Looks like an employ­ee, works like an employ­ee, behaves like an employ­ee… but they could be a contractor

Since the Hol­lis v Vabu (​‘Vabu’) deci­sion in 2001, the courts and the Fair Work Com­mis­sion (‘FWC’) have applied a holis­tic assess­ment in deter­min­ing whether the rela­tion­ship between a busi­ness and its work­er is an employ­ment rela­tion­ship or a con­trac­tor engagement. 

How­ev­er, in 2022, the High Court deci­sions of Per­son­nel Con­tract­ing and Jam­sek threw out what had become sec­ond nature to the courts when pre­sent­ed with this dilem­ma. Courts have since stopped apply­ing the ​‘looks like a duck, quacks like a duck’ approach, and are less swayed by the char­ac­ter­is­tics and sub­stance of the work­ing rela­tion­ship between two par­ties. Even if the sub­stance of a rela­tion­ship indi­cates some­thing dif­fer­ent, courts will focus pri­mar­i­ly on the (hope­ful­ly) com­pre­hen­sive writ­ten terms of the con­tract between par­ties, to which they have agreed to be bound, in order to deter­mine whether a par­tic­u­lar work­er should be clas­si­fied as an employ­ee or as a contractor. 

Deliv­eroo Aus­tralia Pty Ltd v Diego Fran­co [2022] FWCFB 156 (‘Diego’)

Back­ground

Gig econ­o­my work­er Diego Fran­co com­menced work­ing as a deliv­ery dri­ver for Deliv­eroo Aus­tralia Pty Ltd (‘Deliv­eroo’) in 2017. In 2020, Deliv­eroo ter­mi­nat­ed Mr Fran­co’s engage­ment with­out warn­ing due to his slow deliv­ery times. When Mr Fran­co made an unfair dis­missal appli­ca­tion to the FWC, Deliv­eroo argued that he was engaged as a con­trac­tor, not an employ­ee, and was there­fore inel­i­gi­ble to bring such a claim. 

Deci­sion at first instance

Apply­ing the mul­ti-fac­to­r­i­al approach from Vabu the FWC first assessed the char­ac­ter­is­tics of the rela­tion­ship and found that in sub­stance Mr Fran­co was an employ­ee of Deliv­eroo. There­fore, he was pro­tect­ed from unfair dis­missal for the pur­pos­es of sec­tion 382(a) of the Fair Work Act and Deliv­eroo’s dis­missal of Mr Fran­co was held to be unfair on the basis that it was harsh and unreasonable. 

The Appeal

Deliv­eroo then lodged an appeal. How­ev­er, both Per­son­nel Con­tract­ing and Jam­sek were pend­ing judg­ment at the time the appeal was lodged so the hear­ing was stayed until the High Court issued those decisions.

Fol­low­ing the two rul­ings, the FWC heard the appeal. Con­sis­tent with the approach tak­en in Per­son­nel Con­tract­ing and Jam­sek the FWC con­sid­ered the terms of the writ­ten agree­ment between Mr Fran­co and Deliv­eroo. As demon­strat­ed by the High Court judg­ments, it is not the case that the char­ac­ter­is­tics of the rela­tion­ship will be entire­ly ignored, or that the mul­ti-fac­to­r­i­al approach should be entire­ly dis­re­gard­ed. The mul­ti-fac­to­r­i­al assess­ment and a con­sid­er­a­tion of the sub­se­quent con­duct of the par­ties through­out the rela­tion­ship is rel­e­vant in ​‘test­ing’ the terms of the con­tract (and any vari­a­tions) were enforced by the parties. 

One pre­dom­i­nant fac­tor to con­sid­er when attempt­ing to deter­mine whether a work­er is an employ­ee or a con­trac­tor, is the lev­el of con­trol exert­ed by the ​“employ­er” or busi­ness over the con­trac­tor. The com­pli­ca­tion in assess­ing both the terms of the con­tract and the con­duct of the par­ties togeth­er, as dis­cov­ered by the FWC in Diego, is that the con­trol fac­tor (i.e. the lack of it) for a con­trac­tor often resem­bles the lack of con­trol an employ­er can exert over a casu­al work­er. Ulti­mate­ly, it was the degree of free­dom afford­ed to Mr Fran­co, as opposed to a hypo­thet­i­cal casu­al employ­ee, which pushed him fur­ther towards the cat­e­go­ry of an inde­pen­dent con­trac­tor (as opposed to an employee). 

