Determining the ordinary meanings of employee and employer

(1) For the purposes of this Act, whether an individual is an employee of a person within the ordinary meaning of that expression, or whether a person is an employer of an individual within the ordinary meaning of that expression, is to be determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person.

(2) For the purposes of ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person:

(a) the totality of the relationship between the individual and the person must be considered; and

(b) in considering the totality of the relationship between the individual and the person, regard must be had not only to the terms of the contract governing the relationship, but also to other factors relating to the totality of the relationship including, but not limited to, how the contract is performed in practice.

Note: This section was enacted as a response to the decisions of the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.

• [45] The Note to s.15AA(2) makes clear that the enactment of that provision was in response to the decisions of the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek). Those decisions focused upon the written terms of the contract and excluded consideration of post-contractual conduct when assessing the legal status of the worker. Assessment of post-contractual conduct had long been part of the interpretation of the law in this area with the application of the multiple factors/indicia test.[15]

• [46] S.15AA, however, commenced on 26 August 2024, and Clause 119 of the Explanatory Memorandum to the Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024 provides:

119 Old Act applies to proceedings on foot as at commencement:

(1) Despite the amendment made by item 237 of Part 15 of Schedule 1 to the amending Act, the old Act continues to apply, on and after commencement, as if that amendment had not been made, in relation to the following:

(a) an application made, or proceedings on foot, as at commencement, other than an application or proceedings prescribed by the regulations;

(b) an application for review of, or an appeal relating to, an application or proceedings referred to in paragraph (a) (whether the application for review was made, or the appeal proceedings were brought, before, before, on or after commencement).

• [47] The Application was commenced on 21 August 2024, and so was a proceeding on foot at the commencement of the Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024. As a result, I am required to apply the judgments of the High Court in Personnel Contracting and Jamsek.

• [48] The Applicant submitted that she was an employee, and referred in support to:

(a) The letter of 25 November 2010, that confirmed she was an employee after she had become a shareholder and director;

(b) The various Payroll Employee Summaries**,** Payroll Activity Details**,** Income Statements and Payslips that were indicative of employment;

(c) The Applicant's stated entitlement to long service leave;

(d) The 31 July 2024 email referring to whether the Applicant was proceeding with terminating her employment;

(e) The 1 August 2024 letter referring to termination of employment; and

(f) That the Deed had not been signed by Ms Hill and so was unfinalized.

• [49] The Respondent submitted the applicant was, at all material times since 2010, a director and shareholder of the Respondent, and did not fall within the statutory definition of an employee. The Respondent particularly relied upon:

(a) The Applicant's purchase of 50% of the shares in the respondent for $600,000 in 2010;

(b) The Applicant's remuneration as director and partner of $150,000 per annum plus superannuation, being equal to Mr Ward (with the Applicant's remuneration to be reduced by $50,000 per year to pay off the vendor finance and the bank loan supporting it);

(c) The applicant being put forward to staff and clients alike as a partner in the company, with degree of control and a vested interest in the company that is not characteristic of an employer-employee relationship; and

(d) The entry into the Deed in mid-2018, which Respondent contended exhaustively recorded the agreement reached between the parties as shareholders, with the Respondent submitting that the Corporations Act 2001 (Cth) prescribes the duties and rights of directors and shareholders.

• [50] In JMC Pty Limited v Commissioner of Taxation,[16] Justice Wigney noted that, after the trial in that matter concluded and while judgment was reserved, the High Court granted special leave and subsequently allowed appeals in Personnel Contracting and Jamsek. His Honour observed the judgments of the majority of the justices in those two cases "moved the goalposts, or, as all but two of the justices (Gageler and Gleeson JJ) would have it, affirmed where the goalposts had always been, or should always have been seen to have been". Justice Wigney held:[17]

1. The fundamental principles established by the judgments of the majority of the justices in Personnel Contracting and Jamsek may be shortly summarised as follows.

1. First, where the rights and duties of the parties are comprehensively committed to a written contract, the legal rights and obligations established by the contract are decisive of the character of the relationship provided that the validity of the contract has not been challenged as a sham, or that the terms of the contract have not been varied, waived or are subject to an estoppel. The task is to construe and characterise the contract made between the parties at the time it was entered into.

1. Second, in order to ascertain the relevant legal rights and obligations, the contract of employment must be construed in accordance with the established principles of contractual interpretation. In that respect, regard may be had to the circumstances surrounding the making of the contract, as well as to events and circumstances external to the contract which are objective, known to the parties at the time of contracting and which assist in identifying the purpose or object of the contract. The nature of the specific job that the putative employee applied for and the nature and extent of any tools or equipment they have to supply for that job may also be relevant. It is, however, generally not legitimate to use in aid of the construction of a contract anything which the parties said or did after it was made.

