Australian-based companies increasingly engage overseas independent contractors for a variety of strategic reasons. These include access to a broader talent pool, cost efficiencies, flexibility in workforce management, and the ability to scale operations quickly without the commitments associated with traditional employment. Hiring international contractors can also enable businesses to operate across different time zones, supporting round-the-clock productivity. However, while the benefits are significant, it is important to be aware that engaging overseas independent contractors carries legal, financial, and operational risks. Businesses must understand and manage these risks to ensure compliance and avoid costly missteps.
Why Contractor Classification Matters More Than Ever
The recent decision of the Fair Work Commission in the case of Joanna Pascua v Doessel Group Pty [2024] FWC 2669 has highlighted the risks associated with engaging independent contractors.
In that decision, Joanna Pascua, a Filipino national residing in the Philippines, was engaged by the Doessel Group as an independent contractor to perform paralegal functions remotely from her home. Upon the termination of her Independent Contractor Agreement, Ms Pascua filed an unfair dismissal claim against the company. Both the Fair Work Commission and on appeal, the Full bench of the Fair Work Commission, held that Ms Pascua was not an independent contractor but, in fact, an employee of the Doessel Group based in Australia. As such, Ms Pascua was found to be covered by the National Employment Standards and the Fair Work Act (Cth), thereby granting her standing to pursue an unfair dismissal claim against the Doessel Group.
Was Ms Pascua an employee?
In determining this issue, the Fair Work Commission considered the terms of the contract and the obligations of the parties. Paragraph 20 of the Pascua case summarised the proper approach as follows:
The assessment of the legal nature of the relationship between the parties is to be determined by evaluating the nature of the contractual obligations of the parties arising from their contract. What is required is an evaluative judgment of that contract which will be informed by various indicia, some of which may suggest an employment relationship and others a relationship of independent contractor.
The Commission held that Ms Pascua was not an independent contractor but, rather, an employee based on the following factors:
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- The level of control exercised by the Company over Ms Pascua;
- Ms Pascua’s role did not qualify as a profession, trade, or distinct calling;
- Inconsistencies in the wording used in the Contractor Contract.
To avoid the critical mistake of misclassifying contractors, Australian businesses must carefully assess the key risks when engaging overseas independent contractors. Outlined below are common risks associated with engaging overseas independent contractors. This list is not exhaustive, and additional risks may emerge depending on the specific circumstances of each engagement.
- Misclassification of Workers: When assessing the true nature of the Contractor-Principal relationship, the courts or Tribunals do not rely solely on the contractual labels used by the parties, but evaluates the actual rights, duties, and conditions outlined in the agreement. Misclassification can be viewed as Sham Contracting.
- Degree of Control: The degree of control exerted by the company over the independent contractor is a key factor in determining whether a worker is truly an independent contractor. The Court assesses the extent to which a company directs the how, when, and where work is performed.
- Inadequate Remuneration: Independent contractors are typically compensated at a higher rate due to the specialised nature of their skills. Paying below-market rates may suggest an employer-employee relationship, rather than that of an independent contractor.
- Ambiguities in Contractual Terms: Contracts that contain inconsistent terminology or language typically associated with employment, such as references to “employment,” “disciplinary action,” or “resignation”, may create confusion and lead to the misclassification of contractors as employees.
- Ongoing Work Arrangements: If the engagement is continuous or open-ended, with no clear end date, it may resemble an employment relationship rather than an independent contracting arrangement.
A well-drafted Individual Contractor Agreement is essential for ensuring compliance with the laws and regulations that govern independent contractor relationships. It plays a critical role in clearly defining the relationship between the Principal and the Contractor, setting out their respective rights, responsibilities, and obligations. While it is important that the terms and conditions of the contract align with the intended principal–contractor relationship, it is equally important to recognise that Courts and Tribunals will also consider the conduct of both parties after the agreement is made. In other words, the rights, responsibilities, and obligations outlined in the contract must be reflected in the actual working relationship post-agreement to avoid the risk of the worker being deemed an employee.
This is particularly important considering the new definition of ’employee’ introduced by the Fair Work Commission in late 2024. Under this definition, Courts and Tribunals now assess not only the terms of the agreement but also the conduct of both parties following its execution. This means that post-agreement behaviour is a key factor in determining the true nature of the relationship.
A Proactive Approach Is Essential
In 2025, relying on template agreements or verbal understandings is no longer safe. Businesses must take a strategic and legally sound approach to engaging contractors.
Reviewing existing contractor relationships, assessing how they operate in practice, and updating agreements to reflect current legal standards are critical steps to reducing risk.
🚨 Don’t Wait for a Claim to Land on Your Desk
Independent Contractors vs Employees: What Every Business Should Know
Free Webinar for Business Owners, HR Leaders & Decision-Makers
If you engage contractors in any capacity, this is the webinar you cannot afford to miss.
This exclusive session will cover:
- The current legal test for contractor relationships in 2025
- Key risks and common mistakes businesses are making
- What regulators are focusing on this year
- Practical tips for structuring and managing contractor agreements
Date: 21st May 2025
Time: 12:00 pm to 1:00pm
Speaker: Darren Taylor, NB Employment Law Senior Associate and Operations Manager
Spaces are limited — reserve your seat now to protect your business before it’s too late.
Register today and gain clarity before compliance becomes a crisis.