In unfair dismissal application, FWC checks if employer had 'contractual control'
The Fair Work Commission (FWC) recently dealt with an unfair dismissal application filed by a worker who alleged that he was unfairly dismissed from his employment.
The employer raised a jurisdictional objection, arguing that the worker was not an employee and therefore could not bring an unfair dismissal claim under the Fair Work Act.
In this case, the parties had a complex and unclear working relationship that evolved over time. The FWC had to carefully examine the evidence and submissions to determine the true nature of their arrangement and whether an employment relationship existed at the relevant time.
The decision highlighted the importance of clearly defining roles and documenting agreements to avoid disputes and legal ambiguity.
From potential business partner to employee?
The alleged worker and alleged employer were friends who originally discussed the worker buying into the employer's franchise.
In July 2022, the worker started working at the franchise for a trial period to assess the business. By September 2023, he had paid $115,000 for a 50% share in the business, becoming a co-owner.
However, the arrangement was not documented in writing, and the parties had different recollections of events and conversations.
The worker argued that “his tax return was completed by [the employer’s] accountant.” He also showed an excerpt of his tax return, which showed: “(a) his main salary and wage occupation was a General Manager; (b) he received $27,205 as allowances; (c) no tax was withheld from this amount; and (d) there were work-related deductions made for laundry, safety shoes, uniforms, stationery, mobile phone and internet.”
Profit-sharing and unclear expectations
According to the employer, as co-owners, they agreed to share profits based on the franchise's weekly performance.
The worker received intermittent payments of varying amounts, which the employer claimed were in line with their partnership agreement. However, the worker argued that the payments were inconsistent and that he had to repeatedly ask for money.
The FWC found that "A further term of the agreement was that any profit made by the [franchise] would be shared between [the parties].”
In March 2023, the worker formally sold his shares back to the employer, with the understanding that he would be paid the value of the shares after the business was sold.
The worker claimed that the employer then asked him to continue working as an employee, which the employer denied.
The FWC observed that "[the worker’s] evidence is that in his discussions with [the employer] to divest his shares, [the latter] asked him to continue working as an employee.” The employer, on the other hand, denied this.
Absence of clear evidence and documentation
Throughout the proceedings, the FWC said that both parties provided conflicting evidence and lacked clear documentation to support their claims.
There were no written contracts, payslips, or other records definitively establishing an employment relationship.
As the FWC noted, "[The parties] did not sign any agreement or contract regarding this arrangement. [The employer] suggested during the determinative conference that [the worker] had written down the amounts of money involved in [him] buying into the business. However, [the worker] did not confirm this and neither produced any documentation to this effect."
Clarity in business relationships
The worker said that he “must be an employee as he performed work for the [employer], and he was not a business partner.” He said that “after he divested himself of his shares in the business in March 2023, [the employer] verbally asked him to work as an employee, and he agreed.”
[The worker] further argued, “that he did not receive the same share of the profits as [employer]; therefore, he cannot be a business partner and thus must be an employee.”
On the other hand, the employer said that “[the worker] was a business partner, not an employee.” It said that [the worker] “received money based on the profits of the business and was involved in high-level decisions of the business. [The employer] that there was never any conversation where [worker] was asked to work as an employee.”
Employer’s ‘contractual control’
In its decision, the FWC said that “properly characterised, [the worker’s] contract was not a contract of employment.”
“[He] was not under the [employer’s] contractual control as to how, when and where he worked. [He] did have a vested interest in working at the franchise as his payments were contingent on the franchise operating profitably and selling well, but this does not translate to [him] being bound contractually to work for the [employer],” the FWC said.
“[He] continued to work for the [employer] because it benefited him under the contract between the parties, and [he] also wanted to keep an eye on his investment,” it added.
Unfair dismissal application dismissed
After carefully considering the evidence and submissions, the FWC found that the worker was not an employee of the employer. The unfair dismissal application was therefore dismissed due to lack of jurisdiction.
The decision emphasised the importance of clearly defining roles, responsibilities, and expectations in business relationships, especially when they involve profit-sharing or ownership stakes.
The FWC added that "regardless of whether a contract is written or oral (in whole or in part), the characterisation of the relationship between the parties depends on their contractual rights. It does not depend on circumstances, facts or events that do not affect those rights." Consequently, it dismissed the worker’s application.
