The importance of characterising an employment relationship correctly

The Australian Industrial Relations Commission (AIRC) recently found that a worker who invoiced a company for book-keeping and other office duties and declined offers of employment was an employee rather than an independent contractor. The AIRC considered the substance of the worker’s relationship with the company and identified a number of factors which were indicative of an employment relationship. In rejecting the respondent’s submission that the employee was a contractor, the AIRC allowed the worker to proceed with an application for relief for failure to give paid notice of termination of employment.

The facts and decision

The decision of Jill Freestone v Morris & Partners (U2008/3970) concerned an application by Ms Jill Freestone (Freestone) for relief for the alleged failure of the Morris & Partners Pty Ltd (Company) to give paid notice of her termination of employment. The Company sought to have the application by Freestone dismissed on the basis that Freestone was not an employee of the Company. The Company made the submission that Freestone was not an employee on the grounds that Freestone:

  • issued invoices to the Company on a monthly basis via her registered business name which contained a reference to the effect that the GST has not been included as it was ‘below the threshold’,
  • did not supply her Tax File Number to the Company,
  • was also operating a number of businesses at the time she provided services to the Company,
  • was twice offered an employee position but declined, preferring to remain as a contractor,
  • decided her hours of work, which were not fixed,
  • was not supervised or subject to control by the Directors of the Company, and
  • decided her own hourly rate.

Commissioner Roberts, considering the nature of Freestone’s duties, concluded that Freestone was a part-time employee of the Company and considered the following factors which indicated Freestone was an employee of the Company:

  • Freestone did not have a separate place of work or advertise the type of services she supplied to the Company to the world at large,
  • Frestone worked under the direction primarily of her sister-in-law who operated the Company along with Freestone’s brother,
  • Freestone did not provide or maintain significant tools or equipment,
  • Freestone’s work could not be delegated or sub-contracted,
  • the Company exercised its right to dismiss her,
  • Freestone appeared to have been put forward by the Company as an employee of the Company,
  • Freestone was remunerated for hours of work (which was, on at least one occasion, increased at the initiative of the Company) not on completion of tasks, and
  • Freestone’s work did not involve a profession, trade or distinct calling.

Commissioner Roberts also considered the factors which indicated the relationship between Freestone and the Company was not an employment relationship. Although the Company was not entitled to the exclusive services of Freestone, this factor was considered not relevant given the part-time nature of Freestone’s work. Commissioner Roberts found that Freestone’s registered business name was treated by both parties as simply a vehicle for the payment of Freestone and considered the flexibility of Freestone’s working hours unsurprising given the Company was a family business.

Commissioner Roberts referred to the decision of Abdalla v Viewdaze Pty Ltd t/a Malta Travel (PR927971) in which it was noted that if the indicia of the relationship do not yield a clear result, the determination should be guided primarily by whether the individual in question was running his/her own business with independence in the conduct of his/her operations as distinct from operating as a representative of another business with little or no independence in the conduct of his/her operations. Commissioner Roberts found that Freestone’s work appeared to all intents and purposes to have been that of an employee and noted that the parties cannot deem their relationship to be something which it is not.

Lessons for employers

  • This decision serves as an important reminder to employers to carefully consider the nature of their relationship with their purported contractors to determine whether the worker is in substance an employee or an independent contractor. As this case demonstrated, characterisation of the working relationship is particularly important when making decisions in relation to termination. The incorrect characterisation of a working relationship may have implications in terms of:
  • termination claims
  • discrimination claims
  • the existence of an implied duty of good faith
  • vicarious liability
  • workers’ compensation claims
  • unpaid entitlement claims, including superannuation
  • taxation liabilities
  • awards and industrial agreement compliance, and
  • industrial matters.

Considering the potential risks associated with the incorrect characterisation of a working relationship, it is important that employers carefully review the terms of the contract under which work is performed to avoid the consequences of deeming a working relationship to be something which it is not.