1. Third, and flowing from the first two principles, the characterisation of the relationship between the parties is not affected by circumstances, facts or occurrences arising between the parties that have no bearing on their legal rights. A "wide-ranging review of the entire history of the parties' dealings" is neither necessary nor appropriate. For a "matter to bear upon the ultimate characterisation of a relationship, it must be concerned with the rights and duties established by the parties' contract, and not simply an aspect of how the parties' relationship has come to play out in practice but bearing no necessary connection to the contractual obligations of the parties.

1. It follows that the fact that the parties' subsequent conduct may not have precisely aligned with their contractual rights and obligations, or the fact that a particular contractual right may have never been exercised or utilised, will generally be irrelevant when it comes to characterising the relationship. That is so unless the manner in which the parties conducted themselves after entering into the contract was such as to establish that the contract was a sham, or that the contract had been varied, or that certain rights under the contract were subject to an estoppel.

1. Fourth, the contractual provisions that may be relevant in determining the nature of the relationship include, but are not limited to, those that deal with the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax, the delegation of work and the right to exercise direction and control.

1. In Brodribb, Wilson and Dawson JJ said (at 36-37) that the indicia which suggested an employment relationship included "the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like", whereas those that suggested a contract for services included "work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion and the payment to him of remuneration without deduction for income tax". Their Honours were, however, careful to note (at 37) that "any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant". It should also be emphasised that the list of possible indicia must now be approached on the basis that the focus is on the parties' contractual rights and obligations relevant to those matters, at least where the contract is wholly in writing, not on the way in which the work was actually carried out.

1. Fifth, the characterisation of the relationship as one of service or employment involving an employer and employee, as opposed to a relationship involving an independent contractor providing services to a principal, often hinges on two considerations. The first consideration is the extent to which the putative employer has the right to control how, where and when the putative employee performs the work. The second is the extent to which the putative employee can be seen to work in his or her own business, as distinct from the business of the putative employer - the so-called "own business/employer's business" dichotomy. Neither of those considerations are determinative and both involve questions of degree.

1. As for the element of control, "the existence of a right of control by a putative employer over the activities of a putative employee serves to sensitise one to the subservient and dependent nature of the work of an employee, so as to assist in an assessment of whether a relationship is properly to be regarded as a contract of service rather than a contract for services.

1. As for the "own business/employer's business" dichotomy, it also "usefully focusses attention upon those aspects of the relationship generally defined by the contract which bear more directly upon whether the putative employee'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. Another way of framing the question, which focusses more directly on the terms of the contract, is whether the person "is contracted to work in the business or enterprise of the purported employer". One consequence of answering that question in the negative may be that the person is not an employee.

1. Sixth, a "label" which the parties may have chosen to describe their relationship is not determinative of the nature of the relationship and will rarely assist the court in characterising the relationship by reference to the contractual rights and duties of the parties. The parties' "legitimate freedom to agree upon the rights and duties which constitute their relationship" does not "extend to attaching a 'label' to describe their relationship which is inconsistent with the rights and duties otherwise set forth" - to permit otherwise would elevate the freedom to "a power to alter the operation of statute law to suit ... the interests of the party with the greater bargaining power.

1. The characterisation of a relationship as being either one of employer and employee, or one involving the engagement of an independent contractor, is ultimately an evaluative judgment that takes into account the totality of the parties' contractual rights and obligations. The exercise may not necessarily be straightforward because, in some cases at least, the parties' contractual rights and obligations may point in different directions. The evaluative exercise also should not be approached on the basis that there is some checklist against which ticks and crosses may be placed so as to produce the right answer. Some degree of uncertainty is unavoidable, particularly in the case of many modern-day work or service contracts.

• [51] In Chiodo v Silk Contract Logistics (Chiodo),[18] Justice Kennett dealt with an entirely oral contract. In Chiodo, Kennett J explained the manner in which the conduct of the parties should be considered as follows):

Where there is not a written contract, the identification of the parties' contractual rights must proceed somewhat differently but the fundamental task is the same: the parties' contractual rights and obligations are to be ascertained and characterised. The question remains what the parties' legal rights and obligations were, rather than how they behaved in the performance of their contract. However, that distinction obviously becomes more complicated where the contract is not written and its terms are to be inferred in whole or in part from the parties' conduct. The terms of an oral contract may not be limited to express terms; terms may be inferred from the circumstances, including a course of dealing between the parties, or implied where necessary for business efficacy.

Where there is no written contract and no evidence of a particular conversation in which a contract was formed orally, evidence of the parties' conduct must necessarily be considered in order to draw inferences as to whether the meeting of minds necessary to create a contract has occurred and what obligations they have thereby undertaken (see Personnel Contracting at [177] (Gordon J, Steward J agreeing)).

