Thinking of engaging offshore labour? Proceed with caution.

Independent contractor arrangements often provide a convenient alternative to traditional employment. But the consequences of wrongly classifying someone as a contractor can be severe.

It is critical that businesses wanting to engage independent contractors have in place well drafted independent contractor agreements which contains terms that are consistent with a contracting arrangement. It is also imperative that businesses carefully monitor how these arrangements are performed in practice. Where the work being performed is akin to professional services support, special attention should be given to the extent of control and supervision exercised by the business. These considerations apply to onshore as well as offshore arrangements.

Recent changes to the Fair Work Act, which introduce a new definition of ‘employee’, mean that it is now easier for individuals who are ostensibly engaged as contractors to make out a claim that they are in fact employees. In the recent decision of Pascua v Doessel Group Pty Ltd [2024] FWC 2669, a Queensland law firm was found to have misclassified one of its legal assistants.

Ms Pascua performed work as a legal assistant, working remotely from her home in the Philippines. After the firm terminated her contract, Ms Pascua filed an unfair dismissal claim against the firm in the Fair Work Commission (FWC).

The firm argued that Ms Pascua was an independent contractor and was accordingly not eligible to bring the claim. In support of its position, the firm relied upon the following features of the arrangement:

• the parties’ contract was titled ‘Independent Contractor’s Agreement’;
• Ms Pascua rendered weekly invoices, which were processed separately from staff salaries;
• the contract stipulated that the firm would not be liable for paying any taxes, worker’s compensation or unemployment insurance; and
• the contract did not refer to any entitlements in respect of annual leave or sick leave.

However, the FWC determined that a number of other aspects of the arrangement pointed towards the conclusion that Ms Pascua was not conducting her own business but was in fact an employee of the firm.

The FWC focused particularly on the fact that:

• Ms Pascua received daily instructions and supervision in relation to her work, which suggested a level of control being exercised by the firm over the work she performed, which was consistent with an employment relationship;
• the work she performed was identical to the work described in the Legal Services Award 2020;
• she was required to perform work personally and could not assign it to someone else;
• her remuneration was based on a pre-determined number of hours’ work;
• she worked hours which matched Australian business hours;
• her remuneration was at a level below the minimum wage specified in the award, which suggested she was not providing specialist services; and
• she was provided with an email address with the firm’s domain name, and emails which she sent featured the firm’s signature block, which suggested she was working in the firm’s business rather than her own.

In light of the conclusion reached by the FWC regarding the correct characterisation of her arrangement with the firm, Ms Pascua is now entitled to pursue her unfair dismissal claim. If successful, the firm may be ordered to re-instate her employment or alternatively pay compensation of up to the equivalent of six month’s remuneration. The firm, and potentially its directors and officers, may also be liable to pay pecuniary penalties for misclassifying the relationship.

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

Co-author

Name: Mia Doherty

Position: Law Clerk

Practice: Disputes

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