Being considered an employee rather than a contractor can have a huge impact on the financial entitlements and workplace rights you’re afforded, particularly when you’ve been dismissed. But under Australian employment law, what determines if you’re a contractor or employee?
For some workers, their employment status can be uncertain, and employers often misclassify them as a contractor. They therefore feel they have the right to deny them the workplace rights and payments – like accrued leave – that employees are legally entitled to.
Employer pays big for sham contractor arrangement
In this article, we’ll look at a recent case where the Federal Court of Australia had to decide if a worker was a contractor or employee – Cropper v Energy Action (Australia) Pty Ltd (No 2) [2025]. The Court highlighted one specific piece of evidence – a detail on a pay stub – that proved he was in fact an employee. His employer was then ordered to pay him over $100,000 in accrued leave and other entitlements.
We’ll also look at another recent case where the Fair Work Commission examined the nature of a gym instructor’s work, highlighting the reasons why he was an employee and not a contractor.
Contractor or employee? Dismissed worker’s murky status cleared up by Federal Court
John Cropper began working for gas and electricity procurement company Energy Action in 2005. He was initially hired as an IT specialist, receiving an hourly rate and operating as a sole trader. Mr. Cropper would invoice the company for payment and he was also asked to sign a confidentiality agreement.
He was hired to implement Energy Action’s database management system. In early 2006, the project started to require more work. This was when Mr. Cropper approached the assistant of the company’s chief executive about being added to the company’s payroll. He claimed that this would simplify his tax arrangements. Specifically, he wouldn’t need to register for GST if he was on the payroll.
Started being treated like an employee
During Mr. Cropper’s court case for his dismissal, the Federal Court of Australia found that there was no evidence proving that the chief executive approved the change. However, it noted that in February 2006, Mr. Cropper’s employment at Energy Action underwent “some profound administrative changes.”
This was when he started receiving monthly ‘pay advice’ that showed deductions for income tax and superannuation. At this time he also stopped sending invoices to Energy Action to be paid. By September 2007, Mr. Cropper was working exclusively for the company.
In 2008, Mr. Cropper was given business cards by Energy Action. These referred to him as the Data Management and IT Manager. He also started having annual performance reviews and even assisted in the recruitment of a subordinate.
While all these actions may have added to the idea that Mr. Cropper was a permanent employee, by 2014 Energy Action’s HR manager still referred to him as an independent contractor.
The issue of whether Mr. Cropper was an employee or contractor arose around three years before his dismissal, in 2017. This was when he noticed that his name wasn’t included in a list for employees to take part in Energy Action’s share plan. Mr. Cropper alerted the HR manager to this omission, who told him that his employment status had been confirmed as a contractor.
Mr. Cropper replied to this by saying that Energy Action had previously offered him shares. This was when the company went public in 2011. The HR director then told Mr. Cropper to do some research into his employment status by contacting the Fair Work Commission and Australian Taxation Office.
After doing his investigations, Mr. Cropper gave his conclusion to Energy Action. He told the HR manager that all his research led him to find that there is “no single factor” that decides whether an individual is an employee or a contractor. At this point, there were no more discussions between Mr. Cropper and Energy Action about his employment status.
Employer decides to reimburse him after dismissal
Mr. Cropper was dismissed by Energy Action in early 2020. In his termination letter, the company said it was ending his “engagement as a contractor.” He was also told that Energy Action would pay him “the same amounts that we would pay to our permanent employees in this position.” This was termed as a “gesture of good faith.”
The company said it would pay him five weeks’ notice and 12 weeks of long service leave and redundancy pay, but no annual or carer’s leave. Following his termination, Mr. Cropper lodged a claim with the Fair Work Commission. He alleged Energy Action breached the National Employment Standards.
Federal Court detailed evidence of employment relationship
The Federal Court of Australia found Mr. Cropper’s employment relationship with Energy Action had fundamentally changed in 2006. It ruled that he was a permanent employee from January 2006 until his dismissal.