In the judg­ment, as required, the FWC con­sid­ered that it would be in the pub­lic inter­est to grant per­mis­sion to the appeal, giv­en that the find­ing of whether Mr Fran­co was an employ­ee or con­trac­tor would have wide­spread effect on the gig econ­o­my. This reflects the sig­nif­i­cance of the issue. 

Sec­re­tary, Attor­ney-Gen­er­al’s Depart­ment v O’D­wyer [2022] FCA 1183 (‘O’D­wyer’)

The first instance deci­sion of Diego is not the only deci­sion which has been over­turned fol­low­ing Per­son­nel Con­tract­ing and Jam­sek.

The Fed­er­al Court in O’D­wyer was also faced with the task of deter­min­ing whether a work­er was an employ­ee or a con­trac­tor, with that deter­mi­na­tion being rel­e­vant to the out­come of a claim under the Fair Enti­tle­ments Guar­an­tee Act (FEG Act), made by a broth­er of the work­er in question. 

Back­ground

Bryan O’D­wyer, was a direc­tor of Ralan Prop­er­ty Ser­vices Pty Ltd (the Com­pa­ny), which went into vol­un­tary admin­is­tra­tion. His broth­er, Robert O’D­wyer, was an employ­ee of the Com­pa­ny. Robert sub­mit­ted a claim seek­ing finan­cial assis­tance under the FEG Act.

The sec­re­tary of the Attor­ney-Gen­er­al’s Depart­ment denied Robert’s claim on the basis that he was the rel­a­tive of an employ­ee who was a direc­tor of the Com­pa­ny. As such, Robert was con­sid­ered an exclud­ed employ­ee for the pur­pose of s11(1) of the FEG Act and s556(2)(c) of the Cor­po­ra­tions Act.

The mat­ter was then esca­lat­ed to the Admin­is­tra­tive Appeals Tri­bunal for review, which applied Vabu to deter­mine whether Bryan was employed in the role of direc­tor or whether he was ful­fill­ing that role as a con­trac­tor. The Tri­bunal found that Bryan was a con­trac­tor rather than an employ­ee, and as such, Robert was not an exclud­ed employ­ee (as he was not relat­ed to an employee). 

The Appeal

Fol­low­ing the rev­o­lu­tion­ary deci­sions of Per­son­nel Con­tract­ing and Jam­sek, the sec­re­tary of the Attor­ney-Gen­er­al’s depart­ment appealed to the Fed­er­al Court, claim­ing that the Tri­bunal erred by apply­ing Vabu in mak­ing its determination. 

Jus­tice Good­man of the Fed­er­al Court con­firmed that, in light of the High Court deci­sions, the mul­ti-fac­to­r­i­al approach is no longer the appro­pri­ate test to apply. 

Despite there only being an oral con­tract between Bryan and the Com­pa­ny, his Hon­our held that the new com­mon law prin­ci­ples derived from Per­son­nel Con­tract­ing and Jam­sek should apply (irre­spec­tive of the form of con­tract, being an oral con­tract, in place).

The Fed­er­al Court con­sid­ered the terms of the oral con­tract and allowed the appeal. Jus­tice Good­man set aside the orig­i­nal deci­sion and remit­ted the mat­ter to the Tri­bunal for rede­ter­mi­na­tion using the Per­son­nel Con­tract­ing and Jam­sek prin­ci­ples.

Con­clud­ing remarks

The deci­sions of Diego and O’D­wyer demon­strate that the courts will, as they are required to do, con­tin­ue to apply the new com­mon law prin­ci­ples of Per­son­nel Con­tract­ing and Jam­sek. Although the prin­ci­ples of Vabu are not for­got­ten, the deci­sions illus­trate that it is more cru­cial now than ever to ensure that organ­i­sa­tions have in place care­ful­ly con­sid­ered, tai­lored agree­ments between them­selves and their work­ers which clear­ly and com­pre­hen­sive­ly set out the expec­ta­tions and inten­tions of the par­ties to the contract. 

A ​‘one size fits all’ approach to employ­ment agree­ments and inde­pen­dent con­trac­tor agree­ments will not suf­fice in pro­tect­ing the inter­ests of busi­ness­es and workers.