Do you still need a contract if you hired a ‘close friend’?

No written contract leads to confusion on whether worker is employee or not

Do you still need a contract if you hired a ‘close friend’?

The Federal Court of Australia recently dealt with a case involving an employer who contended that an alleged worker was not protected from an unfair dismissal case because he was not an employee of the company.

In its defense, the worker argued that there was no discussion as to whether he was treated as an employee or a contractor during his engagement with the company.

Informal work arrangement

According to the Court, the worker had been a close friend of the branch manager and the company's CEO for years.

The worker said that around October 2017, he had discussions with the company's branch manager about potentially working for them.

Moreover, in 2018, the worker said he had a conversation with the employer to discuss his "coming onboard" with the company.

Upon the commencement of his work, the worker argued that his role was primarily in generating sales, and he worked a standard business week of Monday to Friday from 8 am to 5 pm.

He further claimed that the company had control over his day-to-day activities. For example, around July 2019, he was instructed by the employer to stop working closely with the branch manager and that they should separate to give the business more "bang for buck."

As to his right to obtain other employment, the worker said he had a limited ability to work for others. Moreover, he had no means to delegate any of his work for the company to other staff.

More importantly, the worker said that at no stage was there a meeting as regards whether he would be an employee or a contractor. He also did not recall any discussion about superannuation, sick leave, or annual leave entitlements.

No standard business week

Meanwhile, the employer said that around January 2018, it met with the branch manager and the worker to discuss the latter taking up an engagement with the company as a contractor.

The employer argued that the worker was neither expected nor instructed to work a standard business week like any employee.

Moreover, it said that the company had no control over the worker's everyday activities as he was not told how he should achieve the sales targets, or directed on who he should visit.

The employer also noted that the work arrangement did not involve a contractual obligation on the worker to work particular hours or follow specific instructions from the company.

HRD previously reported about a case involving two "best mates" turned workmates turned rivalries due to an unfair dismissal case application.

Initially, the workers were getting along fine in the workplace. However, a misunderstanding of workplace arrangements involving commissions and abrupt dismissal ultimately broke down the workers' “best mate” relationship.

Court's decision

In deciding the case, the Federal Court noted that there was no existing contract for the parties involved as they were friends.

Instead, there were only informal arrangements between the worker and the employer. Hence, there was some confusion about the nature of the worker-employer relationship.

Considering the company's control over the worker's activities and the worker's inability to delegate the company works to others led the Court to the conclusion that the worker was an employee of the company.

Hence, the Court dismissed the employer's claim that the worker was ineligible for an unfair dismissal case.

"True it is that he [worker] was allowed to attend university and the gym during business hours and that [the CEO's] concern was with the level of sales, but his [worker] relationship has the hallmarks of full-time employment with some flexibility," the Court stated. "That is consistent with his [worker] role as a salesperson with sales targets."

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