It is considered “standard practice” in the start-up space for those in advisory or similar positions to be engaged as independent contractors, so much so that many assume this to be the case and give little consideration to the terms of the agreement (formal or not) documenting the engagement.
But this nonchalant approach can leave businesses vulnerable, particularly given the importance of the written agreement following the High Court’s decisions earlier this year in Jamsek and Personnel Contracting, summaries of which are available here.
The recent decision of the Fair Work Commission in Course v Wavin Technologies1 serves as a reminder of the importance of the written agreement in the context of these advisory engagements.
The Applicant had developed a career focused on introducing new technologies to corporate clients. On 11 November 2020, the Applicant was approached by the then CEO of the Respondent, Wavin Technologies Pty Ltd (Wavin), a software technology start-up, to discuss the possible engagement of the Applicant as an advisor.
On 20 November 2020, following back and forth discussions between the parties, the Applicant sent a proposal to the CEO (Final Proposal), which included details of his proposed salary, bonus and share options. Even though the director of Wavin viewed the Final Proposal as being too complicated and that he “preferred to stick with [Wavin’s] standard model”, this was only communicated to the CEO, not to the Applicant.
On 25 November 2020, the Applicant emailed the CEO and the director, a link to a standard employment agreement for Wavin to complete. Six days later, the Applicant met with the CEO who provided him a brief induction session. The Applicant understood that the induction session marked the beginning of his employment with Wavin.
Later that day, the Applicant emailed the CEO asking her, “Could you get [the director] to confirm the agreement in principle…”, to which the director replied saying, “…Yes, happy to proceed and agree in principle to your most recent proposal sent in email. Have forwarded the construction [sic] to my advisors to help complete the formal agreement”. However, no formal written agreement was entered into between the parties.
On 22 March 2022, following a downturn in business, the Applicant’s engagement was terminated by Wavin.
The Applicant made an unfair dismissal application which Wavin objected to on the basis the Applicant was an independent contractor, not an employee. In determining this jurisdictional objection, Commissioner O’Neill considered the following questions.
Was there a contractual relationship between Wavin and the Applicant?
The Applicant contended that the Final Proposal, when accepted by the director “in principle”, created a binding contract between the parties, and that although no formal written agreement was finalised, there was sufficient agreement “in principle” about the core terms of the engagement to create a binding contract. The Applicant also contended that there was no indication from Wavin that a formal written agreement needed to be signed by him before he could commence work.
Wavin argued that there was a verbal contract between the parties which stipulated that the Applicant was an independent contractor of Wavin. Wavin submitted that the Applicant had accepted this verbal offer on the basis that the Applicant understood and knew that it was Wavin’s standard practice for advisors in the technology start-up space to be engaged as independent contractors. Further, Wavin contended that the Final Proposal was not contractual because there was no acceptance by Wavin of the Final Proposal, and that it was objectively unlikely that both parties intended for an incomplete document to impose contractual obligations.
Commissioner O’Neill rejected Wavin’s submission that there was a wholly verbal agreement in place since the Final Proposal made it clear that the Applicant did not agree to the commission rate proposed in the verbal offer. Instead, the Commissioner formed the view that the Final Proposal accepted “in principle” was contractual, and that both parties intended to be bound by it immediately, evidenced by the fact the Applicant continued working at Wavin for 16 months without a formal written contract in place.
Was the contractual relationship between Wavin and the Applicant an employment relationship?
Since the Final Proposal was far from a comprehensive agreement, Commissioner O’Neill observed that it was necessary to consider the parties’ performance of the contract in order “to find contractual terms where they cannot otherwise be ascertained” from the contract.
The Commissioner focused on the element of control, observing that although the Final Proposal did not stipulate when and where the Applicant would undertake his work, Wavin still exercised a high degree of control by requiring the Applicant to attend regular sales meetings, to engage in discussions about sales performance, and to comply with certain limitations as to the terms to be offered to Wavin’s clients. Further, Commissioner O’Neill observed that although the Applicant was not subject to close day-to-day supervision, this autonomy was unsurprising given the Applicant’s level of skill and experience.
The Commissioner also considered whether the Applicant was running his own business. Although Wavin contended that the accepted meaning of “advisor” in the start-up space, coupled with the financial risk of limited sales impacting his bonus and share options, indicated that the Applicant was running his own business, Commissioner O’Neill disagreed. The Commissioner held that there was no probative evidence which suggested that the Applicant was operating his own business (including that there was nothing to suggest that the Applicant could have generated saleable assets or goodwill for himself).
Considering the above, Commissioner O’Neill determined that the Applicant was an employee of Wavin, and the matter was relisted to deal with the Applicant’s unfair dismissal application.
The decision reiterates two of the core pillars of business – never assume, and always document in writing. While attention to detail can sometimes go lacking amid the constant rush of a growing start-up, there is no excuse for businesses to not have properly drafted contractor agreements, and to not ensure that these agreements are properly executed and maintained before any work is performed. The failure to do so can have severe financial consequences.
Please contact Addisons’ employment law team who can help you with drafting or reviewing your independent contractor agreements.
1 Course v Wavin Technologies Pty Ltd  FWC 1977.