• [52] The Respondent submitted that the Deed dealt exhaustively with the agreement between the parties, while the Applicant submitted the Deed had no application as it had not been executed by all parties. I consider that the Deed was an attempt to formalise the directorships and shareholdings of the Respondent. There is no suggestion that any terms of the Deed are inconsistent with the legal rights and obligations of the parties.

• [53] The absence of Ms Hill's signature is not determinative, particularly where the Deed provides for execution by counterparts. Additionally, while Ms Hill corresponded with Mr Kettle about changing the Deed, the expression "change" could equally apply to varying a concluded agreement. This is not a case where there was an expectation that the parties would not be bound until all parties have executed the document.[19]

• [54] While generally irrelevant to characterising the relationship, I note the parties prior and subsequent conduct generally aligned with their contractual rights and obligations in the Deed. In particular, at least up to the first day of the hearing of the matter, the Applicant remained a 20% shareholder in the Respondent, and a Partner of the Respondent.

• [55] The Applicant's focus on labels used in the letter of 25 November 2010, the 31 July 2024 email, the 1 August 2024 letter, and the various Payroll Employee Summaries**,** Payroll Activity Details**,** Income Statements and Payslips is misplaced, and as Justice Wigney found, will rarely assist in characterising the relationship.

• [56] As to the 'entitlement' to long service leave, the evidence established that rather than being a calculation pursuant to same established formula, the identified 'entitlements' the figures expressed were recorded to create an entitlement to tax benefits on retirement where none existed.[20]

• [57] In _EFEX Group Pty Ltd,[21]_Justices Katzmann and Bromwich held:

13. Once the contours of the legal relationship are identified, its characterisation as one of employment or not often hinges on two considerations identified in Personnel Contracting, in particular by Kiefel CJ, Keane and Edelman JJ at [36]-[39], each of which may involve questions of degree, namely:

(a) the extent to which the putative employer has the right to control how, when and where the putative employee performs the work; and

(b) the extent to which the putative employee can be seen to be working in their own business as distinct from the putative employer's business.

• [58] The issue of control weighs heavily against a finding that the Applicant is an employee. While the partners of the Respondent are not partners according to a legal definition because the firm is incorporated, those partners have an independence and ownership that differs from an employee. They have complete control over their clients and are not subject to direction in the performance of their work. They report only to their other partners as a group. The partners of the Respondent draw dividends.[22]

• [59] The Applicant's evidence regarding control generally within the Respondent and specifically regarding Directors was as follows:[23]

And who were they responsible to in the performance of those indicators? --- Well, they were responsible to the directors and/or partners, and in our management meetings, that we then started to have regular management meetings, we - the budgets that were prepared by Ross for each of the senior accountants, including each of the partners, had their own budget.  They were all discussed in the meeting in regards to the performance.

And that's between yourselves, is it, as the directors of the business at the time? --- And the other managers of the firm.

All right? --- They manage.  So we had general managers, practice managers, the HR manager.

And they reported to you as the directors? --- Yes.

And the staff reported to you as directors in relation to the performance, their performance within the practice? ---- Yes.

All right, and the only people that you reported to, in relation to your performance in the practice, was the body comprised of yourself and the other directors? --- Yes.

• [60] A further factor that weighs against the Applicant being considered an employee, and which highlights that the dispute between the Applicant, the Respondent and the other shareholders is truly a shareholders dispute, is the fact that, were liability eventually found, the Applicant would be 20% liable to herself.

• [61] I find that the Applicant was not an employee of the Respondent at any relevant time.

• [62] Having found that the Applicant was not an employee of the Respondent at any relevant time it is unnecessary for me to consider whether the Applicant was dismissed. For completeness, however, I find that even if the Applicant was an employee of the Respondent, she was not dismissed.

• [63] Section 12 of the Act defines the word "dismissed" by reference to s 386 of the Act. Sub-section (1) of s.386 relevantly provides:

(a) the person's employment with his or her employer has been terminated on the employer's initiative; or

(b) the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer.

• [64] In Bupa Aged Care Australia Pty Ltd v Shahin Tavassoli (Tavassoli),[24] the Full Bench of the Commission conducted a detailed analysis of authorities relating to whether particular resignations constituted dismissal pursuant to various legislative schemes. After that analysis, the Full Bench provided the following distillation:

[47] Having regard to the above authorities and the bifurcation in the definition of

"dismissal" established in s.386(1) of the FW Act, we consider that the position under the FW Act may be summarised as follows:

(1) There may be a dismissal within the first limb of the definition in s.386(1)(a)

where, although the employee has given an ostensible communication of a

resignation, the resignation is not legally effective because it was expressed in

the "heat of the moment" or when the employee was in a state of emotional

stress or mental confusion such that the employee could not reasonably be

understood to be conveying a real intention to resign. Although "jostling" by

the employer may contribute to the resignation being legally ineffective,

employer conduct is not a necessary element. In this situation if the employer

simply treats the ostensible resignation as terminating the employment rather

than clarifying or confirming with the employee after a reasonable time that the

employee genuinely intended to resign, this may be characterised as a termination of the employment at the initiative of the employer.

