NB Employment Law has recently successfully defended an unfair dismissal application[1] (the Application) on two (2) separate jurisdictional grounds. We successfully argued the application had been commenced outside of the statutory time limit, and established the worker was an independent contractor as opposed to an employee. A unique feature of their relationship was the lack of written agreement between the parties. This meant the significant guidance of the High Court of Australia in CFMMEU & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (CFMMEU v Personnel Contracting), as it relates to the primacy of a written agreement and its rights and obligations in determining the relationship between parties, was not directly applicable.
Recap of CFMMEU v Personnel Contracting
By way of a recap, the decision in CFMMEU v Personnel Contracting established a refocus on the written agreement between two parties, when determining whether their relationship was one of employment or contractor-principal. This was to apply where the validity of the written agreement was not in dispute, noting the role of a Court did not extend to adjusting the parties’ rights.
The decision left open the possibility that where no written agreement was in place, the determination of the parties’ relationship would be by reference to the ‘totality of the relationship’ by applying a multi-factorial test. This often involved a detailed review of post-contract conduct. This was the usual approach taken by the Fair Work Commission, as well as higher Courts and Tribunals.
What Happened in the Application?
After considering the arguments of the parties, the Fair Work Commission concluded the multi-factorial test established by previous authorities was appropriate to apply in the absence of a written agreement. A summary of the various indicia applied by the Fair Work Commission are contained within the Full Bench decision of Jiang Shen Cai trading as French Accent v Michael Anthony Do Rozario [2011] FWAFB 8307. These include indicia such as:
- control,
- the entitlement to work for others,
- invoicing arrangements,
- taxation arrangements; and
- ownership of assets.
Applying the various indicia within the Application, the Fair Work Commission concluded the worker was an independent contractor. It was said the employer “let the contractor determine the needs of his business and not the other way around” in reference to the little control exercised over the worker. Discretion was retained by the worker as to his hours and locations of work, despite the employer’s premises being used from time to time by the worker.
A difficulty in the Application was the informal approach taken by the employer in respect of the worker. It was described by the Fair Work Commission as the employer having “good nature and high level of trust” towards the worker, which resulted in the employer adopting a “lackadaisical approach” towards financial controls. These matters appear to have been considered favourably by the Fair Work Commission in determining the worker was an independent contractor. They were indicative of a lack of control, and suggested the worker was acting in the interests of his own business as opposed to that of the employer.
Practical Guide for Employers (and Businesses)
- Ensuring contractors are engaged pursuant to a written agreement
A key headache for employers associated with the multi-factorial test is its inherent uncertainty. Reasonable minds may differ on the various indicia, which often involves an assessment of various factual circumstances which exist between parties. This can be difficult, particularly where factual circumstances are contested. Where factual findings are made within a decision that a worker was in fact an employee, it is more difficult to appeal such findings if the factual conclusion was reasonably open for the Court or Tribunal to make on the evidence.
We therefore recommend employers (and businesses) review their engagement of contractors, and ensure a written agreement is in place clearly documenting the relationship as one of principal-contractor. The decision in CFMMEU v Personnel Contracting will operate to provide more certainty. A few points to stress in the contractor agreement will include ensuring that:
- Control is little exercised
- Discretion over location of work and hours
2. Minimising inferences of a sham or subsequent variations
Notwithstanding the decision in CFMMEU v Personnel Contracting, it remains open for a worker to challenge their relationship on the basis of the written agreement being a sham. It is also open for a worker to assert the written agreement has been subsequently varied, or the post-agreement conduct demonstrates the written agreement was invalid. In such circumstances, it is possible the multi-factorial test will be applied despite the existence of a written agreement.
We would therefore recommend employers (and businesses) review their written agreements with contractors to ensure the work arrangements are consistent with the written agreement (and that of a contractor-principal relationship). This is to avoid allegations the written agreement has been varied by subsequent conduct, or inferences the written agreement is a sham because it contains obligations of an employment relationship. In practical terms, we would caution against a ‘set and forget’ approach to implementing written agreements. The written agreement should capture the rights and obligations of the working relationship, which could change over time.
3. Being mindful of overreliance on labels
In determining the legal character of a relationship, the ‘label’ of the written agreement is substantially irrelevant. The written agreement may state the parties are in a contractor-principal relationship, but that is not necessarily determinative. In categorising the relationship, it is the rights and obligations under the written agreement that will remain determinative. These rights and obligations prescribed by written agreement should remain consistent with the various indicia.
We would therefore recommend avoiding reliance upon a written contractor agreement in itself. Instead, we suggest structuring the work arrangements to be consistent with a contractor-principal relationship, reducing the work arrangements into rights and obligations within a written agreement, and then diligently following the agreed rights and obligations. This will assist employers (and businesses) in successfully demonstrating they have engaged contractors, and not employees.
If you are an employer (or business) and regularly engage contractors, it may be worth having a discussion with us to ensure the arrangements do not result in unnecessary risk exposure. At NB Employment Law, we offer an obligation free consultation – please call +61 (07) 3876 5111 to arrange an obligation free consultation to discuss your inquiries and we will do our best to provide a helpful, practical solution.
[1] Greg Searle v Luxwood Homes Pty Ltd [2022] FWC 1688.
Written By
Jonathan Mamaril, Director
Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability. With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers.
Dan Chen, Associate
Dan Chen is an Associate at NB Employment Law, the lawyers for employers, and specialises in employment law. Dan is passionate about assisting business owners, small and large understand their obligations under Australia’s complex workplace relations system. His vast experience in General Protections, Unfair Dismissal and grievance handling is sought after by clients and is also fluent in mandarin.