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Limebite 05/24

Employer or independent contractor? The common law position when there is no written contract

Joel Zyngier
Authors:
Joel Zyngier, Neda Stijacic

In its recent decision of EFEX Group Pty Ltd v Bennett [2024] FCAFC 35 (EFEX), the Full Court of the Federal Court of Australia clarified how to determine whether a person is an employee in circumstances where they do not have a written contract. The decision is relevant to anyone engaging independent contractors. It is also relevant to interpreting any policy of insurance which refers to an ‘employee’.

Background

EFEX resulted from an unfair dismissal application by Mr Bennett to the Fair Work Commission (FWC). Mr Bennett had performed work for EFEX Group as a salesperson in the period from 1 February 2018 to 8 November 2019, without a written contract. When EFEX Group terminated the contract, Mr Bennett brought an unfair dismissal application before the Commission.

EFEX Group objected to his application on the grounds he was an independent contractor and not an employee. It contended the FWC lacked jurisdiction. A single Commissioner of the FWC, a Full Bench of the FWC and then a single judge of the Federal Court all found Mr Bennett was an employee and the FWC had jurisdiction to hear the unfair dismissal application.

Full Court decision

On appeal, the Full Court found Mr Bennett was not an employee. The Full Court’s decision provides the following guidance for characterising the relationship (as one of employment or not) where there is no written agreement. The primary task is to identify the parties’ contractual rights and obligations. Once this is done, characterising the relationship as one of employment or not often hinges on two considerations, each of which may involve questions of degree, namely:

  • the extent to which the putative employer has the right to control how, when and where the putative employee performs the work; and
  • the extent to which the putative employee can be seen to be working in their own business as distinct from the putative employer’s business.

If there is no written contract and no evidence of a particular conversation during which the contract was made, inferences about the parties’ agreed contractual rights and obligations must be drawn from evidence of the parties’ conduct. However, the focus is still on ascertaining the legal rights and obligations of the contracting parties, rather than how they behaved in the performance of their contract. Post-contractual conduct will only be relevant if it demonstrates the rights and duties established by the parties’ contract.

In examining the parties’ conduct to discern the contractual terms, the Full Court found Mr Bennett had almost complete freedom under the arrangements between Mr Bennett and EFEX Group. The Court found Mr Bennett:

  • was not required to devote all his time and activities during working hours to the performance of his duties for EFEX Group
  • was not required to keep a record, or provide EFEX Group with a report, of the hours he worked
  • was not given directions about how to carry out his tasks
  • had the freedom to decide when and where he would meet clients or prospective clients
  • was not required to attend the office except for fortnightly meetings with specific staff members
  • had free reign about how to achieve sales
  • was not required to seek approval from EFEX Group to attend private appointments, and could do exercise or attend university during business hours without seeking permission and
  • had set up a trust for the purpose of commencing work under the contract with EFEX Group and to receive payment for his services, benefitting accordingly from the tax arrangements.

Implications for employers/principals and insurers

Employers/principals should use a clear and well-drafted written agreement when engaging an independent contractor, to avoid the ambiguity and confusion encountered in EFEX. To reduce risk, the contract and the parties’ performance of the contract should be consistent with the forthcoming new definition of ‘employee’ under the Fair Work Act 2009 (Cth) (Fair Work Act). See our article here.

The principles for characterisation of a relationship as one of employment (or not) discussed in EFEX will continue to be relevant after the FW Act is amended. This is because the common law meaning will still apply to other legislation and to any contracts which refer to employees, including policies of insurance. In this regard, insurers and insured will continue to use the common law definition of ‘employee’ when assessing whether a person is an employee for the purposes of the policy (unless the policy contains its own definition of ‘employee’). Where a putative employee does not have a written contract, interpretation should have regard to the principles established in EFEX.

Please contact our Workplace law/EPL team if you have any questions about the above topic, require assistance with independent contractor agreements or need help with any other Workplace law or EPL matter.

This publication constitutes a summary of the information of the subject matter covered. This information is not intended to be nor should it be relied upon as legal or any other type of professional advice. For further information in relation to this subject matter please contact the author.