Worker tries combining contractor and employee periods to meet unfair dismissal threshold

The Fair Work Commission (FWC) recently dealt with an unfair dismissal application that raised questions about the minimum employment period required for protection under the Fair Work Act 2009.

The case involved a worker who sought to combine her periods as both a contractor and employee to meet the twelve-month threshold required for small business employees.

The worker argued that she had been working for the employer since February 2024, initially as a contractor through her husband's business, before transitioning to formal employment in May 2024.

She contended that this combined period should count towards the minimum employment period required for unfair dismissal protection. The worker also challenged whether her employer qualified as a small business.

However, the employer maintained that no direct contractual relationship existed with the worker during the contracting period, as all arrangements were made with her husband's contracting business.

Small business employment minimum periods

The worker's husband had previously performed jobs for a ship cleaning and maintenance company, which led to a conversation over beers between the company director and the husband in February 2024.

The worker was not present during this discussion. The director explained that the worker "was having a difficult time with her employer at the time, and so [the director] floated the idea of offering work to [the worker] and her husband."

According to the director's evidence, which the FWC preferred, "it was [the husband] who elected to work as contractors, as according to [the director], the couple were interested in entrepreneurship and the tax benefits of contracting."

The husband established an Australian Business Number (ABN) and business name on 11 February 2024, registered as a sole trader.

From 12 February to 10 May 2024, the contracting arrangement generated 17 invoices totalling 218.5 work hours across 41 days of actual work attendance.

The employer provided detailed records showing work hours ranging "from 1 hour to 7.5 hours over the 41 days of work attendance." All invoices were issued under the husband's name and ABN.

Employment classification challenges

The employer's classification as a small business became central to determining the minimum employment period required.

Under the Fair Work Act, small businesses with fewer than 15 employees can require workers to complete twelve months of service before accessing unfair dismissal protections, compared to six months for larger employers.

The worker initially argued that approximately 15 contractors should be counted as employees rather than genuine contractors.

However, when the Commission advised that witness statements would be required to support this argument, the worker chose not to pursue this challenge. The employer stated that contractors had signed opt-out notices under section 15AB of the Act.

After examining payroll data, the FWC found the employer had six full-time employees at the time of dismissal plus five casual employees.

The Commission determined that only four casual employees would count for the purposes of the Act, bringing the total to 10 employees and confirming small business status.

Is there a valid employment contract?

The FWC applied established contract law principles to determine whether a valid contract existed between the worker and employer during the February to May 2024 period.

The Commission examined the essential elements required for contract formation, including intention to create legal relations, offer and acceptance, and consideration.

Regarding intention to create legal relations, the FWC found that the original conversation was "an informal offer intended to help out [the husband] and his wife." The Commission noted that "the purpose of the conversation was to discuss future work for [the husband]. The work for [the worker] was an ancillary point brought up when [the husband] discussed that his wife was having a difficult time at her job."

The FWC concluded that evidence indicated "there was an intention to create a legal relationship between [the employer] and [the husband], for [the husband] to work as a contractor" rather than with the worker directly. This distinction proved crucial in determining whether the worker had any direct contractual relationship with the employer.

Payment structure and direct contractual relationship

The consideration element proved particularly problematic for establishing a contract between the worker and employer. All invoices were issued under the husband's ABN and business name, with payments made directly to his bank account.

The worker highlighted invoice items showing her contributions, such as "4 units of 'Office' at $30.00 per unit," but received no direct payment from the employer.

The FWC found that "[the worker] performed services for [the employer] and received nothing from them in return. She received payment by accessing her husband's bank account. This would suggest that if she was employed by anyone, it was her husband, not [the employer]."

This payment structure created a fundamental gap in establishing a direct contractual relationship.

The work performed included reformatting Work Health and Safety policies, though the director said the worker's tasks were "mostly cleaning and administrative tasks such as scanning."

Despite performing these services for the employer's benefit, the absence of direct payment proved insurmountable.

Employment period determination

The worker signed a full-time employment contract on 13 May 2024, working as a Work Health Safety Environmental and Quality coordinator.

There was initial confusion about the contract's commencement date, but the FWC accepted the employer's explanation that "the version with the commencement date of 13 January 2024 is a typo and that page of the contract was later replaced."

The worker's employment ended on 21 February 2025, meaning she was employed for approximately nine months from May 2024. This fell short of the twelve-month minimum employment period required for unfair dismissal protection in small businesses.

Having found that essential elements of a valid contract were not present during the February to May 2024 period, the FWC concluded that "no contract existed between [the worker] and [the employer] for the period from 12 February 2024 to 10 May 2024."

The Commission emphasised that "the question is not, as [the worker] put it, whether she 'worked' for [the employer] for a period of twelve months."

The FWC's final determination stated: "In the circumstances of this matter, I am satisfied [the worker] has not completed the required minimum employment period as the business has less than 15 employees and [the worker] was employed for less than 12 months. Therefore, [the worker] is not a person protected from unfair dismissal. The jurisdictional objection is upheld and the application is dismissed."