What are the legal elements of an employment relationship

There are occasions when it is quite difficult to determine from a legal perspective whether a relationship is that of employer and employee. This extract from a decision of the Fair Work Commission contains an analysis of the principles.

“Was Mr Barbour employed by Derbas Lawyers?

[68] In Susan Bergman v Broken Hill Musicians Club Ltd T/A Broken Hill Musicians Club [2011] FWA 1143 Commissioner Steel set out the principles for determining whether a contract of employment exists between parties as follows:

“The law requires that there are certain basic essential requirements or elements for an agreement to be legally enforceable as a contract. These are described in Professor Andrew Stewart’s book, Stewart’s Guide to Employment Law and in various other forms in texts such as Macken, McCarry & Sappideen’s The Law of Employment as being the following essential elements:

  • The parties must have reached agreement as to the terms of the contract.
  • The agreement must involve the provision of “consideration” by each party.
  • The agreement must be intended by the parties to be legally enforceable.
  • The terms of the agreement must be certain and complete and there must be no element of illegality or any other vitiating factor that would deprive the agreement of legal effect.” [FOOTNOTES OMITTED]

[69] It can be particularly difficult to distinguish between internships, unpaid work experience, or clerkships (as they are more commonly known in the legal industry) and employment. However, it is important to do so to ensure the integrity of the standards and protections established by the FW Act.

[70] Factors which are relevant in distinguishing work experience from employment include the following: 38

  1. The placement is mainly for the benefit of the person rather than the business.
  2. The periods of placement are relatively short.
  3. The person is not required to or expected to do productive work.
  4. There is no significant commercial gain or value for the business derived out of the work performed by the person.

Have the parties reached agreement as to the terms of the contract?

[71] Where a contract is not evidenced in writing, the court must infer from the parties whether they have reached an agreement.

[72] In his witness statement Mr Barbour asserts that he met with Mr Derbas on 17 August 2020 and that during that meeting he was offered, and he accepted, employment. 39 The implication from Mr Barbour’s evidence is that he was actively recruited by Derbas Lawyers. However, the evidence reveals that Mr Byrne’s initial contact with Mr Barbour and his meeting with Mr Barbour on 17 August 2020 was purely of a social nature.

[73] In his witness statement Mr Barbour says that he met with Mr Derbas on 17 August 2020 and that it was during that meeting that Mr Derbas and he discussed and agreed terms and conditions for Mr Barbour’s employment by Derbas Lawyers. 40

[74] At the Hearing Mr Barbour gave evidence that the terms of his employment with Derbas Lawyers were agreed by him and Mr Derbas at a series of two or three meetings rather than on 17 August 2021. Mr Barbour conceded that at the first of the two or three meetings no terms of employment were agreed. 41

[75] The evidence reveals that Mr Barbour did not met with Mr Derbas until 19 August 2020. 42 There is no evidence to suggest that Mr Barbour met with Mr Derbas on any other occasion before Mr Barbour alleges he commenced employment with Derbas Lawyers.

[76] I accept Mr Byrne’s evidence that the meeting between Mr Derbas and Mr Barbour occurred on 19 August at the request of Mr Barbour who indicated that he was looking for an opportunity for unpaid work experience. This is consistent with Mr Barbour’s own admissions that the role was initially unpaid, 43 the evidence that Mr Barbour was in receipt of an alternative income stream in the form of Job Keeper payments and the evidence of Mr Farooqi that he and Mr Barbour worked as volunteers at Derbas Lawyers. It is also consistent with the lack of evidence that Derbas Lawyers were recruiting for additional employees at that time.44

[77] In his witness statement Mr Barbour says that when he met with Mr Derbas he was offered, and he accepted, employment on the following conditions:

“… an unpaid position with the firm until I can work on matters on my own and I will then be paid a base salary of $250 per week. In addition, if I refer any clients, I will receive 25% commission on any cases I refer.”

