In a recent Fair Work Commission decision, Commissioner Ryan had to deal with an employee who under the “elephant” and “duck” tests was certainly not an independent contractor and whose conduct subsequent to entering into a settlement agreement frustrated the employer’s obligation under that agreement to reinstate him.

Implications for employers

This case confirms the importance of employers properly understanding the difference between an employee and an independent contractor.

It also reiterates the binding nature of settlement agreements and clarifies that where a party frustrates part of the arrangement made under a settlement agreement, they may nevertheless be held to the balance of the agreement.

Background: relevant law

Most, but not all, employees are eligible to bring an unfair dismissal claim under the Fair Work Act 2009 (Cth) (FW Act) if their employment is terminated. Relevantly for present purposes, employees who are in their “minimum employment period” (6 months for employers with 15 or more employees; 12 months for employers with fewer than 15 employees) are ineligible to make such claims. Independent contractors are not employees and are not eligible to make unfair dismissal claims.

Background: facts

Mr Gautam was dismissed as an employee of Tyrepower and brought an unfair dismissal application. A settlement was reached at conciliation under which Tyrepower agreed to pay Mr Gautam three weeks’ pay and to re-employ him. A settlement deed was signed reflecting these terms.

Following the conciliation, conflict between the parties escalated. Mr Gautam made a number of harassing phone calls to Tyrepower’s staff. Mr Gautam also reported the business to WorkSafe Victoria and the Department of Immigration and Citizenship. The business was subsequently investigated by WorkSafe, who concluded that Mr Gautam’s complaint was unfounded.

In response to Mr Gautam’s conduct, the relevant Tyrepower manager (Mr Dormans) issued a summons to obtain an interim intervention order against Mr Gautam to prevent Mr Gautam from contacting him. Meanwhile, a director of the business (Mr Hayes) went to Mr Gautam’s new workplace to warn him against further contact with Tyrepower’s staff.

Mr Gautam then made a formal complaint to the police alleging that Mr Dorman had threatened to kill him. Mr Dorman was arrested and interviewed but released without charge. Mr Gautam also sought intervention orders against both Mr Dorman and Mr Hayes.

The parties attended mediation and agreed that none of the three would contact each other directly.

Tyrepower paid Mr Gautam the agreed three weeks’ pay. However, it decided it was no longer appropriate to reinstate Mr Gautam. On that basis, Mr Gautam argued that because Tyrepower had failed to comply with the term of the settlement agreement requiring his reinstatement, he was not bound by the settlement agreement and could progress his unfair dismissal claim.

Decision

Commissioner Ryan had to consider two issues:

  • whether Mr Gautam was eligible to bring an unfair dismissal claim at all; and
  • even if he was so eligible, was he barred from pursuing the claim due to the operation of the settlement agreement?

Was Mr Gautam eligible to bring an unfair dismissal claim?

Tyrepower argued that:

  • Mr Gautam had been an independent contractor for the first part of his employment; and
  • while he had been an employee at the time of his dismissal, his length of service as an employee prior to termination was only 20 days, so he was within the minimum employment period and ineligible to bring an unfair dismissal claim.

Mr Gautam argued that he was an employee at all times.

Commissioner Ryan found in favour of Mr Gautam. He noted that in cases where the relationship is unclear, there is a need to carefully examine the range of indicia to help answer this question. However, he said the “elephant” or “duck” test can be appropriate where the relationship is very clear:

The elephant test is simple: “an animal too difficult to define but easy to recognise when you see it”! The duck test is similar: if it quacks like a duck and waddles like a duck, it’s most likely a duck!

Commissioner Ryan considered the facts as to the indicators of the relationship and concluded that Mr Gautam had been an employee from the beginning of working with Tyrepower. To call him an independent contractor was “the same as calling a duck a rooster”. In particular, Commissioner Ryan noted that the only indicators that the relationship was a contracting one were that:

  • Mr Gautam was paid at a higher rate than “employees” performing the same work; and
  • Tyrepower contended that all of its non-permanent full time staff were contractors.

On the other hand, a range of factors indicated the relationship was truly an employment one:

  • Mr Gautam was required to wear a shirt with a Tyrepower logo while performing work;
  • the allocation of work was controlled by Tyrepower;
  • Mr Gautam worked interchangeably with employees performing the same work;
  • Mr Gautam did not have an ABN or any other attribute of conducting his own business;
  • Mr Gautam did not prepare invoices for his work and Tyrepower in fact prepared invoices for Mr Gautam to provide to Tyrepower: “This is very suggestive of a contrived arrangement for the benefit of and at the initiative of [Tyrepower]”;
  • it appeared necessary equipment was supplied by Tyrepower, not Mr Gautam; and
  • Mr Gautam’s fluctuating working hours were at the demand or request of Tyrepower and suggested the reality was casual employment relationship.

Mr Gautam was therefore eligible to bring his unfair dismissal claim.

Did the settlement deed prevent Mr Gautam pursuing his claim further?

Commissioner Ryan next considered whether the settlement deed barred Mr Gautam from pursuing his claim further. He noted that where there is a binding settlement agreement reached between the parties, it is proper to hold the parties to their agreement.

However, in this case, Mr Gautam’s inappropriate conduct in harassing other staff and making unjustified complaints following conclusion of the agreement had frustrated the term of the agreement which required his employer to reinstate him. He was effectively prevented by the interim intervention order from returning to work and that order had been brought about by Mr Gautam’s behaviour. It was impossible to give effect to the term of the deed requiring reinstatement. The remaining terms of the deed had been complied with by Tyrepower and Mr Gautam had received three weeks’ pay.

In the circumstances, Mr Gautam’s claim was dismissed on the basis that there was a binding settlement agreement in place.