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Understanding Independent Contractor Status: A Case Study

The recent decision by the Fair Work Commission (FWC) in Australia has reinforced the applicability of Personnel Contracting principles, whether a contract is verbal, written, or a mixture of both. This verdict has stimulated conversations about the legal and commercial certainty that the multifactorial approach previously provided, with the FWC suggesting it didn’t necessarily cause chaos.

A Look into the Case

This case revolved around the sole director of Sarric Pty Ltd, the owner of Serendipity Ice Cream business in Sydney. The business was sold to Invidia Pty Ltd in 2021, following a business sale agreement. Before the sale, an oral agreement was made that the director could continue working for Serendipity on a part-time basis for brand and product development if she desired.

In the process, Invidia presented an employment agreement to the director. However, it was left unsigned, leading her to propose billing Invidia for her consultancy services rather than accepting employee payments. Following the completion of the sale, she continued her role as CEO for Serendipity, billing Invidia for professional services and consultancy.

Things took a turn when the director’s consultancy role was abruptly ended by Invidia, leading her to file a general protections claim involving dismissal with the FWC. However, the FWC held that the parties contemplated the director becoming an employee, but never concluded an agreement.

Analysis of the Case

Deputy President Gerard Boyce noted the absence of a written contract related to the work performed. He highlighted the lack of clarity surrounding what happened to the employment agreement once the director began issuing invoices via Sarric.

Following the decision in Murphy v Chapple, Boyce highlighted the freedom parties have to contract as they see fit, unless otherwise specified by law. He critiqued the multifactorial approach for infringing on one party’s contractual freedoms and permitting the other party to break promises and agreements.

Boyce insisted that, following the Personnel Contracting ruling, contracts should be interpreted as per Australian law, irrespective of whether they are written, partly written, or wholly oral.

The Verdict

The FWC, in its judgment, concluded that the consultancy bore the hallmarks of an independent contractor relationship. The key features of this relationship included the director issuing invoices through Sarric, providing her own tools, maintaining her CEO title, and receiving no employment entitlements. Moreover, she worked autonomously without needing to report to Invidia about her work.

The court further found that despite the director referring to her work as “consultancy” in multiple emails, it did not change the rights and obligations under the contract. As a result, the FWC dismissed the case, ruling that the director was engaged as a consultant and not an employee.

This decision is a clear reminder that an independent contractor’s label does not determine their status. It highlights the importance of the underlying factual matrix in these matters, providing valuable insight into how these cases are likely to be treated moving forward.

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