[78] At the Hearing Mr Barbour asserted that at the same meeting the following other terms of employment agreed with Mr Derbas: 45

  1. Derbas Lawyers would provide Mr Barbour with 1000 business cards. 46
  2. He would work between 9am and 5pm on Monday, Wednesday and Friday. 47
  3. He would be required to meet certain dress standards. 48
  4. He would be unpaid until he had proved his competence. 49

[79] Mr Derbas denies discussing or agreeing any terms of employment with Mr Barbour either at the August meeting or subsequently.

[80] Mr Derbas specifically denies discussing any rates of pay. The evidence in relation to what Mr Barbour says he was offered and agreed to be paid is discussed in further detail below. However, I note here that Mr Barbour’s evidence with respect to the alleged rate of pay is both inconsistent and implausible. I note that evidence indicates that Mr Barbour did not provide and was not asked to provide his taxation number or superannuation fund details which would normally be provided by an employee expecting payment. I also note that Mr Barbour conceded at the Hearing that Mr Derbas never stated when he would start paying him. 50

[81] Mr Derbas asserts that no fixed times or days of work were agreed between the parties and that Mr Barbour came and left the office as he pleased and took breaks whenever he chose. 51 This is consistent with the evidence of Mr Farooqi. It is also consistent with Mr Barbour’s records of his hours of work per day (which ranged from 4.5 hours to 9.5 hours per day) and his records of his days of work (which varied from two to four days per week).

[82] I also note that Mr Barbour concedes that he understood the role to be an opportunity to prove himself and demonstrate that he could work as a lawyer and he acknowledges that there was no agreement for him to be paid for the work he was initially performing. 52

[83] Information about appropriate dress standards in a legal office would be consistent for volunteers, some contractors and for employees and therefore is not of itself of assistance in assessing the nature of Mr Barbour’s relationship with Derbas Lawyers.

[84] On the evidence before me I believe it is unlikely that Mr Barbour and Mr Derbas discussed the issue of the provision of business cards at the meetings at which Mr Barbour says he and Mr Derbas agreed terms of employment.

[85] I note that at the Hearing Mr Barbour conceded he himself was confused as to what the terms of his engagement were. 53

[86] Based on the evidence before me I am not satisfied that the parties had reached an agreement as to the terms of a contract. In the absence of this element necessary for the existence of a contract of employment between the parties I am not satisfied that Mr Barbour was an employee of Derbas Lawyers.

Does the agreement involve the provision of a ‘consideration’ by each party?

[87] For an agreement to be legally enforceable there must be some element of bargained exchange that involves each party doing or promising to do something of value in return for what the other is doing or promising to do. What each party provides to the other must have some value in the eyes of the law. 54

[88] In his witness statement Mr Barbour says that when he met with Mr Derbas he was offered, and he accepted, employment on the following conditions:

“… an unpaid position with the firm until I can work on matters on my own and I will then be paid a base salary of $250 per week. In addition, if I refer any clients, I will receive 25% commission on any cases I refer.”

[89] Mr Barbour did not refer any clients and was not paid any commission.

[90] Mr Barbour conceded at the Hearing that Mr Derbas never stated when he would start paying him and never did pay him. 55

[91] Mr Derbas denies that he ever offered or agreed to provide Mr Barbour with any consideration, in particular he is adamant no rate of pay was proposed, discussed or agreed.

[92] The amount Mr Barbour asserts was agreed he would be paid seems implausible unless he was confident of securing high value, or high volume, clients. A base salary of $250 for full time work would amount to a payment of $50 per day when then national minimum wage was $19.84 per hour. Even if the amount of $250 was to be paid for three days work it only equates to payment of $83 per day.

[93] Mr Barbour’s evidence as to what it was agreed he would be paid is inconsistent. In his submissions at page 5 of the Digital Court Book Mr Barbour asserts that he was also offered and accepted that he would be paid a 30% commission in addition to his base rate of pay. 56 This purported commission is inexplicably not mentioned in his evidence at the Hearing,57 in his witness statement, his Form F8 or elsewhere in his submissions when he asserts what it is he says that the parties agreed he would be paid. 58 The reference to “base pay” in his witness statement, in his Form 8A and elsewhere in his submission appears in the context of an additional payment in the form of a 25% commission for the referral of clients. Given the other inconsistencies in his evidence it seems likely that the 30% commission over and above the $250 base rate is an embellishment to his witness statement.

