FWC examines parties’ ‘Distributor's Agreement’ to check employment clauses
The Fair Work Commission (FWC) recently dealt with a case involving a worker who claimed that she was an employee and had been dismissed in contravention of the Fair Work Act 2009 (Cth).
The employer, on the other hand, argued that the worker was an independent contractor and not an employee. The central issue in this case was the characterisation of the worker's employment status.
The case explored the various factors that need to be considered when determining the true nature of the working relationship.
The worker's background
The worker had been engaged with the employer's predecessor since 1991 and had progressed to the role of a sales representative in 1996.
In 2002, her engagement was purportedly converted to that of an independent contractor under a "Distributor's Agreement." The worker continued in this capacity until September 2021, when the employer acquired the predecessor's business.
Upon the acquisition, the employer sent a letter to the worker confirming that it would continue with her "contractual arrangement that is currently in place." The worker did not enter into a new agreement with the employer, apart from a retention agreement that referred to her employment status.
The worker argued that she was an employee and that the Distributor's Agreement was “a sham.” She claimed that she continued to perform the same role and services as she had been providing since 1996, but without the benefits of employment entitlements.
Examining contractual terms
The FWC examined the contractual terms governing the relationship between the parties. It found that the Distributor's Agreement, as adopted by the employer's letter, constituted the sole embodiment of the contractual terms, save for some implied modifications.
The worker relied on the retention agreement as establishing an employment relationship. However, the FWC did not consider that the agreement had any such effect, stating:
"That agreement was no more and no less than a ‘retention’ agreement. While it did contain references to the worker being an ‘employee,’ it also contained references to her being an ‘employer/contractor,’ the latter strongly suggestive that this was a carelessly crafted form document designed to cover both employees and independent contractors."
The FWC also addressed the issue of whether the Distributor's Agreement was a sham. It noted that identifying a sham is not synonymous with characterising a contract as one for services versus one of services. The FWC said the evidence did not demonstrate any sham by the employer's predecessor, let alone clearly demonstrate it.
Characterising Distributor's Agreement
In characterising the Distributor's Agreement, the FWC considered various factors, including control, the "own/employer's business dichotomy," mode of remuneration, provision for paid holidays, deduction of income tax, and provision for insurance.
The FWC found that the agreement provided little in the way of direct contractual control over the worker's performance.
While there were specific aspects of control or regulation of work under the contract, they were confined and did not evince an overall contractual right of control indicative of an employment relationship.
"The fact that the territory and customers were ‘designated’ is not a factor that points strongly in either direction. Many commercial arrangements between suppliers and distributors – eg franchisees - will comprehensively regulate territorial or customer rights," the FWC noted.
The FWC also considered the worker's capacity to appoint resellers, stating:
"While the contractual right of the principal to veto the appointment of any reseller was largely unconfined, the fact that the contract did contemplate appointment of resellers is a matter pointing against an employment relationship."
An independent contractor, not an employee
The decision highlighted the importance of carefully examining the contractual terms and the reality of the working relationship when determining whether a person is an employee or an independent contractor.
Considering the totality of the arrangements, the FWC found that the worker's contractual relationship under the Distributor's Agreement was a contract for service as an independent contractor, not a contract of services by employment.
"As the worker was not an employee, it follows that she was not ‘dismissed’ within the meaning of s 365 of the Act. The [employer’s] jurisdictional objection is upheld and the worker's application is dismissed," the FWC said.
