FWC delivers another employee v independent contractor decision, post High Court ruling in Personnel Contracting
Background
The FWC has recently delivered a ruling involving an analysis of an employee v independent contractor relationship post the High Court’s landmark decisions of Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek) in this area last year.
This time in Sarah Mandelson v Invidia Foods Pty Ltd, Angelo Sperling, Richard Simiane [2023] FWC 50, the contract in question was not comprehensively recorded in writing, requiring the FWC to consider how the High Court’s principles for distinguishing between an employee and an independent contractor applied to other forms of contracts.
The Facts
The Applicant, Ms Mandelson, is the sole director of Sarric Pty Ltd (Sarric), which owned and operated Serendipity Ice Cream (Serendipity) in Sydney until 2021. Ms Mandelson decided to sell the Serendipity business to Invidia Foods Pty Ltd (Invidia) and they executed a business sale agreement (BSA) in February 2021.
The terms of the BSA included that a written employment agreement, in a form attached to the BSA, would be “entered into” between Ms Mandelson and Invidia. Both parties had completion obligations to deliver and execute the employment agreement. It was intended post-sale that Ms Mandelson be employed by Invidia on a part time basis to assist with finding new customers and continue brand and product development.
Invidia executed the employment agreement and provided it to Ms Mandelson however she did not ever execute it, or deliver it back to Invidia. Despite this, following completion, Ms Mandelson continued to work in the Serendipity business. She was not paid wages or provided with entitlements like annual leave by Invidia for the work she completed.
Over the period of 31 May 2021 to 31 January 2022, Sarric issued Invidia eight monthly tax invoices for the services provided and work performed by Ms Mandelson in the Serendipity business. These invoices referred to “Sarah Mandelson professional services: product development, administration, sales calls & meetings, etc”, or “consultancy”.
On 1 February 2022, Invidia advised Ms Mandelson that her “Consultancy to Invidia [is] to be cancelled immediately”. Consequently, Ms Mandelson brought a general protections application under section 365 of the Fair Work Act 2009, alleging that she had been unlawfully dismissed. The Respondents objected to the application on jurisdictional grounds, asserting that Ms Mandelson was not dismissed, because she was not an employee.
The issues before the FWC were:
whether or not there was a contract at all between Ms Mandelson and Invidia; and
if there was a contract between Ms Mandelson and Invidia, whether the relationship between the parties was one of employment, or independent contractor and principal.
Decision
There was found to be no employment agreement between the parties. While contractual terms were found to exist between Ms Mandelson and Invidia, the written employment agreement originally intended was never made, and the terms agreed in its place ultimately created an independent contractor/principal relationship rather than employment. For this reason, Ms Mandelson’s application was dismissed.
Reasoning
The employment agreement originally proposed was found not to be enforceable, given that Ms Mandelson never executed it and did not communicate her acceptance of the agreement in any way. The express terms of the BSA made it plainly clear that the employment agreement would not be “entered into” until it was formally executed and delivered up by both of the parties. Therefore, the FWC found that there was never a written employment agreement between Ms Mandelson and Invidia in relation to any work performed by Ms Mandelson in the Serendipity business.
It was however found that a contract existed between Indivia and Ms Mandelson personally relating to Ms Mandelson’s work, even though invoices for her work had only ever been issued by Sarric. Despite Individa’s submission that it had contracted with Sarric, it was held that the evidence did not suggest Invidia ever intended to do so, in the absence of Mandelson’s personal involvement.
Having identified the parties to the contract, the FWC then went on to consider what the terms of that contract were. It was acknowledged that since the decision in Personnel Contracting, the focus of an inquiry as to whether an individual is an employee or an independent contractor is now on the terms of the contract that were in fact agreed between the parties, rather than their subsequent conduct or questions of fairness.
