances it appears to have been self-serving. However, there was no evidence of anything that would legally have prevented Ms Ashley from working for entities other than Cyber Recycling.

[64] The autonomy, flexibility and the apparent non-exclusive nature the relationship between the parties are strongly indicative of a relationship other than that of employment. Ms Ashley exercised considerable control over her activities. When regard is had to the totality of the relationship, on balance I am satisfied Ms Ashley was not an employee within the meaning of the Act, and I find it more likely than not, she was a contractor. It therefore proves unnecessary for me to consider whether she was a volunteer or just simply a friend that was helping out.”

Ashley v Cyber Computer Recycling & Disposal Pty Ltd atf the Cyber System Family Trust – [2020] FWC 3240 – 30 June 2020 – Beaumont DP