Unfair dismissal; employee or contractor?

“As a senior member of the Fair Work Commission in the following extract from an unfair dismissal decision makes clear, the issue of whether a person is an employee or contractor is often very difficult to decide, and a fine line. Here is the test explained.

“The issue in dispute in this matter is, in my view, one of the most complicated legal, and often factual, issues that arises in employment law. Whether a person is in truth an employee or an independent contractor is subject to a complicated test developed over decades of considered judicial and academic opinion. The application of that test is further complicated by, and depends on, the evidence adduced and the true characterisation of that evidence. It is not uncommon that parties establish and continue in a relationship with each other on a common understanding or misunderstanding as to the true legal characterisation of their relationship. In a case considering this complicated issue, Justice Buchanan of the Federal Court has stated:  1

…it is increasingly necessary that parties conduct themselves (in their relations with regulatory agencies, and not just each other) in accordance with a correct appreciation of the nature of their relationship, not just as it may suit them (or one of them).

[28] This matter is further complicated in that the issue for determination is not what is the true legal characterisation of the relationship between the Applicant and this Respondent. That is not in dispute; the Applicant was an employee and the Respondent was her employer. This dispute concerns the true legal characterisation of the relationship that exists between the Respondent and numerous third parties, each of whom are a stranger to this dispute. The parties in this matter are unrepresented. I do not say that as a criticism of either party but simply as a means of identifying why it is that the task of the Commission is more complicated again because of the way in which the parties have developed their cases.

[29] In considering the parties’ material and my decision, I have given serious consideration to whether or not I am required to hold a further conference or conduct a further hearing in relation to the matter pursuant to s.397 of the Act. Neither party has contended that I must do so but that fact does not overcome the obligation that arises as a result of s.397 of the Act. 2 I have determined that I am not required to hold a further conference or hearing for the following reasons:

  • The issue in dispute is whether the Respondent is a small business employer or not;
  • While that issue is primarily a question of fact, the specific issue in dispute between the parties is whether various people performing “work” for the Respondent are employees or contractors;
  • That issue is ultimately a determination of the true legal character of their relationship; 3
  • Determination of that issue is not one to which the obligation in s.397 of the Act attaches;
  • A conference has been held with the parties where the parties were able to express their views and make submissions;
  • Further documentation has been provided to the Commission after the initial conference; and
  • The determination of the real issue in dispute is not to be resolved by differing version of events or assessments of credibility.

[30] As to the relevant principles applicable in determining the true legal nature of a particular relationship, a useful summary is contained in a recent decision by Deputy President Cross in Chan v Advanced Health Invest Pty Ltd T/A Mastery Dental Clinic. 4 In that matter, Deputy President Cross stated:

“In Jiang Shen Cai trading as French Accent v Rozario (“French Accent”), a Full Bench summarised the accepted approach to distinguishing between employees and independent contractors as follows (at [29] and [30]):

The nature of the general law approach to distinguishing between employees and independent contractors is such that a summary of that approach that is faithful to the court authorities has a continuing utility in this jurisdiction. The apparent tension in the summary in Abdalla highlighted in this appeal, together with the emphasis on the proper approach to a consideration of the indicia provided by the decision of Full Court of the Federal Court in Roy Morgan, makes it desirable to recast the summary in Abdalla, albeit we do not see that summary as wrong.

The general law approach to distinguishing between employees and independent contractors may be summarised 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 : 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.” [Footnotes omitted]

Consideration – Multi factorial analysis

The control indicia

[31] It is not in dispute between the parties that work is allocated through the use of various apps. The witness evidence is to the effect that it is the Respondent that determines who works where and that the cleaners have no say in what work they accept. The statements of the Applicant made in amongst her material are similar to this evidence, although differ in an important respect.

[32] The Applicant’s evidence is that “[W]e were always told in the office to never turn down a Bond Clean if your schedule is full or not as we will always be able to find someone to work”. What that statement is evidence of is that it may be the Respondent’s very strong preference that people accept work when offered and failing to accept work may be a matter that affects future offers of work but that is different to the Respondent actually controlling and allocating the work that is done. It is my finding, on the material before me, that while it might be the Respondent’s preference that work be accepted when offered, the Respondent does not control the work done and it is a matter for the various cleaners to accept or reject offers of work.

[33] In addition, the evidence of the witnesses is that they were unable to decide how to perform tasks and had to follow the Respondent’s instructions and directions. This is consistent with the wording of the second contract relied upon by the Respondent set out above. Clause 16 of that agreement contains and acknowledge that there is a “job description” for each job, which should be read and, implicitly, followed. In isolation that would indicate a level of control exerted by the Respondent over the work of the cleaners.

[34] However, that is to be counterbalanced against the remainder of the clause which states that “basic instructions” are provided and they set a minimum cleaning standard. But, the clause continues that the Contractor should learn and improve their own processes to deliver the final result that is expected. The “job description” referred to does not, on the face of the agreement, appear to be required but rather should be followed “to avoid complaints”. This does not indicate a high level of control exerted by the Respondent.

[35] This is an important factor and based upon the material tendered I am inclined to accept the argument of the Respondent that they make work available and the cleaners have free agency to accept or not take up the opportunities and that whilst the Respondent sets minimum standard and guidance on how to avoid complaints the decision on what to do, and how to achieve the end result is ultimately for the Contractor to decide.