Citing passages from Personnel Contracting as well as subsequent decisions of the Full Bench of the FWC, and the Full Federal Court, Deputy President Boyce highlighted a number of principles relevant to this assessment, including that:
unless some law provides otherwise, parties are free to contract as they see fit;
contracts in respect of employment and independent contracting are to be interpreted in the same way that contracts are generally interpreted under Australian law;
the “multifactorial approach” applied in the past now only has relevance in respect of the required assessment of the terms of the contract; and
the principles contained in Personnel Contracting apply whether a contract is wholly written, partly written and partly oral, or wholly oral.
Here, as the contract had not been reduced to writing, the terms of the parties’ agreement fell to be identified based on evidence produced by the parties about their communication and conduct. This included Ms Mandelson never being entered into Invidia’s payroll system, not accruing leave or other employment entitlements, having to organise her own superannuation contributions and using her own equipment for the work. Ms Mandelson and Invidia’s director each also gave differing accounts of conversations in which it was suggested by one or the other of them that Ms Mandelson could be engaged as a “consultant”.
Taking into account the evidence, Deputy President Boyce found the agreement contained the following terms:
Ms Mandelson was to issue tax invoices (through Sarric) for the work she performed;
Sarric was to be paid an annual sum of $80,000 plus super in 12 equal monthly instalments (for whatever work was performed by Ms Mandelson);
payments by Invidia to Sarric were not to include any amount for leave entitlements, and no provision would be made by Individa for leave;
payments by Invidia to Sarric were not to deduct any amounts in respect of PAYG income taxation;
Invidia itself was not to withhold or otherwise remit to a superannuation fund any amount on behalf of Ms Mandelson;
Ms Mandelson was to provide her own tools (e.g. laptop, mobile phone); and
Ms Mandelson would hold the title of CEO of Serendipity, being the same title she held for Serendipity prior to its sale to Invidia.
It was found that there were no express contractual terms specifying how, when and where Ms Mandelson was to perform her work. Evidence from her work diary concerning her conduct after the contract was formed was held to be admissible, but limited to objectively identifying the formation and terms of the contract.
Relevantly, the content of the work diary did not support the Applicant’s contentions that she was subject to a contractual term providing for direction and control by Invidia. Instead, it was held to be a term of the contract that Ms Mandelson would be engaged to be the face of and manage the business of Serendipity, and that in fulfilling that term of the contract, she was to utilise her skills, experience and expertise “under her own steam”, rather than work under Invidia’s direction and control.
Whilst she was required from time to time to liaise and confer with Invidia about some logistical and management matters of the Serendipity business, the FWC did not consider that was evidence that Invidia exercised a right of direction and/or control. Further, Ms Mandelson acknowledged that her work in the Serendipity business was simultaneously performed for both Invidia, and her own company Sarric.
Deputy President Boyce also considered evidence about the Applicant’s use of the label ‘consultancy’ in her communications, and rejected the ‘blanket’ approach followed in some decisions post Personnel Contracting and Jamsek that labels are irrelevant. Whilst a label is not determinative, the FWC noted that it can be considered as part of the factual matrix and may be relevant to issues such as credibility. Here, although it did not change the nature of the parties’ rights and obligations under the contract, the Applicant’s use of the label ‘consultancy’ weighed against her assertion that there was a common understanding between the parties that she was an employee.
Key Takeaways
Parties to employment or independent contracting relationships should be aware that if you do not enter into a comprehensive written agreement, there is much greater potential for dispute about the nature of your relationship. Significant time, energy and evidence may need to be devoted to identifying the terms of your contract, and therefore the nature of your relationship, in the event of dispute.
Comprehensive written contracts should be prepared, properly executed and exchanged by both parties at the start of your relationship, to ensure that the agreed terms can be readily identified, and relied on by both parties without uncertainty.
We also recommend obtaining legal advice from experienced workplace relations lawyers who understand the issues and factors involved, to ensure that the terms of your agreements accurately reflect your intention about the type of relationship being created.
Article prepared by:
Jim Babalis
Special Counsel
T 03 5225 5205
E jbabalis@ha.legal
Sonia McCabe
Senior Associate
T 03 5226 8558
E: smccabe@ha.legal
Matthew Synoradzki
Graduate Lawyer
T 03 5226 8542
E msynoradzki@ha.legal