(2) A resignation that is "forced" by conduct or a course of conduct on the part of

the employer will be a dismissal within the second limb of the definition in

s.386(1)(b). The test to be applied here is whether the employer engaged in the

conduct with the intention of bringing the employment to an end or whether

termination of the employment was the probably result of the employer's

conduct such that the employee had no effective or real choice but to resign.

Unlike the situation in (1), the requisite employer conduct is the essential

[48] It is necessary for an applicant for an unfair dismissal remedy whose employment has terminated because the employer has acted on a communication of resignation on the part of the employee to articulate whether they contend they were dismissed in the first or the second scenario above (although it may be possible for both scenarios to arise in a particular factual situation). Where the applicant is self-represented or inadequately represented, it may be necessary for the member of the Commission hearing the matter to clarify with the applicant the precise basis upon which it is contended that the applicant was dismissed. If this is not done, it may lead to the wrong test being applied to the matter.

• [65] The Applicant seemed to contend she was dismissed in both the first and the second scenarios in Tavassoli. The Applicant submitted that:

(a) None of the "policies and procedures" for disciplinary meetings were followed, and the Applicant was not given appropriate notice, the opportunity to bring a support person or address the discrepancies;

(b) The Respondent did not allow a reasonable time to pass until formalising the termination, and moved quickly to close off the Applicant's access to her computer; and

(c) The Applicant was forced to resign after she refused to participate in a scheme to avoid any fallout from another adverse finding against the Respondent and Mr Ward.

• [66] The Respondent submitted that it was the Applicant who elected to walk away from the Respondent during the meeting on 31 July 2024. The Applicant was clearly upset in that meeting that her integrity was being questioned about the financial management of the company, however she was also upset about the possibility of a change in the arrangements being negotiated with the purchasing entity, Count. While Mr Ward was actually seeking to be inclusive in raising the issues relating to the Count sale with her and with Mr Cassone, the Applicant said:

I don't want anything to do with any of this. Throw whatever you want at me but I am NOT going to agree to what you want. I don't want to know and I won't be involved

You can out vote me as much as you like, but you can't force me to do something I have clearly said no to. Now move out of my way.

• [67] I do not consider the conduct of the Respondent was conduct intending to bring the Applicant's employment to an end. On the contrary, I find that the Respondent raised issues of the restructure of the Respondent, and existing issues regarding expenses, dividends payments and the reconciliation spreadsheets. As the Applicant accepted,[25] Mr Ward was in fact asking the Applicant to participate in making a decision.

• [68] As the Applicant described in re-examination, the trigger for her resigning was a dispute over the structure and shareholding of the Respondent going forward. The Applicant said:

... once again the plan or the scheme was changed to benefit Damien and only Damien, and I did not want any part of it at all, and I had said that to him on so many times that I did not want to be a part of it.  And I was happy for Count, I was happy for Hayes Knight to buy 100 per cent.  That was the original plan.  I was happy for Count to buy my 10 per cent.  That was the second plan.  But then the final plan was that he was basically dropping a bombshell looking after himself and walking out and leaving the shit for me to deal with.  Excuse my language.

• [69] The Respondent did not engage in conduct with the intention of bringing the relationship to an end. The sole intention was for whatever relationship to continue, albeit with a different structure and shareholding. The Applicant had an effective and real choice as to whether to resign.

• [70] While, in the circumstances of the meeting of 31 July 2024, there is some initial attraction to the submission that the Applicant was in a state of emotional stress or mental confusion such that she could not reasonably be understood to be conveying a real intention to resign, I ultimately reject that submission because, while that meeting occurred between 1.00 and 1.30pm, the Applicant remained in the Respondent's office until about 5.00pm, and the following day refused to meet with the Respondent and Mr Ward. I accept that the Respondent stopped the Applicant's computer and email access as a security measure.

• [71] The Applicant took no steps to seek to withdraw her resignation, notwithstanding receiving the 31 July 2024 email (at 7.53pm), and the 1 August 2024 Letter (at 9.00am).

• [72] For the reasons set out above, I am satisfied that the Applicant was not an employee of the Respondent and was not dismissed by the Respondent.

• [73] As the Applicant was not dismissed, she could not apply for relief under Sub-division A of Part 3-1 of the Act. The Application must be dismissed.

[16] [ 2022] FCA 750 (29 June 2022)

[18] [2023] FCA 1047, at [8] and [9].

[19] Contrary to the facts in Hopcroft & Anor. v Edmunds & Ors. (No.2) [2012] SASC 94

[21] [2024] FCA 508, at [13].

[24] [2017] FWCFB 3941.

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