Colin Robert McKerlie v Fat Prophets Pty Ltd
[2024] FWC 1939
•23 JULY 2024
| [2024] FWC 1939 |
| FAIR WORK COMMISSION |
| DECISION |
Fair Work Act 2009
s.394 - Application for unfair dismissal remedy
Colin Robert McKerlie
v
Fat Prophets Pty Ltd
(U2024/3324)
| DEPUTY PRESIDENT SLEVIN | SYDNEY, 23 JULY 2024 |
Application for an unfair dismissal remedy – Jurisdictional Objection - objection that Applicant not dismissed – whether Applicant an employee or independent contractor
Mr Colin Robert McKerlie alleges that he was unfairly dismissed by Fat Prophets Pty Ltd. He seeks an unfair dismissal remedy pursuant to s. 394 of the Fair Work Act2009 (Cth). Fat Prophets has objected to the application on the basis that Mr McKerlie was not dismissed because he was not an employee. Fat Prophets contends that Mr McKerlie was engaged as an independent contractor.
An application for an unfair dismissal remedy can only be made by a person who has been dismissed from employment. Subsection 386(1) of the Act sets out the circumstances in which a person is taken to have been “dismissed” for the purposes of s.394. A person can only be dismissed when their employment comes to an end in one of the circumstances described in s. 386(1). In the absence of a relationship of employer and employee, there is no employment, and a person is not dismissed for the purposes of s394. A consequence of this is that an application under s.394 cannot proceed. This decision deals with the issue of whether an employer and employee relationship existed between the Mr McKerlie and Fat Prophets.
Background
There is no dispute that Mr McKerlie commenced full-time employment with Fat Prophets on 5 September 2022. During the first six months of the employment there was a series of events in the which Mr McKerlie regarded as unacceptable. Those events centred around the conduct of another employee. Events in March 2023 led Mr McKerlie to complain about the conduct of the other employee to management. Mr McKerlie met with his immediate manager, Mr Roger Malik and the company’s General Manager, Patrick Ganley about those concerns. Following that meeting Mr McKerlie was not required to work but continued to be paid while the company investigated his complaint. Mr Ganley gave evidence which was not inconsistent with Mr McKerlie’s evidence about these events.
Fat Prophets decided to deal with the complaint by permitting Mr McKerlie to perform work for the company remotely. The company’s practice was to engage persons performing work remotely as independent contractors. Mr McKerlie was offered, and accepted, a contract to work for the company that allowed him to work remotely.
Mr McKerlie gave evidence that he had no choice but to accept the new arrangements. He states that it was made clear that his only option was to accept the termination of his employment and sign the new contract or to not accept it and face termination of his employment. In the circumstances he chose to accept the new contract. Mr Ganley gave evidence that Fat Prophets had no intention of dismissing Mr McKerlie. His evidence was to the effect that the company presented the option of McKerlie working remotely as a means of addressing the issues that had arisen between Mr McKerlie and another employee working in close proximity in the office. He said that the company’s practice was that those who worked remotely did so under arrangements that the company regarded as a contract to provide services as an independent contractor. Contractors were not required to come into the office, were hired on a results basis, could work the hours that suited them and could engage others to assist in getting the work done.
A copy of the proposed contract was sent to Mr McKerlie on 19 April 2023 and following limited negotiations was finalised and signed by him on 21 April 2023. In accordance with the new arrangement Mr McKerlie’s initial employment ended and he started working pursuant to the new contract. The contract stated that the commencement date was 17 April 2023.
Fat Prophets contends that Mr McKerlie signed the contract fully aware that he would be providing services as an independent contractor. He was not forced to do so. After signing he rendered tax invoices for the services provided. Those invoices were paid, and no amounts were deducted for taxation or other purposes. Copies of the invoices were provided. They were styled tax invoices, described the services as “Contracted management services”, and identified the monthly rate for payment and commission payable.
Mr McKerlie’s evidence was that at the end of April he was told by Mr Malik that the employee who had been the subject of his initial complaint had left the company and Mr McKerlie was welcome to come back into the office if he wished. Mr McKerlie opted to go back to the office and worked from the office from the beginning of May 2023 until the termination of his engagement by Fat Prophets in May 2024. There was no change to the contractual arrangements and Fat Prophets contends that the work continued to be performed pursuant to the April contract albeit that Mr McKerlie provided his services using the facilities at the company’s premises.
Mr McKerlie contends that the way he worked during that period was the same as the way he worked under the full-time employment arrangement. He attended a daily meeting starting at 8:30am each day. He conducted his duties in the manner prescribed by the company. He was subject to the same dress code as others in the office. Mr McKerlie also gave an example that in July 2023 when sales fell, he and others were instructed to work an extra half hour each day. He complied with this instruction.
Consideration
The contest between the parties can be briefly stated; Mr McKerlie submits that he signed the contract under duress and that he continued to work as an employee after it was signed. Fat Prophets contends that the contract was not signed under duress, and it makes clear that the services provided by Mr McKerlie was as an independent contractor.