[94] There is no evidence that Mr Barbour at any time provided his taxation number, bank account details or preferred superannuation fund consistent with an expectation of payment.

[95] Even if the parties did agree that Mr Barbour would be paid a fee for any new client he referred to the firm the referral of clients is not necessarily ‘work’ indicative of employment. Referral bonuses might be offered to clients, family and friends or other third parties.

[96] The evidence is that Mr Barbour did not receive any payment from Derbas Lawyers whether it be by way of wage, honorarium, reimbursement, or some other form of payment. Nor is there evidence of any other form of ‘payment in kind’ for example the provision of free accommodation, 59 a slab of beer,60 or meat from a slaughtered bullock,61 which have in other cases been found to constitute consideration founding an employment relationship.

[97] I am not satisfied that the training or supervision Mr Barbour received from Derbas Lawyers was in law 62 or in fact sufficient to constitute consideration to support a finding of employment.

[98] Based on the evidence before me I am not satisfied that the parties agreement involved the provision of a ‘consideration’ by each party. In the absence of this element necessary for the existence of a contract of employment between the parties I am not satisfied that Mr Barbour was an employee of Derbas Lawyers.

Was the agreement intended by the parties to be legally enforceable?

[99] Susan Bergman v Broken Hill Musicians Club Ltd T/A Broken Hill Musicians Club  provides the following guidance in determining whether an agreement is intended by the parties to be legally enforceable:

“[40] An agreement to do something is only regarded as a contract if the parties intended the agreement to be legally binding and carry legal consequences. That is, if something goes wrong, if one party failed to act in accordance with the agreement, the other party would be entitled to take legal action to seek performance. In employment situations where work is intended to be performed for payment, the necessary legal relations are generally present.

[41] There are exceptions such as Teen Ranch Pty Ltd v Brown and Redeemer Baptist School v Glossop & Ors  and counter-exceptions of Ermogenous v Greek Orthodox Community of SA Inc.

[42] Volunteer work by its definition does not, in general, involve this element as the usual motivation for the arrangement is altruism rather than private gain or material advantage. That is, the commitments between parties in such arrangements are moral rather than a legal and formal one. In this matter the applicant provided work in a capacity which is argued to be employment and have a contract of employment. The respondent asserts that she was a volunteer or other than an employee. In determining further whether a contract existed the question must be asked, can it reasonably be inferred that the parties intended to create legal relations?” [FOOTNOTES OMITTED]

[100] Mr Barbour says that an intention on the part of Derbas to create legal relations is evidenced by the following:

  1. His practising certificate described him as an “Employee of a Law Practice” and identified his place of practise as “Derbas Lawyers.  63
  2. He held an account with Legal Aid NSW as a solicitor under the name of Derbas Lawyers on Legal Aid’s panel of law firms. 64
  3. Derbas Lawyers printed 1000 business cards with his name and the title ‘Lawyer’. 65
  4. Derbas Lawyers made a social media post welcoming him to the firm. 66
  5. He performed fee paying work for Derbas Lawyers such as preparing a draft: family law contravention application, affidavit, a liquidated claim for two motor vehicle accidents and letters of offer for the recovery of debts. 67
  6. He incurred expenses such as parking fees and tolls while performing tasks for Derbas Lawyers for which he was not reimbursed.  68

[101] Mr Barbour says that an intention on the part of Derbas to create legal relations is evidenced by promotional/relationship materials prepared by Derbas which suggested that he was employed by the firm as a lawyer. The materials Mr Barbour relies upon are the business cards which bore the contact details of the firm and described Mr Barbour as a lawyer and a photo circulated to clients welcoming him to the firm which was circulated on social media.

