Does a change in working arrangement also change employment status?

Employee or contractor: FWC looks into accountant's relationship with alleged employer

Does a change in working arrangement also change employment status?

The Fair Work Commission (FWC) recently dealt with an unfair dismissal application lodged by a worker who claimed that she was an employee of the business she worked for.

The business objected to the application, arguing that the worker was an independent contractor and therefore could not have been dismissed under the Fair Work Act 2009 (Cth) (the Act).

The case serves as a reminder for both workers and employers to carefully consider the nature of their working arrangements and the potential implications for their rights and obligations under the law.

Background of the case

The worker was a qualified certified practising accountant who had initially been employed by a related entity of the employer from 23 November 2015 until 24 May 2018.

During this period, she was subject to a written contract of employment and worked under the direction and control of the employer and its managing director. Her responsibilities included looking after the company accounts, payroll, insurance, and financials.

According to records, she worked full-time in the office and reported to the managing director and the administration manager.

In 2017, the worker's arrangement changed, allowing her to work three days in the office and two days from home. On 25 May 2018, at the worker's request, the working arrangement changed again, and she began providing services to the employer as a sole trader.

The purpose of this change was to allow the worker greater control over her hours and working arrangements, as well as to potentially earn more by altering the basis upon which she was paid and taxed.

The worker's hourly rate increased by approximately 10% to compensate for the loss of superannuation and other entitlements, and she became entitled to claim a wider range of tax deductions.

The parties' arguments

The worker argued that despite the change in her working arrangement, she remained an employee of the business and was therefore entitled to bring an unfair dismissal claim under the Act.

She relied on factors such as the continuity of her work, the employer's provision of certain resources and expenses, and the ongoing nature of her relationship with the business.

On the other hand, the employer said that the worker was an independent contractor and not an employee.

They pointed to the worker's own initiative in changing the working arrangement, her increased control over her work, and the fact that she invoiced the business for her services as evidence of an independent contracting relationship.

The FWC's analysis

The FWC carefully considered the legal principles established by the High Court of Australia in recent cases, which emphasise the importance of examining the contractual rights and obligations of the parties in determining the nature of the relationship. The Commission noted that:

"The task is to construe and characterise the contract made between the parties at the time it was entered into."

The FWC also recognised that in cases where there is no comprehensive written contract, the terms of the agreement must be ascertained from the evidence of the oral contract or partly written and partly oral contract between the parties.

In analysing the worker's situation, the FWC found that there were two separate and distinct contractual relationships between the worker and the employer.

The first was a comprehensive written contract of employment, which was discharged by agreement on 24 May 2018. From 25 May 2018 onwards, the contract between the parties was an oral contract for services, entered into at the worker's proposal to establish her own business and work as a contractor.

The terms of the new contract provided for the worker to invoice the employer on a weekly or fortnightly basis for professional services rendered, together with any claim for reimbursement of expenses incurred.

The employer paid for the worker's Microsoft 365 subscription and, where necessary, stationery supplies. The worker was responsible for payment of her own taxation and for deciding where, when, and how she performed her role within the broad ambit of providing the services for which she was contracted to perform.

The FWC noted the significance of the worker's professional qualifications as a certified practising accountant, which allowed her to make an informed choice about the working arrangement that best suited her circumstances.

The Commission said that "as a certified practising accountant, [the worker] was in a position to make an informed choice about the state of affairs that best suited her at the time."

Employee or independent contractor?

Ultimately, the FWC found that the worker was not an employee of the business at the time of the termination of her contract. The Commission concluded that the worker was acting on her own behalf and working in her own business, rather than in the service of the employer's business.

This was supported by factors such as the worker's control over her work, her provision of her own tools and resources, and the absence of any contractual terms restricting her ability to work for others.

The FWC said that the characterisation of the relationship depends on the totality of the parties' contractual rights and obligations, stating:

"The characterisation of a relationship as being either one of employer and employee, or one involving the engagement of an independent contractor, is ultimately an evaluative judgment that takes into account the totality of the parties' contractual rights and obligations."

The Commission also noted that the fact that the employer was the worker's only client was not inconsistent with the finding that she was an independent contractor, as there was no evidence of any contractual term granting the employer exclusive rights to her services or preventing her from engaging others to work in her business.

"There is no evidence to imply any contractual term into the arrangement to the effect that [the employer] had exclusive rights to the services provided by [the worker], or that she was prevented from engaging others to work in her business, even if that is how things unfolded in practice."

In light of these findings, the FWC concluded that the worker could not have been dismissed for the purposes of the Act, stating:

"In summary, at the time of termination of her contract with [the employer], [the worker] was not its employee. She could not have been dismissed for the purposes of section 386 of the Act."

The decision serves as an important reminder for both workers and employers to carefully consider the nature of their working arrangements and to ensure that the contractual rights and obligations accurately reflect the intended relationship.

Recent articles & video

Employee asks for flexible work to care for aging parents

Casual worker claims she should be offered permanent role

WGEA reveals average gender pay gap for Commonwealth public sector

Why are many employers not offering mental health days?

Most Read Articles

Following adverse effects from COVID-19 vaccine, worker awarded workers' comp

'It's a sham': Customer relationship officer challenges redundancy

Lessons for HR: After horrific accident, company rallies around executive's rehabilitation