Mr McKerlie asks that I consider the way work was performed under the contract. He points to the fact that save for two weeks in late April he worked in Fat Prophets office and performed the work in the same manner that he did so under the employment arrangements that applied before he signed the contract. While in the office he was under the control of Fat Prophets management, met the dress standards required of employees, attended regular meetings and took direct instructions from the company.
The High Court considered the question of when a contract involves employment in the decisions of CFMMEU v. Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel) and ZG Operations Pty Ltd and Jamsek [2022] HCA 2 (Jamsek). The principles set out by the Court in those decisions have been summarised by Wigney J in the matter of JMC Pty Limited v Commissioner of Taxation [2022] FCA 750 at [17] – [27] (JMC). That matter was subject to appeal. On appeal it was accepted that his Honour’s statement of the principles was accurate[1]. Similar summaries are found in Chiodo v Silk Contract Logistics [2023] FCA 1047 at [7]-[9], Waring v Hage Retail Group Pty Ltd[2022] FWC 540 at [52]-[56], Chambers and O’Brien v Broadway Homes Pty Ltd[2022] FWCFB 129 at [74] and Azad v Hammond Park Family Practice Pty Ltd T/A Jupiter Health Warnbro [2022] FWCFB 66 at [14].
The Full Bench of the Commission in Chambers and O’Brien v Broadway Homes Pty Ltd [2022] FWCFB 129 made clear that after the High Court’s decision in Personnel the test does not turn on the manner in which the parties conducted themselves while the contract was on foot. The Full Bench summarised the key propositions arising from the Court’s decision at [34] as follows:
(1) When characterising a relationship regulated by a wholly written, comprehensive contract which is not a sham or otherwise ineffective, the question is to be determined solely by reference to the rights and obligations under that contract. It is not permissible to examine or review the performance of the contract or the course of dealings between the parties.
(2) The subsequent conduct of the parties may be considered to ascertain the existence of variation of contractual terms.
(3) The multifactorial approach only has relevance in respect of the required assessment of the terms of the contract.
(4) It is necessary to focus on those aspects of the contractual relationship which
bear more directly upon whether the worker’s work was so subordinate to the employer’s business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise. The question is: whether, by the terms of the contract, the worker is contracted to work in the business or enterprise of the purported employer.
(5) Existence of a contractual right to control the activities of the worker (including how, where and when the work is done) is a major signifier of an employment relationship.
(6) The label or characterisation placed on the relationship by the contract is not relevant even as a “tie breaker”, or at least it is not determinative. (Footnotes omitted)
Mr McKerlie also submitted that Fat Prophets had misrepresented the true nature of the relationship and was engaging in a sham arrangement that he entered into under duress. I regard this submission as being to the effect the contract in question was invalid as a sham. I do not think the evidence goes so far as to show that the validity of the contract itself could be successfully challenged as a shame in the sense discussed in Personnel.[2] As I read the email exchanges at the time that the contract was presented to Mr McKerlie, his responses, and taking into account the discussions between the parties and the circumstances which led to the contract being offered, I do not accept the contention that the contract was a sham nor that it was entered into under duress. The contract was entered into at the suggestion of Fat Prophets as a means of recasting the manner in which Mr McKerlie provided his services to the company. Mr McKerlie understood why the offer was made and he signed the contract willingly. There was no suggestion by Fat Prophets that his employment would otherwise be terminated if he decided not to sign the contract.
Drawing from the cases, the assessment of the relationship between the parties is to be determined by evaluating the nature of the contractual obligations of the parties arising from their contract. What is required is an evaluative judgment which will be informed by various indicia, some of which may suggest an employment relationship and others a relationship of independent contractor.
In this case the parties committed the terms of their relationship to writing. The terms were contained in the contract signed on 21 April 2023. There was some evidence about the discussions prior to the signing of the documents, including an exchange of emails in which Mr McKerlie stated that he had reviewed the contract, he indicated it was all fine save for there being no allowance for annual leave. Mr McKerlie sought a term that permitted 20 unpaid days of leave per year. A term to that effect was included in the final contract.
The written contract therefore set the legal rights and obligations between the parties and are decisive of the character of the relationship once it came into operation. The terms of the contract will determine the true character of the relationship between the parties.
