Employee or contractor? The Fair Work Commission apply the legal framework in a recent case

A recent decision[i] of the Fair Work Commission has clarified the legal principles which are used by the Fair Work Commission to determine whether a relationship is that of employer and employee or principal and contractor.

Background

The Worker (the Worker) performed work for a nursing service (the Business).

The initial decision concerned whether the Worker was a “person protected from unfair dismissal” within the meaning of s 382 of the Fair Work Act 2009 (Cth) (FW Act) such as to entitle her to seek an unfair dismissal remedy. At first instance Commissioner Simpson held that the Worker was an employee of the Business and not an independent contractor and consequently was a person protected from unfair dismissal. The Business contended in its appeal that the Commissioner erred in reaching that conclusion.

On Appeal

Commission looks to the relationship not the label

On appeal, the Commission rejected the Business’ argument that the labelling of the Worker’s position as an “independent contractor” in her contract (the Contract) should be given primacy over the way in which the contracts were implemented in practice.

The Commission, following earlier cases, considered that “labels cannot alter the substantive nature of the relationship”. That it could, “disregard such labels, because in law they were wrong, and look beneath them to the real substance”.

Following the High Court in Hollis v Vabu the Commission looks, “not merely [at the] contractual terms” but rather at the, “the totality of the relationship between the parties”.

Accordingly, although not irrelevant, the characterisation of the Worker’s status in the Contract as that of an independent contractor and not employee is of lesser significance in the face of substantive contractual rights and obligations which, as applied in practice, point in a different direction.

This reaffirms the Commissions position that labelling in contracts is not determinative of the true employment relationship. In looking at the totality of the relationship, the Commission applies a multi-factor test identified in a number of High Court decisions, most notably Stevens v Brodribb Sawmilling Co Pty Ltd.

The Tax Return Issue

Firstly, the Business submitted that the work expenses claimed by the Worker as deductions from her taxable income were a substantial indicator of her being a contractor. The Commission disagreed because:

1. The mere fact that a person performing work for another claims expenses incurred in the performance of that work as tax deductions, even when the amounts claimed are of significance, is not of itself determinative of the person’s status.

2. The expenses claimed were primarily for the provision of the Worker’s motor vehicle and for her home office. It is not uncommon for workers who are undeniably employees to use their personal motor vehicle for work travel, and also to establish home offices for the purpose of working from home.

The tax expert called by the Business to give evidence, said that there is no distinction in the capacity of employees or contractors to claim tax deductions for the cost of personal motor vehicle and home office use for work purposes.

The Commission held that the motor vehicle provided by the Worker was not a specialised piece of equipment requiring particular skill or expertise to operate, but simply a car which could equally be used for private purposes. There is no basis to conclude that it constituted a capital investment of significance for the purpose of the operation of a business. The same can be said of the establishment by the Worker of a home office. The evidence as to the “tools of trade” did not establish that any substantial cost was involved in their purchase.

3. The characterisation of the amount of expenses claimed as deductions as being “substantial” or “significant” requires scrutiny. The Worker earned $104,155 and had expenses of $15,493. The Commission did not regard tax deductions of this order necessarily to be indicative of a contracting rather than employment relationship.

Indicia indicative of an employment relationship

There are, a number of indicia which firmly point to the existence of an employment relationship. In the present case the Commissioner found:

1. The Worker was not conducting a business of her own. The patients she provided services to were obtained by the Business through its commercial contractual arrangements and allocated to the Worker. There was no evidence that the Worker had the capacity on her own initiative to increase the number of her patients and thus increase her income. The patients had no separate contractual or commercial relationship with the Worker and the Contract expressly restrained the Worker from such arrangements.

2. No effective right for the Worker to subcontract or delegate the performance of the services under the Contract. The Worker was not permitted to sub-contract her obligations under the contract without the prior approval of the Business, and there was no evidence that such approval was ever sought or obtained.

3. The Business controlled the work of the Worker in important ways. The Contract gave the Business the power to determine the quantity and nature of the services to be provided by the Worker as well as requiring the Worker to follow any lawful direction made by the Business as to the provision of those services. Assessed cumulatively, these provisions gave the Business legal control over what amount of work was to be performed by the Worker, what the nature of the work was to be, and how it was to be performed.

4. The Business had the legal right to, and did in practice, require the Worker to work exclusively for the Business. The Contract allowed the Worker to engage in other work provided that this did not conflict with her duties and responsibilities to the Business, however, it also required the Worker to give absolute priority to the provision of services to the Business under the contract over any other work or assignments. This provision, together with the capacity of the Business to require the Worker to provide a quantity of services amounting to full-time work, meant that the Business had the legal means to require exclusivity.

5. The payment system is indicative of the Worker being an employee rather than an independent contractor. The payments were made for the provision of the Worker’s personal labour, and not for the production of a result by whatever means the Worker selected. Accordingly, this is indicative of an employment relationship.

6. Finally, to a limited degree, the Worker presented herself to the patients as an emanation of the Business in that she had an the Business-branded name badge, business card, folder and paperwork and, at the time of the termination of her engagement, she had the Business uniforms on order. There was no countervailing evidence to the effect that she presented herself to the patients or the public at large as operating her own business.

Decision Overturned

There is one conclusion reached by the Commissioner which was disagreed on appeal.

At first instance, the Commissioner found that because the Worker, as a Registered Nurse, held a tertiary level qualification and exercised specialist skills, this “tends to favour the prospect of the engagement being a contracting relationship rather than employment”. The appeal bench determined this cannot be correct. The same proposition is true of all nurses, as well as other occupations such as teachers, engineers and lawyers, the large majority of whom work as employees. In the absence of evidence that the Worker performed her work as a nurse in a business of her own, the Full Bench consider that this must be treated as a neutral consideration. This conclusion is, of course, not one that favours the Business in its appeal.

Conclusion

In the Commission’s decision the degree of control which the Business had over the work, its capacity to require her to work exclusively for the Business, the system by which she was remunerated, her lack of capacity to subcontract or delegate her work, the lack of any evidence that the Worker ran a business on her own account, and her presentation as working in the Business’s business rather than her own, lead us to conclude that she was an employee of the Business. These are matters going to the substance of the relationship. The Worker’s conduct of her tax affairs and the fact that she held an ABN, charged GST (at the Business’s insistence) and rendered tax invoices are matters of lesser weight because they are merely consequential upon the contractual label given to the relationship – a label which arose because the Business required its nurses to contract with it on that basis.

The Commission did not agree with the Business’s submission that this conclusion is inconsistent with earlier decisions of the Commission. These types of cases each turn on their own set of facts, and as such the ability to draw broad inferences from earlier cases is limited.

Accordingly, the Commissioner’s initial conclusion was affirmed that the Worker was, at the time of her alleged dismissal, an employee of the Business and thus was a person protected from unfair dismissal. The Business’s appeal was dismissed.

If you have any questions in relation to the above, please do not hesitate to contact Nick Stevens, Luke Maroney or Daphne Klianis.

[1] Aster Home Nursing Service Pty Ltd v Peel [2020] FWCFB 6760 delivered 17 December 2020 per Hatcher VP, Mansini DP and McKinnon C.