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Sham slam


Commission applies test confirmed by High Court in distinguishing between employee and contractor

In a recent decision, the Fair Work Commission has applied the test recently confirmed by the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, in distinguishing between employees and contractors.

In a recent decision, the Fair Work Commission (FWC) has applied the test recently confirmed by the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (the High Court Decisions), in distinguishing between employees and contractors.

The High Court Decisions confirmed that the distinction must be made by reference to the rights and obligations of the parties under the contract.

In Chambers; O’Brien v Broadway Homes Pty Ltd [2022] FWC, the FWC was required to consider applications for unfair dismissal and general protections filed by the Director of a contracting company, Jamrok Pty Ltd (Jamrok), and her son, a Sales Manager, against Broadway Homes Pty Ltd (Broadway).

Broadway objected to both applications on the ground that the Director and Sales Manager (collectively, the workers) were not employees of Broadway and were instead agents of Jamrok, a company it had engaged as a contractor to sell building contracts on its behalf.

The relationship was pursuant to a written agreement between Broadway and the Sales Manager, a “Consultant” of Jamrok (the Agreement).

Broadway submitted that the Sales Manager performed work in his capacity as a consultant of Jamrok and the Director also performed work pursuant to this Agreement.

The workers claimed that it was not until the termination of the Agreement, and their alleged dismissal, that they realised it was a sham and they were in fact employees of Broadway. The Sales Manager claimed that the Agreement was actually a contract of employment with Broadway. The Director similarly claimed that she worked under the guise that she had a similar agreement in place.

The workers submitted that the Agreement enabled Broadway to exercise a level of control of their work, for example they were required to attend open display homes, wear Broadway branded polo shirts, use a Broadway email address and business card, and attend weekly sales meetings and social functions.

Broadway’s position was that, while the Agreement enabled it to exercise some control over the workers, the conduct of the parties established a relationship of principal and contractor, for example:

  • Commission and bonuses earned by the workers were subject to invoices created by Broadway and paid to Jamrok.
  • The commission payments were calculated by the joint sales of the workers, with no distinction made between the work of the Director and Sales Manager.
  • At times, Jamrok invoiced Broadway for commission when the workers had been involved in the sale of a particular building contract.
  • Broadway did not pay any commission, salary or employee entitlements to the personal accounts of the workers.
  • Jamrok paid a salary to the Sales Manager, made provision for PAYG tax, paid GST and took advantage tax benefits.

Citing the High Court Decisions, the FWC found that, on a proper reading of the Agreement, Jamrok provided services for Broadway for which it received payment, being evidence of a contractor and principal relationship, and the Agreement was therefore not a sham.

The FWC stated that this was reinforced by the subsequent conduct of the parties which showed that Jamrok enjoyed the benefits of operating as a contractor, such as receiving commission payments per the Agreement and enjoying tax and other financial benefits.

The FWC found this to be the case despite the Agreement not including terms which would indicate the workers were contractors, such as “agent, principal, contractor, delegation, nominated agent or even independent” or explicitly stating that it was not an employment contract.

Turning then to the parties to the contract, the FWC accepted Broadway’s evidence and found that the Sales Manager, and by virtue the Director, were not party to the Agreement. Instead, it was a contract between Jamrok and Broadway and the workers performed the work on behalf of Jamrok.

The FWC referred to the rights and obligations under the Agreement in determining that Broadway exercised little control as to when, where and how the Sales Manager performed his core work. Similarly, the Director was not required to record attendance on hours and other than opening homes, she “worked as little or as much as she liked, whenever or wherever she liked”.

The FWC was satisfied that neither the Agreement nor any other contract, written or otherwise, suggested that they were employees of Broadway and accordingly dismissed the workers’ applications.

Lessons for employers

This decision reinforces the High Court position that regard must be had to the rights and obligations of the parties under a contract to determine whether or not a person is an employee or contractor.

The rights and obligations of the parties must therefore be clearly set out in a written contract and accurately reflected in the reality of the relationship to avoid potential allegations of sham contracting or uncertainty.

Information provided in this update is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this update, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

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