In February we wrote to you outlining that the Fair Work Ombudsman (FWO) had initiated court action in response to complaints by a store operator and business member (Ms Wardale) that she was, in substance, an employee of an Ecosway Pty Ltd (Ecosway) and therefore entitled to minimum wage, annual leave and other employee entitlements. Please click here to view a copy of our previous Alert. 

The Federal Court of Australia has recently heard the matter and held that Ms Wardale was not an employee of Ecosway. This Court’s ruling is another example that highlights the fundamental importance of having a clear written agreement with distributors, consultants or other sales people that are intended to be engage on an independent basis. Further details of the case are outlined below.

Ecosway is the Australian subsidiary of a multi-national MLM business that sells and distributes a range of health care, nutrition, beauty and related products through a network of store operators and business members. Ms Wardale was responsible “in every respect” for running two retail shops for Ecosway. Ms Wardale’s tasks included, amongst other things, opening and closing the store, ordering and displaying products, conducting stocktakes, selling products to customers, banking proceeds in Ecosway’s bank account, providing regular sales reports to Ecosway and cleaning the store. The FWO was seeking a range of declarations and the imposition of substantial financial penalties for the alleged failure of Ecosway to provide minimum terms and conditions of employment, and for allegedly engaging in sham contracting in breach of the Act.

The Court held that while there were factors that pointed to Ms Wardale being an employee, many of those factors were necessary incidents of the MLM system operated by Ecosway and none were consistent only with Ms Wardale being an employee. Rather, the Court placed significant importance on certain terms of the contract between Ms Wardale and Ecosway in determining that Ms Wardale was not an employee. Specifically, the Court outlined several factors which were inconsistent with an employment relationship, including that:

  • there were numerous provisions in Ms Wardale’s contract which would not have been necessary at all if Ms Wardale was an employee;
  • Ms Wardale undertook a number of risks and liabilities which extended beyond those of an ordinary employee; and
  • it was accepted in Ms Wardale’s role that she was an independent contractor.

In our opinion, the determination by the Court that Ms Wardale was not an employee is a favourable application of the generally accepted principles in respect of employment relationships, but may also be limited to the specific facts of this case. However, the determination is a timely reminder that independent contractor agreements should be reviewed regularly to ensure they comply with the law and generally reflect the intended arrangements.