A recent Employment Court decision confirms the importance of documenting whether the working relationship is one of employee or contractor. It also demonstrates that the coalition Government’s proposed changes to these laws will not necessarily make it easier to clarify whether a worker is an employee or a contractor. Workplace Relations and Safety Minister Brooke van Velden, last year when she outlined changes to the law, said it would "maintain the status quo that contractors who have explicitly signed up for a contracting arrangement cannot challenge their employment status in the Employment Court".
In the case, Craig Brown claimed that he was employed as Chief Financial Officer of The Clinician Holdings Ltd (TCHL) when the company no longer required his services.
TCHL first started contracting Mr Brown’s services through his consultancy company Surestart Consulting Ltd. Surestart had a regular stable of clients and its fee revenue averaged about $350,000 each year. Surestart also engaged a sub-contractor to assist with servicing Surestart’s clients, including TCHL. This arrangement was confirmed in writing with TCHL in an independent contractor agreement.
In late 2021 TCHL wanted Mr Brown to become its full-time CFO at a lower hourly rate than the rate he currently charged though his company Surestart. After a series of communications between Mr Brown and the CEO of TCHL (Ron Tenebaum) a verbal agreement was reached that Mr Brown would work for TCHL on a full-time basis from 1 June 2022. Mr Tenebaum and Mr Brown also discussed him owning shares in TCHL to complement his remuneration. This new arrangement was never documented, despite repeated references to this in emails.
From May 2022 Mr Brown began informing Surestart’s clients of his decision to move to new full-time employment at TCHL and that he would no longer be able to provide CFO services to them. And when the new arrangement started from 1 June 2022 Mr Brown was paid an hourly rate based on a salary of $200,000 (although still through invoices) and was able to take paid annual holidays and sick leave. There were also further discussions over the ensuing weeks regarding an offer of shares to Mr Brown.
In January 2023 TCHL made alternative arrangements with another CFO provider. Mr Tenenbaum then met with Mr Brown on 1 March 2023 to advise him that TCHL would be terminating their agreement at the end of the month.
TCHL and Mr Brown agreed that Mr Brown would work for THCL on a full-time basis from 1 June 2022. However, they disputed the nature of the working relationship; Mr Brown contending he was an employee, with TCHL asserting that the independent contractor arrangement continued with Surestart with Mr Brown continuing as an independent contractor but on a full-time basis.
Judge King found that there was a clear break from the original contracting arrangement. From 1 June 2022 Mr Brown started his full-time role on new terms. The Judge referred to the original independent contractor agreement which had a typical clause providing that any variations to the agreement had to be in writing. She said that an oral variation would be a clear breach of that clause.
Having concluded that there was a new verbal agreement, the Judge then proceeded to apply the applicable common law tests (the control, the integration and the fundamental tests) to decide if Mr Brown was an employee or not. She also applied the new two stage approach set out in the latest Uber case judgment in the Court of Appeal on the employee/contractor issue. The Judge concluded that all those tests indicated that Mr Brown was in an employment relationship.
When the Employment Court determined in the Uber case in 2022 that the drivers of Uber workers were employees the Chief Judge commented that “employment status is the gate through which a worker must pass before they can access a suite of legislative minimum employment entitlements, such as the minimum wage, minimum hours of work, rest and meal breaks, holidays, parental leave, domestic violence leave, bereavement leave and the ability to pursue a personal grievance.” Contractors enjoy no such protections.
The use of contractors has been a common tool to drive down costs. In this case it has backfired badly. The agreement to work longer hours and the agreement to reduce the hourly rate all supported a new verbal agreement that was not documented in writing as required by the contractor agreement.
Fortunately for Mr Brown, either as an employee or contractor, he was earning a good hourly rate of $150 for his full-time work (but down from $300ph for his part-time work). Many workers do not enjoy that type of bargaining power.
The Workplace Relations and Safety Minister Brooke van Velden’s proposed changes to employee/contractor laws, she says, will make it easier to clarify whether a worker is an employee or a contractor. Judges and lawyers love to have agreements that are set out clearly in writing. Unfortunately, in practice this is not often the case. It seems unlikely that the proposed law changes are likely provide any more certainty. Read more...