The Fair Work Commission (the Commission) has recently delivered a decision exploring when a person in the position of a Director of a company is considered an employee or an independent contractor. The decision highlights the importance of establishing clear employment or contractor relationships.
In Sarah Mandelson v Invidia Foods Pty Ltd, Ms Mandelson was the sole director of Sarric Pty Ltd (Sarric). Sarric owned and operated the business named “Serendipity Ice Cream”(Serendipity), which manufactured and sold gourmet ice cream. In 2021, Serendipity was sold to Invidia Foods Pty Ltd (Invidia). A term of the business sale agreement (BSA) was that Ms Mandelson would be employed by Invidia on a part-time basis to find new customers, and continue brand and product development.
On 29 January 2021, Ms Mandelson’s employment contract was signed by Invidia and was provided to Ms Mandelson. Ms Mandelson never signed or provided a signed copy of the employment contract to Invidia, nor did she communicate her acceptance of the employment contract.
During her employment with Invidia, Ms Mandelson:
- was entirely autonomous in performing her work;
- had no relevant reporting obligations;
- had inconsistent working hours;
- did not request or report her leave days;
- was never entered into Invidia’s employee payroll system and never asked for or received a payslip. Instead, Ms Mandelson would issue invoices to Invidia for the work she performed through Sarric; and
- performed a substantial amount of work for entities other than Invidia, primarily Sarric.
On 1 February 2022, Ms Mandelson was advised that her consultancy to Invidia was to be cancelled immediately. Ms Mandelson filed a general protection application involving dismissal under the Fair Work Act 2009 (Cth) against Invidia regarding this cancellation. In response, Invidia claimed the application was jurisdictionally barred on the basis that Ms Mandelson was not an employee of Invidia and could therefore not dismiss her from her employment.
Deputy President Boyce of the Commission considered previous case law in analysing whether Ms Mandelson was an employee or an independent contractor. Up until recently, the approach in most cases to determine whether a person was engaged as an independent contractor or an employee involved an analysis of the relationship of the parties. This approach was labelled the “multifactorial approach.” In Construction, Forestry, Maritime, Mining, and Energy Union v Personnel Contracting Pty Ltd (CFMMEU v Personnel Contracting), the High Court stepped away from this approach and instead focused on the contractual terms of the contract that was agreed upon. The contractual terms are made to comprehensively reflect the relationship of the parties creating the contract. There is, therefore, no reason to not examine the contractual terms to establish a relationship. Although, merely labelling someone as an ‘employee’ or ‘independent contractor’ in a contract will not determine this relationship.
DP Boyce referenced CFMMEU v Personnel Contracting when investigating the contractual relationship between Ms Mandelson and Invidia. Initially, Ms Mandelson and Invidia agreed that she would continue to work in Serendipity as an employee of Invidia. However, this arrangement was abandoned in favour of the contractual terms that bore all the hallmarks of an independent contractor and principal relationship.
The terms of the BSA made plain that Ms Mandelson’s employment contract would not be a concluded bargain unless formally executed by the parties and then delivered up in an executed form. It was therefore found that because Ms Mandelson failed to execute the employment contract and it was never appropriately entered into, it was not binding or enforceable.
Based on this conclusion, DP Boyce set about analysing the work Ms Mandelson performed for Invidia. It was found that Ms Mandelson had complete control over how she performed her work, while Invidia had little to no authorisation. Ms Mandelson’s interest in the Serendipity business concerned not just the work she performed in the business for Invidia, but the interest of Sarric. The work performed by Ms Mandelson reflected that she was working for her own business as opposed to working as an employee for the respondent. It was deemed evident that Ms Mandelson was working as an independent contractor to Invidia through Sarric.
After a comprehensive review of the parties employment contract and Ms Mandelson’s work performance, DP Boyce concluded that Ms Mandelson and Invidia did not form an employee/employer relationship but an independent contractor/principal relationship.
How our Workplace Team can help
Our Workplace Team can assist if you require any advice or have any questions regarding employment or independent contractor relationships.
For further information please contact Danny Clifford, Director of Employment and Workplace Law.