Employee or Independent Contractor?
Employee or Independent Contractor?
A recent decision handed down by the Fair Work Commission in Sarah Mandelson v Invidia Foods Pty Ltd, Angelo Sperling, Richard Simiane [2023] FWC 50 provides further guidance when differentiating between the relationship of an employee as against an independent contractor.
In Mandelson v Indvidia Foods, an employment agreement signed by Invidia, yet never signed or returned by Mandelson, was relied upon by Mandelson in arguing that Invidia had wrongfully dismissed her employment. Unfortunately for Mandelson, the FWC thought otherwise.
Facts
Ms Mandelson operated the business Serendipity Ice Cream. The business was owned by Sarric Pty Ltd, a company of which Ms Mandelson was the sole director.
Ms Mandelson entered into a sale of business contract with the respondent, Invidia Foods Pty Ltd (Invidia) for the sale of Serendipity from Ms Mandelson to Invidia. The sale was subject to the parties entering into an employment agreement, whereby Ms Mandelson would remain employed by Invidia to assist them in their initial developmental phase.
Invidia executed the employment agreement and returned it to Ms Mandelson, who did not execute the agreement. Ms Mandelson continues to work in the Serendipity business, however was not paid wages and instead would issue tax invoices to Invidia for the services she performed. These invoices referred to “Sarah Mandelson professional services: product development, administration, sales calls & meetings, etc”, or “consultancy”.
On 1 February 2022 Invidia advised Ms Mandelson that the “consultancy” to Invidia was cancelled, and so Ms Mandelson brought a general protections application under s 365 of the Fair Work Act 2009, alleging that she was wrongfully dismisses (as an employee). Invidia argued that Ms Mandelson’s application must fail, on the basis that Ms Mandelson was not an employee, and was rather an independent contractor.
Decision
The FWC found that there was no employment agreement between the parties and that the original employment agreement, never signed by Ms Mandelson, was never formally made and the terms agreed in its place created an independent contractor/principal relationship. For this reason, Ms Mandelson’s application was dismissed.
Reasons given
The employment agreement was not binding on the parties as Ms Mendelson never signed the agreement, nor did she confirm that she had accepted the terms of that agreement. It was found rather that a contract existed, based on the conduct evidenced by the parties (issuing invoices, no payment of employee entitlements etc).
Despite finding that the written employment agreement was not enforceable, the FWC did find that there was a contractual relationship of some kind between the parties. Was is it capable of being construed as an employment contract? Or was the contractual arrangement between the parties one of an independent consultant/contractor.
As was found in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) the FWC’s task was to determine the terms of the contract as agreed from the outset, as opposed what the subsequent actions of the parties may suggest. Broadly, the principles adopted in Personal Contracting included that:
- unless some law provides otherwise, parties are free to contract as they see fit;
- contracts in respect of employment and independent contracting are to be interpreted in the same way that contracts are generally interpreted under Australian law;
- the “multifactorial approach” applied in the past now only has relevance in respect of the required assessment of the terms of the contract; and
- the principles apply whether a contract is wholly or partially in writing, or wholly oral.
On the evidence before the FWC, including that Ms Mandelson was never entered into Invidia’s payroll system, did not accrue leave or other employment entitlements, organised her own superannuation contributions and used her own equipment for the work, it was decided that the contract between the parties provided that Ms Mandelson would be engaged as a consultant.
It was also found that there were no terms specifying Ms Mandelson’s hours of employment (as might be seen in an employment contract) and weight was given to the fact that Ms Mandelson conceded that her work in the Serendipity business was simultaneously performed for both Invidia, and her own company Sarric.
Learnings
Written agreements are critical. Where terms of an agreement are uncertain or not clearly defined in writing, the relationship between the parties becomes fragile and open to detrimental interpretations.
Clear, unambiguous written agreements ought to be prepared and signed as soon as you come to ana agreement to commence a relationship with another party.
Jackson Barrett
17 May 2023
Liability limited by a scheme approved under Professional Standards Legislation
The law is always changing. Publications published are based on legal principles as at the date of the publication. You should not rely solely on publications and should always obtain fresh legal advice.
