Company argues that the consultant was not an employee and therefore, not dismissed
The Fair Work Commission (FWC) examined whether a consultant was an employee after his engagement was terminated by an automotive group that had purchased his business under a business sale agreement.
The consultant entered into a consultancy agreement as a condition of the business sale, which operated for nearly two years before termination. The automotive group raised a jurisdictional objection that the consultant was not an employee and therefore not dismissed within the meaning of the Act.
The consultant claimed he was effectively engaged and treated as an employee on a salary despite the consultancy agreement terms.
Business sale agreement included earn out arrangements
The automotive group acquired the consultant's importing business which consisted of an importing operation and sub-distribution business with major tyre suppliers.
The acquisition was completed with earn out arrangements under which a combination of cash payments and shares in the automotive group were provided to the consultant's family business subject to defined performance criteria. The earn out period was for twelve months following completion of the sale.
Separate negotiations were conducted to develop the terms of the consultancy agreement, which was required as a condition of the business sale agreement. The services to be provided under the consultancy agreement were management, transition and consultancy services in relation to operating and growing the acquired business.
The consultancy agreement, which was expressed to operate for three years, included requirements that the consultant provide services five days per week on normal business days based on forty-eight weeks per year, allowing for four weeks' holidays per year.
Consultant invoiced through separate entity for services
The consultancy agreement provided that the consultant was required to provide invoices on a monthly basis, which the automotive group was required to pay within thirty days.
An agreed weekly payment was specified exclusive of GST which was for an average of eight hours per day and forty hours per week to be paid fifty-two weeks per year. The automotive group would reimburse the consultant for reasonable expenses incurred.
The consultant's engagement under the agreement could be terminated with notice at any time after completion, with varying notice periods in different years, or by making a payment in lieu of notice equivalent to the fees that would have been received had the notice period been worked out.
The agreement included acknowledgement that the consultant would provide services as an independent contractor and that nothing in the agreement constituted a relationship of employer and employee.
Consultant worked from home throughout engagement
The consultant stated that for the whole of his engagement with the automotive group, he worked twelve to fourteen hours per day and five to six days per week.
He stated his hours of work were aligned with the business hours of the automotive group, generally beginning early each day and formally ending in the evening, although he said he would regularly continue working until late. He stated these were the same hours he worked during his employment with his previous business.
The consultant stated that following completion of the sale, he was primarily directed to continue operating the acquired business in the same manner he had when he was chief executive.
He further stated that he had general operational freedom but was subject to direction from the automotive group at times in the manner of operating the business, including directions to reduce holdings of particular stock or to stop ordering particular stock.
Consultant given title in stock exchange release
The consultant stated he was referred to as operations manager in an email from a general manager and was issued with printed business cards reflecting the operations manager title.
He stated he was referred to in a stock exchange release as a key executive in the division, taking on the role of operations manager.
He stated he was at no stage during his engagement described to staff, vendors and suppliers as other than an employee of the automotive group and that only a select few employees were aware of his consultant status.
During cross-examination, the consultant agreed that the stock exchange release did not state he was an employee and while he did have discussions with the automotive group after that announcement about taking on a role, those discussions did not lead to a formal offer of employment.
The chief executive confirmed that he and the board approved the stock exchange release, but disputed that the consultant was held out as an executive. He accepted, however, that a reasonable person might have assumed the consultant held that role based on the various communications.
Automotive group paid vehicle and phone expenses
The consultant stated he used his own personal car when performing work; however, the automotive group provided a fuel card, electronic tag, paid for the registration, servicing and maintenance of the vehicle and the vehicle was covered by the automotive group's fleet insurance plan.
He said he used his own mobile phone when performing work, with his phone bill being paid for by the automotive group while he was engaged. He stated he was supplied with a laptop and had all of his stationery, tea and coffee paid for by the automotive group.
The chief executive maintained during cross-examination that the automotive group was unaware that it had continued to pay for the consultant's motor vehicle and phone expenses after the earn out period.
He confirmed that the automotive group ceased to pay for those expenses after the earn out period when it became aware of them. The chief executive stated he was unaware that the automotive group was incurring the costs of the consultant's vehicle registration, fuel, maintenance and electronic tag, noting that such expenditure was inconsistent with the consultancy agreement.
Consultant continued operating online business
The automotive group stated that the consultant retained an e-commerce business, which continued to trade after completion of the sale, selling to and purchasing products from the automotive group.
To facilitate this, the automotive group allowed the consultant to use a section of the warehouse for the online business and was also supplied by the automotive group with two staff who would work in that business picking, packing and shipping.
The consultant agreed during cross-examination that the business sale agreement allowed him to continue running the online business which he did, contending it largely ran itself, although he accepted that the automotive group allowed him to use some of its leased warehouse space and two employees for picking, packing and shipping.
The chief executive stated that the independent contractor arrangements allowed the consultant the flexibility to manage those other interests, claiming the online business was a significant operation conducted both before and after completion of the sale.
FWC determines commercial arrangements support contractor finding
The FWC stated it was patently clear that the interdependence of the business sale agreement and consultancy agreement presented potential commercial risk and reward for the consultant.
The FWC noted that was evident by the payments the consultant's family business was contractually entitled to receive, the quantum of certain payments being linked to the financial performance of the acquired business during the earn out period.
During that period, the consultant was largely free to continue running the acquired business as an independent operation with clear incentive to maximise earn out payments.
The FWC stated the consultancy agreement was not a normal contractual arrangement in the sense that the consultant was not simply engaged to deliver a defined service for an agreed payment.
The FWC noted that while the regular monthly payments might arguably support the existence of an employment arrangement, to view it so narrowly ignored the related and more fundamental element of the engagement—the terms of the business sale agreement.
The FWC concluded the nature of those commercial arrangements, particularly as they applied to the earn out period, strongly supported a finding that the consultant was an independent contractor.
FWC concludes consultant was independent contractor
The FWC stated there were some factors that pointed to the automotive group having a right to control the consultant's performance of work, including the inability to delegate or sub-contract the work.
The FWC noted balanced against these factors were a number of matters that told in favour of the automotive group exercising limited control, including the commercial arrangements and the largely independent manner in which the consultant was able to operate the acquired business during the earn out period.
The FWC determined the most compelling factors pointing to independent contractor status were the explicit terms in both agreements that identified the consultant as a contractor, the strong commercial driver to maximise payments based on business performance during the earn out period, the limited practical control exerted allowing work from home without accounting for hours or seeking leave approval, and the manner in which the consultant arranged his business and taxation affairs consistent with an independent contractor.
The FWC stated it did not consider that the relationship, when looked at in its totality, contained the essential features that would ordinarily characterise an employment relationship.
The FWC concluded that the weight of the matters considered led it to conclude that the consultant was not an employee and was, in fact, carrying on a business of his own.
The FWC stated it necessarily followed that the consultant was not an employee, was not dismissed within the meaning of the Act and was therefore unable to make a general protections dismissal dispute application, dismissing the application.
