Contractor by name, employee by nature: FWC’s latest call

In the recent decision of Pascua v Doessel Group Pty Ltd [2024] FWC 2669, the Fair Work Commission (FWC) considered whether a Philippines-based legal assistant who performed work for a law firm in Queensland was an employee or an independent contractor.

Background

The applicant was engaged under a contract dated 21 July 2022 which was terminated in March 2024. The applicant lodged an unfair dismissal claim, naming Doessel Group Pty Ltd (Company) as the employer.

The Company argued that the applicant was not ‘dismissed’ within the meaning of s 386 of the Fair Work Act 2009 (Cth) (FW Act) because she was not an employee. The Company argued that the applicant was engaged as an independent contractor and the work was performed under a contract for services.

The Company relied upon the written contract between the parties which described the relationship as one of independent contractor.

Employee or contractor?

Deputy President Slevin applied the reasoning in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and ZG Operations Pty Ltd and Jamsek [2022] HCA 2 (Jamsek) to assess the nature of the relationship. Before recent changes to the FW Act (which we discuss below), Personnel Contracting and Jamsek focused on the written terms of the contract in determining the nature of the relationship between the parties.

Based on his overall assessment of the rights and obligations that the contract created, the Deputy President found the relationship was an employment relationship, not one of principal and independent contractor. As such, the applicant has been allowed to pursue her unfair dismissal claim in the FWC.

The contract was titled ‘Independent Contractor’s Agreement’ and described the applicant as an ‘Independent Contractor’. The terms also provided that the applicant had agreed to perform the work solely as an independent contractor and that the contract did not create an actual or apparent agency, partnership, franchise or employment relationship. The Deputy President concluded that these labels were not determinative of the legal relationship. The Deputy President also observed that the contract, in a number of places, referred to the arrangement as employment and to the applicant as an employee.

The Deputy President’s reasons included as follows:

• Applicant was not conducting her own business: The contract required the applicant to perform work in the business of another. Specifically, the tasks identified as administration, following up with clients and ad hoc duties as required was ‘subordinate to the business’ and suggested the work was being done within another’s business rather than as part of an independent business being conducted by the applicant.
• Control: The applicant received daily instructions and was supervised in performing the work. Further, she was required to perform duties within directed timeframes. This suggested a level of control being exercised over the work being performed that was consistent with employment.
• Applicant was not providing expertise/specialist service: The nature of the work was paralegal work. It was not work involving a profession, trade or distinct calling. This suggested an employment relationship.
• Level of remuneration: The applicant was paid an hourly rate of $18.00. The Deputy President observed that the rate of pay was below the minimum wage and therefore, did not suggest that the Company engaged the applicant due to specific expertise or to provide a specialist service that was such as to warrant payment of a high rate of pay for the work. The Deputy President noted that this was ‘a strong indication’ that the applicant was not engaged to provide specialist services on a contract basis but rather was remunerated on an hourly basis to perform work as directed consistent with employment.
• Mode of remuneration: The applicant invoiced in accordance with a proforma electronic invoice which set a maximum number of hours at 40 and required an indication of any unworked hours. The invoices were forwarded weekly for the previous week’s work. The Deputy President held that weekly payments, calculated on an hourly rate, with a set number of hours (although payment could be reduced in a given week if hours were not worked) was indicative of an employment relationship.
• Branding: The applicant’s use of a PBX phone account which identified her as calling from the firm’s office and the use of the firm’s signature block on her emails suggested that the work was being performed in a business other than a business conducted by the applicant. This was consistent with an employment relationship.
• Delegation: The contract required the work to be performed by the applicant and did not provide for the work to be assigned to someone else, which was indicative of an employment relationship
• Expectation of ongoing work: The arrangement was ongoing unless terminated in accordance with the terms of the contract, which suggested an employment relationship.

The Company relied upon provisions in the contract which stated that the Company would not be liable for taxes, worker’s compensation, unemployment insurance, or other entitlements and that all such costs were to be borne by the applicant. However, the Deputy President considered these statements in the contract to be merely consequential of the labelling of the arrangement as one of independent contractor in the contract and gave this little weight in determining the true nature of the relationship.

The Deputy President also considered the issue of whether the applicant was a ‘national system employee’ given that she worked in the Philippines. The Deputy President was satisfied that the Company was a constitutional corporation and that if the applicant was an employee, then she was employed by a national system employer and therefore meets the definition of national system employee.

What does this mean?

This decision highlights the importance of properly distinguishing between employees and independent contractors – particularly when engaging overseas-based workers.

In this case, misclassification has given an overseas-based worker the right to pursue an unfair dismissal claim.

Recent changes to the FW Act which took effect from 26 August 2024 (which were not considered in the present case), introduced a new definition of ‘employee’ and replaced the tests in Personnel Contracting and Jamsek. The definition of ‘employee’ now places the focus on the real substance, practical reality and true nature of the working relationship between the parties, including the terms of the contract and how the contract is performed in practice.

Employers who have been relying on the High Court’s decision in Personnel Contracting and Jamsek to engage contractors under well drafted independent contractor agreements will now also need to carefully consider how those relationships are performed in practice. This new definition makes it easier for an independent contractor to be deemed an employee by the FWC and courts, based on the post-contractual conduct of the parties. Further information about the new definition of employee can be found here.

Further, the Deputy President observed that the description of the work performed by the applicant corresponded to work performed under modern awards, including the Legal Services Award 2020. The Deputy President went onto note that the applicant’s hourly rate of pay was ‘very low’ and less than the minimum wages payable under the relevant award for employees performing the same work.

These comments raise potential questions around civil liability for underpayments and the potential for civil penalties. Businesses facing underpayment claims will also need to consider the risk of potential criminal penalties in light of the new criminal offence of ‘wage theft’ related to the underpayment of wages set to take effect in 2025. Further information about the new wage theft laws can be found here.

If your business engages independent contractors and overseas-based contractors or employees, it is important to consider whether their contracts and current working arrangements (including pay) appropriately reflect the nature of the relationship. Factors such as control, supervision, and payment structure should align with the terms of the contract to avoid misclassification risks.

If you engage workers who are based overseas, proper consideration should also be given to whether the workers are ‘national system employees’ and need to be treated in the same way as employees based in Australia.

Gadens is able to assist you with any queries you have in respect of engaging employees or independent contractors, drafting or reviewing written agreements and advice on how best to mitigate risks.

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Authored by:
George Haros, Partner
Vishmitha De Alwis, Lawyer