[36] Overall, I weigh this factor as positive in the direction of the cleaners being independent contractors.

Performing work for others

[37] The evidence in respect of this is limited. The main evidence is the terms of the contract itself. Neither form of the contract expressly allows or prohibits undertaking work for others. The agreements do contain a non-compete clause, which would prevent the putative independent contractor from soliciting the Respondent’s business away from it, but this kind of provision is not unusual in independent contracting arrangements. Having said that, it is also not unusual in contracts of employment.

[38] The only evidence which can be relied upon on this matter is that at least two of the cleaners provided their services (under their ABN) to the Respondent and their own clients. While this does not account for all the cleaners, it is indicative of the type of relationship adopted and of the degree of control exerted by the Respondent.

[39] This indicates a genuine and practical entitlement to perform work for others and I weight this as a factor in favour of classification as an independent contractor.

[40] The nature of on-site cleaning work is that the place of work is determined by where the premises to be cleaned are located. While on one view this might be seen as a factor in favour of an independent contracting relationship I think it is more accurately a reflection of the nature of the work and the industry itself rather than evidence as to the true legal characterisation of the relationship. In my opinion, this factor is a neutral consideration.

Provision of Equipment

[41] The uncontested evidence presented was that the Cleaner was to provide their own equipment and products. The second contract explicitly reflects that this is the case. This factor weighs in favour of the cleaners being contractors.

Delegation

[42] It has been said, rather forcefully in my view, that:  5

“The requirement for personal service has the effect that a contract which truly permits discharge in another fashion or by another person, is not a contract of employment.”

[43] The contracts in evidence before me do not explicitly provide for delegation of the work to be undertaken pursuant to the contracts but does imply that this is the case. Each of the contracts provides that the contractor is responsible for their own superannuation guarantee contributions, and the contributions of employees of the contractor. The contractual terms between the parties contemplates that it may not be the contractor that discharges the work under the contract but may employee others to do so.

[44] The evidence also discloses that team leaders would be paid an amount to pay the team leader for the hours they have worked, but also an amount to be passed on to each Assistant. The legal niceties of such an arrangement aside, looking strictly from the perspective of the ability to delegate, it appears that delegation is permissible under the contracts.

[45] This factor weighs in favour of the true relationship being that of an independent contractor.

Suspension or dismissal

[46] The Respondent had the ability to no longer offer work or remove the individual from the system and App thereby effectively terminating the person from the arrangement. This could be regarded as the ability to remove the offer of work. This is not quite the same as dismissal or suspension but in a practical sense does have the same impact.

[47] The contracts both provide for the ability to terminate the agreement without notice. This is a factor that indicates, perhaps slightly, in favour of the true relationship being that of an independent contractor.

Emanation

[48] The cleaners were required to wear a t-shirt that was branded and therefore would be identifiable as from the Respondent. They paid a bond for the t-shirt and had a requirement to wear it whilst they worked. Therefore, this would assure the clients that the cleaners were from the Respondent that they had contracted to undertake the work. In my view, this is a good indicator that the persons are not conducting a business of their own and in truth working in the business of the Respondent. This is a factor in favour of the true characterisation of the relationship being that of employment.

Taxation arrangement

[49] The respondent did not deduct taxation of any kind from the invoice that they paid to cleaners. No superannuation payments were deducted. The contracts both provide for an obligation on the contractor to make superannuation payments in respect of any employees that they may have. There is no evidence that this in fact occurs.

[50] I do not consider that this is a particularly strong factor either way because it is a matter that may very well be consistent with the parties not correctly appreciating the true nature of their relationship more than anything. I consider this to be a neutral consideration in this matter.

Remuneration

[51] The payment was invoice based upon the amount that had been quoted for the work at a rate per hour. This factor would indicate a contractual relationship.

Leave arrangements

[52] There is no evidence from either party that any holiday pay or sick leave was provided. In the circumstances it would seem to be clear that the Respondent did not pay any annual leave or sick leave. This factor weighs in favour of the relationship being that of an independent contractor.

Profession or Trade

[53] The activities the cleaners undertook were not those that could be regarded as a trade or that of a profession. Because of this, and consistent with the authorities, I consider that this weighs in favour of the relationship being in the nature of employment.

Goodwill

[54] There was not any evidence or suggestion that the cleaners generated any goodwill for themselves. Rather, they were part of building the brand and reputation of the Little Star company. I consider this weighs in favour of the relationship being in the nature of employment.

Business Expense

[55] The evidence led by the respondent and validated in the statutory declaration was that the cleaners did pay for their own equipment products and travel expenses to and from the place of work. This weighs in favour of the Cleaners being contractors.

Contractor or Employee

[56] On balance, and on the material before Commission, I consider that the relevant relationships are that of an independent contractor.

[57] I wish to note that the material discloses a number of issues to these relationships that, on the limited material I have, are questionable. It should be born in mind that the Respondent is dealing with a large group of potentially vulnerable people and that the terms of the engagement utilised by the Respondent are, on one view, heavily in favour of the Respondent. Because of the view that I have taken in order to determine this dispute before me I do not consider it appropriate that I take further action other than to make this passing comment. It is for other bodies, if appropriate, to potentially consider these issues in future.”

Gallagher-Jones v Little Star Cleaning Pty Ltd (2020) FWC 1068 delivered 26 February 2020 per Lake DP