The contract comprised 12 clauses. My assessment of the contract by reference to its terms is as follows:
a)Clause 1 set the term of the contract as commencing on 17 April 2023 until terminated in accordance with the agreement. Clause 12 provided that the agreement could be terminated by either party with 2 weeks’ written notice or by the company without notice if Mr McKerlie engaged in a serious breach. Termination clauses are common in both contracts for services and contracts of service. I consider this term to be neutral in determining the characterisation of the relationship.
b)Clause 2 required Mr McKerlie to provide services as described in Schedule 1. The services in Schedule 1 were making phone calls to potential customers of Fat Prophets using contact details provided by the company. The purpose of the calls being to secure sales. The services also included processing any sales made. Attending sales meetings as directed by the company was also a requirement. The schedule stated that the calls be made in a compliant manner. The company expected a minimum of $15,000 net sales revenue per month. The description of the services is neutral in the assessment of the relationship. They do not speak to whether the provision of the services was to be done in the course of employment or otherwise save that the schedule provided a measure of the work in terms of sales targets rather than in terms of times spent on the services which is counter indicative to employment.
c)Clause 3 provided that Mr McKerlie address all reports and correspondence to Mr Malik. This provision is also neutral.
d)Clause 4 permitted Mr McKerlie to engage in other work provided that work did not involve a conflict with his duties and responsibilities to the company and prohibited providing services to any direct or indirect competitor of the company. This provision suggests an intention that Mr McKerlie was not bound to the company and could perform work for others. While not a strong indicator it suggests a freedom to provide services to others and suggests a contractual arrangement rather than employment.
e)Clause 5 dealt with fees and leave. Clause 5(a) referred to the fees in Schedule 1. Schedule 1 provided for a monthly fee inclusive of GST of $6,250 with a commission structure for new sales. Clause 5(b) emphasised that the fees were inclusive of GST reference to GST suggesting that the parties did not intend payments made under the contract attracted the usual taxation arrangements associated with employment. Clause 5(c) required the fees to be paid within 10 days of receipt of a tax invoice again suggesting that payment under the contract was not in accordance with an employment arrangement. Clause 5(d) allowed the fees to be varied by agreement in writing between the parties. The manner in which payment for the services was described as a flat rate with commission to be claimed through invoices issued by Mr McKerlie and the ability to renegotiate the rates during the term of the agreement suggests an arrangement of independent contractor. Clause 5(e) provided for annual leave to be taken upon approval by the company. The provision of annual leave suggests an employment relationship.
f)Clause 6 set obligations for Mr McKerlie to perform the services in a diligent and professional manner and to ensure that any employees or agents involved in providing the services do so in the same manner. It also provided that Mr McKerlie take out any insurances required by law including workers compensation for his employees. The clause suggests that the relationship involves the provision of services by an independent contractor.
g)Clause 7 provides that Mr McKerlie and his employee or agents may use the company’s facilities but do so at their own risk. The reference to Mr McKerlie having employees or agents to perform the work indicates that the relationship is one of independent contractor.
h)Clause 8 of the contract describes the relationship as that of principal and independent contractor. The labels used by the parties are not determinative. It also provides that Mr McKerlie will not hold himself out as authorised to bind the company to any contractual or other legal obligations. This provision suggests a relationship of contractor rather than employment.
Clause 9 deals with intellectual property and requires Mr McKerlie to disclose all intellectual property created by him, his employees or agents in the course of doing the work. Mr McKerlie is required to assign all rights to such property to the company. Beside the reference to Mr McKerlie having employees and agents, this provision, which is also common in employment contracts is a neutral factor in determining the relationship of contractor or employment.
j)Clause 10 requires Mr McKerlie and his employees and agents to not disclose confidential information relating to the company except in the course of performing work or as required by law, or with the agreement of the company. It also provides that the confidential information must not be used by Mr McKerlie his employees or agents to damage the company. Mr McKerlie is required to secure undertakings from any employees or agents protecting the company to give effect to these obligations. I take the same view of this provision to the view I take of clause 9.
k)Clause 11 is an indemnity given by Mr McKerlie against liability for all loss, damage and injury to any person or property caused by him, his employees or agents in the course of providing the services. This indicates a relationship of contractor.
l)Clause 12 deals with termination of the agreement which may be by either party giving 2 weeks’ written notice or the company without notice for serious or material breach. Where termination on notice occurs, the final invoice is to be paid within 5 days of receipt. This provision does not assist in the assessment of the relationship.
My assessment of the contract is that it was a contract for Mr McKerlie to provide services to Fat Prophets. It was not an employment contract. Key indicators are the freedom given to Mr McKerlie to perform the work away from the company’s office, the facility for him to engage employees or assign agents to provide the services, the payments made by invoice, and the provisions giving the company indemnity for loss and damage and requiring Mr McKerlie to take out insurances including workers compensation for any employees outweigh any provisions that indicated a relationship of employment. The fact that during the term of the contract Mr McKerlie did not work remotely, did not engage others to assist in providing the services, and worked under direct supervision of Fat Prophets management, while significant factors in the way the services were provided, did not change the legal obligations under the contract.
Accordingly, the Respondent’s objection is upheld.
Mr McKerlie’s application for an unfair dismissal remedy is dismissed.
DEPUTY PRESIDENT
Appearances:
Mr McKerlie for the Applicant
Mr Tassell for the Respondent.
[1] see JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76 at [9].
[2] See Personnel per Gordon J at [177] and Keifel CJ, Keane and Edelman JJ at [54].
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