[102] Mr Derbas says that the social media post made on 7 September 2020 occurred to welcome Mr Farooqi and Mr Derbas ‘to the team’ so that they did not feel excluded and did not identify the capacity in which they joined the ‘team’. 69 Mr Derbas says that the business cards were not printed until October 2020 and not provided to Mr Derbas until November 2020 and that therefore could not be relied upon as evidence of an intention to create legal relations before that time. In relation to the period in which the cards were available Mr Derbas says that the business cards were provided simply to boost Mr Barbour’s self esteem and not hold him out as an employee of the firm. They state, consistent with his qualifications, that he is a lawyer but do not describe him as a solicitor employed by the firm. Mr Derbas says that the business cards did not include the word ‘volunteer’ as it was thought would embarrass Mr Barbour.70

[103] I am not satisfied that of themselves the business cards or the social media post provide proof of an intention to create a legal relationship of employment on the part of the parties. Although the appropriateness of such a practise is questionable given the potential for clients to be misled as to the skills, experience, qualifications and employment status of volunteers or work experience placements in such circumstances.

[104] Mr Barbour submits that the work that he undertook was not ‘moral’ in nature because it was fee paying work rather than pro bono. 71

[105] Mr Derbas asserts that Mr Barbour did not receive his practising certificate until mid October and therefore could not lawfully perform work as a legal practitioner before this date. 72 It is unclear whether Mr Barbour’s practise certificate identified his place of practise as Derbas Lawyers based on information provided to the Practice Board by Mr Barbour or by Derbas Lawyers.

[106] Mr Derbas insists that Mr Barbour was merely volunteering in order to gain exposure to the legal practice by observing practitioners at work and performing simple tasks routinely allocated to summer clerks. Mr Derbas says that no financial benefit was ever gained for the firm from the tasks that he performed. 73 In fact he says that Mr Barbour’s work required such substantial amendment that his performance of such work was a business cost because it took much longer for the supervising practitioner to correct his work that it would have taken them to perform the work themselves.74 For example Mr Derbas says that the contravention application that Mr Barbour points to as evidence that he was performing work for the firm took Mr Barbour three weeks to draft and was so deficient that it was destroyed and not used in any way in the application filed in court.75

[107] There is no evidence that the tasks that Mr Barbour performed were performed for commercial gain by Derbas Lawyers.

[108] The benefit to be gained by such an arrangement is largely in the nature of experience which improves Mr Barbour’s employability. The time spent reviewing and amending his work is a business cost and ought not be recoverable from the client as fee paying work. The provision of the opportunity of an internship or clerkship might be considered ‘moral’ in nature in that it permits law students or recent law graduates who haven’t secured employment an opportunity to observe the practise of law to guide their decision to become a legal practitioner and/or their choice of practise area.

[109] Mr Derbas says that Mr Barbour had no authority to incur expenses on behalf of the firm and should not have done so without direct approval from himself. Further he asserts that Mr Barbour never presented the invoices to him and that the first time he was aware that Mr Barbour had incurred the costs was when Mr Barbour filed this Application. Personally incurring costs associated with the performance of tasks for an organisation is more common in the case of a volunteer than an employee.

[110] Mr Barbour is a trained and admitted lawyer. He does not suffer from the vulnerabilities of the very young, the illiterate, the uneducated, those whose English skills are poor or who reside in Australia by virtue of a visa. There is nothing in his circumstances which would suggest that he was unaware of his legal entitlements to be paid if he was engaged as an employee. If it had been the case that he believed that he had entered into a legally enforceable arrangement of employment with Derbas Lawyers then one would expect that he would ensure that he had provided his taxation and banking details to Derbas Lawyers and ensured that he received payment within a normal pay period be it a week, a fortnight or a month from commencement.

[111] The evidence does not suggest that either party held the view that Derbas Lawyers was entitled to require Mr Barbour to perform tasks on particular days or particular times or that as a matter of fact Derbas, Lawyers attempted to. Rather it appears that Mr Barbour provided an indication of his anticipated availability. As a matter of fact, he attended at the firm’s premises on different days and at different times than he says the parties agreed he would work.

