Looks like an employee, works like an employee, behaves like an employee… but they could be a contractor
Since the Hollis v Vabu (‘Vabu’) decision in 2001, the courts and the Fair Work Commission (‘FWC’) have applied a holistic assessment in determining whether the relationship between a business and its worker is an employment relationship or a contractor engagement.
However, in 2022, the High Court decisions of Personnel Contracting and Jamsek threw out what had become second nature to the courts when presented with this dilemma. Courts have since stopped applying the ‘looks like a duck, quacks like a duck’ approach, and are less swayed by the characteristics and substance of the working relationship between two parties. Even if the substance of a relationship indicates something different, courts will focus primarily on the (hopefully) comprehensive written terms of the contract between parties, to which they have agreed to be bound, in order to determine whether a particular worker should be classified as an employee or as a contractor.
Deliveroo Australia Pty Ltd v Diego Franco  FWCFB 156 (‘Diego’)
Gig economy worker Diego Franco commenced working as a delivery driver for Deliveroo Australia Pty Ltd (‘Deliveroo’) in 2017. In 2020, Deliveroo terminated Mr Franco’s engagement without warning due to his slow delivery times. When Mr Franco made an unfair dismissal application to the FWC, Deliveroo argued that he was engaged as a contractor, not an employee, and was therefore ineligible to bring such a claim.
Decision at first instance
Applying the multi-factorial approach from Vabu the FWC first assessed the characteristics of the relationship and found that in substance Mr Franco was an employee of Deliveroo. Therefore, he was protected from unfair dismissal for the purposes of section 382(a) of the Fair Work Act and Deliveroo’s dismissal of Mr Franco was held to be unfair on the basis that it was harsh and unreasonable.
Deliveroo then lodged an appeal. However, both Personnel Contracting and Jamsek were pending judgment at the time the appeal was lodged so the hearing was stayed until the High Court issued those decisions.
Following the two rulings, the FWC heard the appeal. Consistent with the approach taken in Personnel Contracting and Jamsek the FWC considered the terms of the written agreement between Mr Franco and Deliveroo. As demonstrated by the High Court judgments, it is not the case that the characteristics of the relationship will be entirely ignored, or that the multi-factorial approach should be entirely disregarded. The multi-factorial assessment and a consideration of the subsequent conduct of the parties throughout the relationship is relevant in ‘testing’ the terms of the contract (and any variations) were enforced by the parties.
One predominant factor to consider when attempting to determine whether a worker is an employee or a contractor, is the level of control exerted by the “employer” or business over the contractor. The complication in assessing both the terms of the contract and the conduct of the parties together, as discovered by the FWC in Diego, is that the control factor (i.e. the lack of it) for a contractor often resembles the lack of control an employer can exert over a casual worker. Ultimately, it was the degree of freedom afforded to Mr Franco, as opposed to a hypothetical casual employee, which pushed him further towards the category of an independent contractor (as opposed to an employee).
In the judgment, as required, the FWC considered that it would be in the public interest to grant permission to the appeal, given that the finding of whether Mr Franco was an employee or contractor would have widespread effect on the gig economy. This reflects the significance of the issue.
Secretary, Attorney-General’s Department v O’Dwyer  FCA 1183 (‘O’Dwyer’)
The first instance decision of Diego is not the only decision which has been overturned following Personnel Contracting and Jamsek.
The Federal Court in O’Dwyer was also faced with the task of determining whether a worker was an employee or a contractor, with that determination being relevant to the outcome of a claim under the Fair Entitlements Guarantee Act (FEG Act), made by a brother of the worker in question.
Bryan O’Dwyer, was a director of Ralan Property Services Pty Ltd (the Company), which went into voluntary administration. His brother, Robert O’Dwyer, was an employee of the Company. Robert submitted a claim seeking financial assistance under the FEG Act.
The secretary of the Attorney-General’s Department denied Robert’s claim on the basis that he was the relative of an employee who was a director of the Company. As such, Robert was considered an excluded employee for the purpose of s11(1) of the FEG Act and s556(2)(c) of the Corporations Act.
The matter was then escalated to the Administrative Appeals Tribunal for review, which applied Vabu to determine whether Bryan was employed in the role of director or whether he was fulfilling that role as a contractor. The Tribunal found that Bryan was a contractor rather than an employee, and as such, Robert was not an excluded employee (as he was not related to an employee).
Following the revolutionary decisions of Personnel Contracting and Jamsek, the secretary of the Attorney-General’s department appealed to the Federal Court, claiming that the Tribunal erred by applying Vabu in making its determination.
Justice Goodman of the Federal Court confirmed that, in light of the High Court decisions, the multi-factorial approach is no longer the appropriate test to apply.
Despite there only being an oral contract between Bryan and the Company, his Honour held that the new common law principles derived from Personnel Contracting and Jamsek should apply (irrespective of the form of contract, being an oral contract, in place).
The Federal Court considered the terms of the oral contract and allowed the appeal. Justice Goodman set aside the original decision and remitted the matter to the Tribunal for redetermination using the Personnel Contracting and Jamsek principles.
The decisions of Diego and O’Dwyer demonstrate that the courts will, as they are required to do, continue to apply the new common law principles of Personnel Contracting and Jamsek. Although the principles of Vabu are not forgotten, the decisions illustrate that it is more crucial now than ever to ensure that organisations have in place carefully considered, tailored agreements between themselves and their workers which clearly and comprehensively set out the expectations and intentions of the parties to the contract.
A ‘one size fits all’ approach to employment agreements and independent contractor agreements will not suffice in protecting the interests of businesses and workers.