Worker challenges dismissal from US game company despite contractor agreement

The Fair Work Commission (FWC) recently examined an unfair dismissal claim involving a game tester who argued she was unfairly dismissed from employment with a US-based computer game company despite being classified as an independent contractor. 

The case arose when the worker was terminated without warning or explanation after nearly three years of testing video games, leading to disputes over her employment status and the company's jurisdiction under Australian law.

The worker argued she had been unfairly dismissed, maintaining that despite the contract describing her as an independent contractor, the practical reality of her working relationship indicated genuine employment. 

She contended that the company exercised significant control over her work processes, required regular reporting, and paid her a fixed monthly salary regardless of hours worked or projects completed.

The employer contested the worker's claim, arguing she was not an employee but an independent contractor and that as a US-registered company, it was not subject to Australian employment law. 

US game company engages Australian tester

The employment relationship involved a worker who commenced working for a California-based computer game development company on 18 May 2022. 

The company developed and distributed computer games internationally through electronic means, with approximately 50 employees working remotely across multiple countries, including Africa, Argentina, Belgium, Canada, Finland, France, Greece, Italy, Malaysia, Philippines, United Kingdom, Uruguay, and the United States.

The worker was engaged under a "Contract Agreement" that described her as an independent contractor performing game testing services, assisting the Testing Team Manager, and submitting detailed reports. 

The contract specified payment rates ranging from $315 to $1,575 USD per month, depending on hours worked, with the worker responsible for all expenses, taxes, and compliance with laws.

The agreement included standard contractor provisions stating the worker was not eligible for employee benefits like pensions, health insurance, or vacation pay, and that she indemnified the company against any liability. 

The contract was governed by California law, with disputes to be resolved through arbitration in Santa Clara County, California, and either party could terminate with 14 days' written notice.

Work arrangements show employment characteristics

The worker performed testing duties involving identifying bugs, typos, and grammatical errors in video games, reporting them via Google Docs as directed by her Team Manager. 

She described her work as project-based, typically handling 2-3 projects per month with set deadlines for completion. 

She worked from home using her own computer and the company's software platform, choosing her own hours but working weekdays and sometimes weekends depending on deadlines.

Despite the contractor classification, several employment-like characteristics emerged in practice. The worker was initially paid a fixed monthly amount at the part-time rate ($630 USD) and later at the full-time rate ($1,575 USD), regardless of the exact hours worked or projects completed. 

She did not record hours, submit timesheets, or issue invoices, and received the same payment each month, even during slower periods with less work.

The worker was required to submit weekly reports detailing her progress and communicate with her supervisor online at least weekly to receive updates on upcoming work. 

She was not allowed to subcontract her work without written permission due to the company's data security concerns, and was sometimes asked to assist other team members when needed.

Termination occurs without warning or explanation

In late January 2025, the worker became concerned when she was not allocated any work. On 31 January 2025, she received a termination letter via Discord messaging from her supervisor stating: "I am writing to inform you of the termination of our Independent Contractor Agreement. This decision has been in accordance with the Independent Contractor Agreement... Effective February 14, 2025, this termination notice will serve as the official end of our Independent Contractor Agreement."

The letter provided no specific reason for termination, simply stating the company appreciated her efforts and contributions during her tenure. When the worker contacted her supervisor, asking why the contract was terminated, she was directed to contact the Chief Financial Officer, but received no reply or explanation despite attempting to follow up.

The CFO described a process where senior managers reviewed the list of 50 workers and decided to terminate 2-3 contracts based on feedback received. He stated the reason for terminating the worker's contract was feedback that her work was poor, though this feedback did not come from her direct supervisor, and no specifics were provided.

Importantly, the worker had never received any counselling, warnings, or complaints about her work during her nearly three years with the company.

FWC examines employment versus contractor status

The FWC applied the test under section 15AA of the Fair Work Act, which requires ascertaining "the real substance, practical reality and true nature of the relationship" by considering the totality of the relationship, including both contract terms and how it was performed in practice.

The Commission noted that while the contract described the worker as an independent contractor with responsibility for expenses, taxes, and no employee benefits, the practical reality differed significantly.

The Commission found that "the practical reality is that [the company] exercised control over the work processes used by [the worker] in performing the work. It was motivated by its concern for data security in requiring [the worker] to use its software platform."

The FWC noted she was required to submit weekly reports, communicate with a supervisor, assist others when needed, and could not subcontract work without permission.

The Commission particularly emphasised the payment arrangements, finding: "Payment was described in the contract as being based on hours worked, with specific rates for part-time and full-time work. [The worker] was paid a fixed monthly amount... regardless of the exact hours worked or projects completed. She did not submit timesheets, nor did she submit invoices... These matters suggest a salaried arrangement typical of employment."

Company found subject to Australian jurisdiction

The FWC also addressed whether the US-based company was subject to Australian employment law as a "national system employer." The Commission found that as a foreign corporation formed outside Australia that employed an individual, the company fell within the definition of a constitutional corporation under section 51(xx) of the Australian Constitution, making it subject to the Fair Work Act.

The Commission noted the company sold computer games in Australia, generating $90,000 in revenue in 2024, finding "So far as is necessary, I find that [the company] does business in Australia."

The FWC concluded: "I have found that [the worker] was an employee of [the company]. Consequently... it is a constitutional corporation which employed an individual... As [the company] is a national system employer Part 3-2 of the Act applies."

The Commission determined: "I find that while the contract explicitly described [the worker] as an independent contractor, the totality of the relationship and the evaluative judgment required under section 15AA suggest that the relationship was one of employment. I find that [the worker] was an employee."

Reinstatement ordered after unfair dismissal finding

The FWC found the dismissal was unfair under section 387 of the Fair Work Act, noting: "Consequently, I find for the purpose of s 387(a), that there was no valid reason for the dismissal related to capacity or conduct. As there was no valid reason... [the worker] was given no reason for the dismissal... [The worker] was also not given an opportunity to respond to any reason and was not permitted to have a support person."

The Commission noted the company's cultural misunderstanding about Australian employment law, with the CFO stating: "I guess for me it's a little, maybe it's a bit different. In terms of culture between Australia and the United States... I wish the United States was as diligent as you guys were are on these unfair dismissals." The FWC found the company "did not understand that it has any obligations to act fairly in its dismissal."

The FWC concluded: "After considering all of the matters in s. 387 I find that [the worker's] dismissal was harsh, unjust and unreasonable. [The company] did not have a valid reason for dismissing her. It failed to provide her with an opportunity to respond to any suggestion that her work was poor and it dismissed her without having any discussions about its intention to do so."

The Commission ordered reinstatement to her previous position and payment of six months' lost wages totalling US$9,450.