[112] While a client of the firm might not unreasonably presume that Mr Barbour was employed by Derbas Lawyers I am not satisfied that this is evidence that the parties intended to enter into a legally enforceable arrangement. Although this might have eventuated if Mr Derbas had been impressed by the tasks that Mr Barbour performed. At the highest what can be said of the evidence is that it indicates that the parties might have in future decided they wished to enter into legally enforceable arrangements. I am not satisfied that Mr Derbas had yet reached that state of mind and I think it likely that he would not have in the future.

[113] The fact that the parties contemplate the possibility of having legal relations in the future is not of itself sufficient. The parties must have intended to create enforceable legal relations in the period in question. 76

[114] Based on the evidence before me I am satisfied that Derbas Lawyers did not intend the arrangement they had with Mr Barbour to be legally enforceable. In the absence of this element necessary for the existence of a contract of employment between the parties I am not satisfied that Mr Barbour was an employee of Derbas Lawyers.

Were the terms of the agreement certain, complete and without any element of illegality or any other vitiating factor that would deprive the agreement of legal effect?

[115] For the reasons outlined above I am not satisfied that an agreement had been reached between the parties which was certain or complete.

Was the placement mainly for the benefit of the person rather than the business?

[116] The evidence suggest that the placement mainly provided a benefit for Mr Barbour rather than the business. With the exception of the mention at the Waverly Court on 25 November 2020 the work Mr Barbour performed appears to have been supervised or reviewed by an employee of the practice. The evidence is that Mr Barbour’s work required substantial amendment. The benefit to be gained by such an arrangement is largely in the nature of experience which improves Mr Barbour’s employability. The time spent reviewing and amending his work is a business cost not a business benefit.

Was the period of placement relatively short?

[117] The period of placement was fourteen weeks which would be the outer limits of what might be described as a relatively short period.

Was Mr Barbour required or expected to do productive work?

[118] I am satisfied on the evidence before me that Mr Barbour was offered the opportunity to do productive work but was not expected or required to do productive work.

Was there a significant commercial gain or value for the business derived out of the work performed by Mr Barbour?

[119] Mr Barbour says that Mr Derbas set tasks for him to complete such as drafting letters, affidavits, statement of claims, filing in court, attending client conferences, legal research, attending to a mention and doing other work necessary for the function of his business. Mr Barbour says that Derbas obtained commercial gain from this work. He cites as an example the Mention at Waverly Court in relation to which he says the client was charged fees of $2,000. 77

[120] Mr Derbas contends that any letters, affidavits, and other documents drafted by Mr Derbas were significantly changed and no work has been charged to firm’s clients. He says that any other tasks Mr Barbour performed were ‘observational’ in nature.

[121] Mr Barbour points out that the appearance at Waverly Court could not have been ‘observational’ because he attended the court by himself.  78 Mr Derbas says that the client was not charged for this work because it was not correctly performed by Mr Barbour notwithstanding that Mr Barbour was provided with a script for the task.

[122] Even if the Waverly Court appearance was charged to the client based on the evidence before me I am not satisfied that a significant commercial gain or value was derived by Derbas Lawyers from the work performed by Mr Barbour.

Conclusion

[123] It can be particularly difficult to distinguish between internships, work experience, or clerkships (as they are more commonly known in the legal industry) and employment. It is important to do so to ensure the integrity of the standards and protections established by the FW Act. It is also important to ensure that the opportunity for genuine work experience or for society to benefit from pro bono service is not lost by characterising all time spent in a workplace as employment when the necessary elements of employment do not exist.

[124] Mr Barbour submits that as was held to be the case in Emergenous v Greek Orthodox Community (2002) 209 CLR 95, Fair Work Ombudsman v Crocmedia Pty Ltd [2015] FCCA 140 and Strachan v Moodie [2012] NZEmpC 95 he is an employee. In my view each of these cases can be differentiated from Mr Barbour’s.

