Failing to properly classify the employment relationship is a recurring issue. In a recent case[1], the Fair Work Commission (“FWC”) has shed some light on the distinction between employees and independent contractors and what is required to ensure procedural fairness when terminating labour hire agreements.

In this case, Audi Enterprises was a franchisee of Courier company Couriers Please. Two courier drivers who performed work for Audi Enterprises were let go after the host courier company found significant stock discrepancies in the deliveries that were designated to the drivers. The host courier company alleged that the two couriers stole a parcel containing $17,000 worth of cigarettes after viewing CCTV footage which showed the couriers taking the package.

The drivers were prohibited from attending the Couriers Please premises until an investigation into the alleged theft was completed by the Police. The exclusion clause in the Audi Enterprises and Couriers Please franchisee agreement specifically stated that “Drivers must be approved by Couriers Please… who may, in its absolute discretion, require the Franchisee not to use a particular Substitute Driver in the transaction of the Services”. As a result, Audi Enterprises terminated the agreement with the drivers.

Audi Enterprises submitted that the drivers were not employees. However the FWC found that, whilst the drivers were paid under their ABNs and lodged invoices, they exercised little control over the work arrangement, were required to follow a “regimented schedule” and in the circumstances were not conducting their own business. For years they had followed set and regular hours of work. Whilst they were not paid for holiday or sick leave and had to pay for their own petrol, they were guaranteed a weekly payment of $1300, which the drivers likened to a base wage or weekly salary. In considering the totality of the relationship, the FWC was satisfied that the drivers were employees.

After finding that the drivers should properly be classified as employees under the Fair Work Act 2009 (“FWA”), the FWC then turned their attention to determining whether the dismissal was harsh, unjust or unreasonable. It was found that there was a valid reason to dismiss the drivers based on capacity. The FWC was satisfied that the exclusion clause provided Couriers Please with an unfettered right to prohibit the drivers from providing services through Audi Enterprises. Further, to show that the dismissal was fair, Audi Enterprises were required to explore redeployment options. The FWC considered the small size of the business and was satisfied that no alternative employment opportunities existed.

However, the FWC found that the drivers were not notified of the reasons for their dismissal. The FWC criticised Audi Enterprises for not telling the drivers that their employment was terminated because Couriers Please exercised its contractual right under the exclusion clause. By neglecting to initiate their own dismissal process, Audi Enterprises failed to afford procedural fairness to the drivers. For this reason, the FWC concluded that the dismissals were unjust and unfair.

Lessons for Employers

• Ensure you understand the fundamental differences between employees and independent contractors and seek legal advice if required.
• If you hire independent contractors, review all arrangements in place and ensure they are appropriately engaged. Ensure the terms are documented in written form.
• Affording procedural fairness in any dismissal process is essential.
• Be wary of the sham contracting provisions in the FWA and do not disguise an employment relationship as an independent contractor arrangement in order to avoid your legal responsibilities.
• Remember the courts will consider the true nature of the relationship and not the description given by the parties. Just because you tell a worker they are an independent contractor, doesn’t mean they are.