[125] In Emergenous v Greek Orthodox Community (2002) 209 CLR 95 it was held that the applicant, who was an Archbishop of the Greek Orthodax Church, was an employee based on findings of fact that he had been told that he would be an employee, he was paid a stipend from which PAYG was withheld and he performed the duties in question for more than 20 years.

[126] In Fair Work Ombudsman v Crocmedia Pty Ltd [2015] FCCA 140 the applicants initially completed periods of unpaid work experience and were then engaged for periods of between 6 months and 12 months respectively as producers for a radio program. They received a honourium/payment for each shift they worked which was characterised as reimbursement for expenses. They were held to have commenced employment after the period of unpaid work experience was completed.

[127] In Strachan v Moodie [2012] NZEmpC 95 the applicant initially commenced ‘volunteering’ for a sole practitioner observing the practise and performing para legal work while she completed post graduate studies and worked part time as a nurse. It is held that the arrangement morphed into employment after a more than a year when she began working full time in the practice, was given complete responsibility for the administration of the practice and it was agreed that she would be paid.

[128] Each of these cases can be differentiated from Mr Barbour’s because the applicants in each of those cases were in receipt of consideration (albeit not necessarily described at the time as wages) were performing the full range of duties that an employee would perform without supervision and were engaged so for extended periods of time. Critically in each of these cases there was an expectation by the employer and the applicant that the applicant would attend and perform the duties when rostered rather than at their will.

[129] Mr Barbour’s circumstances are in my view more analogous with cases where an employment relationship was held not to exist such as Pacesetter Homes Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (1994) 57 IR 449 in which unemployed school leavers were given the opportunity to gain work experience for up to six months but were under no obligation to attend on any particular day.

[130] The evidence before me suggests that to date the relationship between Mr Barbour and Derbas Lawyers was one of work experience not employment. There is no evidence that Derbas needed or wanted additional staff. Derbas Lawyers did not advertise for employees or volunteers or otherwise proactively recruit Mr Barbour to perform paid or unpaid work.

[131] Even on Mr Barbour’s own evidence there was initially no expectation on his part to receive wages for the time he spent at the office of Derbas Lawyers. Throughout the period he alleges he was employed by Derbas Lawyers he continued to be nominally employed as an Uber driver and was in receipt of Job Keeper payments. At no stage was Mr Barbour paid any form of payment by Derbas Lawyers be it by way of wage, honorarium or reimbursement.

[132] Mr Barbour had not yet received his practise certificate at the time he commenced attending the offices of Derbas Lawyers. He had only recently graduated and on the evidence before me was not yet capable of performing the duties of a solicitor even if they had been allocated to him.

[133] However, as Mr Barbour’s observations of the work performed by Mr Byrne and Mr Derbas led to a capacity for him to perform ‘work’ for Derbas Lawyers and he performed work, (albeit perhaps of limited complexity and not of a particularly high standard) for an increasingly longer period of time there would come a tipping point at which he morphed from a volunteer to an employee. The tipping point was fast approaching and quite appropriately Mr Barbour raised this with Mr Derbas. Mr Derbas would have appeared to have understood this by informing Mr Barbour that he was no longer able to offer him the opportunity to volunteer.

[134] On the balance of the evidence before me I am not satisfied that a contract of employment had been formed as at the date Mr Barbour says that he was dismissed. If there is no contract of employment identified between the parties then Mr Barbour can not be an employee. 79

[135] For the purposes of section 386 of the FW Act a dismissal only occurs if a person’s employment is terminated. As I am not satisfied that Mr Barbour is an employee he can not have been dismissed for the purposes of section 386 and is therefore ineligible to make the Application.

[136] The Application is therefore dismissed. An order to this effect will issue with this decision. 80”

Adam Barbour v Memtaz Derbas T/A Derbas Lawyers [2021] FWC 1718 delivered 30 June 2021 per Binet DP