The Court observed that Energy Action gave Mr. Cropper a transaction report outlining the payments he would receive post-dismissal. It detailed a gross amount of $42,730.70 as an “ETP – Taxable (Post June 83) Code: O” payment. The Court found that this was “indisputably” a reference used with an employment termination payment by the Australian Taxation Office.
Worker was denied rights, wins huge payout
Having established that Mr. Cropper was an employee, the Federal Court of Australia noted that he was entitled to be given reasonable notice of dismissal. This was unless a specific notice period is stipulated in a contract. Given Mr. Cropper’s length of service, seniority and age, the court determined that a period of three months constituted “reasonable notice.”
The Court also found that Energy Action failed to pay Mr. Cropper for accrued annual leave and public holidays. It noted that Mr. Cropper had claimed that he had accrued 54.97 weeks of untaken annual leave. This figure was not disputed by Energy Action. The Court said that by not reimbursing Mr. Cropper, Energy Action had violated the Fair Work Act 2009.
Ultimately, the Federal Court of Australia found Energy Action owed Mr. Cropper $91,129.22 for unpaid annual leave. It also owed him a further $20,176.85 for 44 public holidays over a six-year period, as well as $628.39 for personal/carer’s leave.
Gym worker proves he was an employee
Another recent case heard by the Fair Work Commission that involved a dispute about a worker’s status is Franklin v The Trustee For World Gym Melbourne Investment Unit Trust [2024]. Michael Franklin began working for World Gym Prospect as a group fitness instructor in August 2020. At this time, he was working for another gym. Mr. Franklin explained to the Commission that working for numerous gyms was a common practice in the fitness sector.
He initially worked one class per week for World Gym Prospect, but soon began working three classes per week, each lasting around one hour. Mr. Franklin didn’t have a formal employment contract with World Gym Prospect. Rather, he had an Australian Business Number (ABN) and was told to submit invoices for payment. This arrangement lasted for four years until his dismissal.
Dismissed after requesting timetable change
In March 2024, Mr. Franklin received an offer from a different gym for back-to-back classes. He accepted the new position and texted his manager at World Gym Prospect that he’d no longer be available on Wednesdays and Saturdays. He said that he could still perform three classes on Mondays.
A World Gym Prospect manager told Mr. Franklin that it would use this news as a chance to change its timetable. He told Mr. Franklin that it would be preferred that he dropped his remaining classes because the gym needed instructors that were more committed to its timetable.
Mr. Franklin delivered his last class at World Gym Prospect in early April 2024 after having his shifts cut. This effectively ended his employment with the company.
Argued working conditions were not that of a contractor
Mr. Franklin subsequently lodged an unfair dismissal claim with the Fair Work Commission. He argued that despite his title at World Gym Prospect as a contractor, his working conditions were indicative of an employment relationship.
To this point, he highlighted the fact that the type of work he did, as well as the days, times and duration of shifts he worked were “prescribed” by World Gym Prospect. Mr. Franklin also pointed out that his pay rate was set by the gym and could not be negotiated.
He said that he was required to perform his work personally and could not delegate it, and that the classes were provided to the gym’s customers, not his own. Mr. Franklin also mentioned that he used the gym’s premises and equipment to conduct his classes.
Employer raised jurisdictional objection
World Gym Prospect argued that Mr. Franklin wasn’t an employee, but an independent contractor. It said that he ran “his own business” and provided his services to “anyone he elected to.” The gym stated that instructors were paid a premium contract rate and chose to accept or decline classes.
World Gym Prospect also pointed to the fact that Mr. Franklin used an ABN, submitted invoices and was responsible for his own tax and public liability insurance.
Was he an employee or contractor? Fair Work decides.
Addressing the jurisdictional objection, the Fair Work Commission examined the “totality” of the relationship between Mr. Franklin and World Gym Prospect. It noted that Mr. Franklin had “little discretion” in how he worked at the gym once the timetable was set. The Commission also found that he didn’t have the ability to negotiate his pay or delegate his work. It said that Mr. Franklin was working in World Gym Prospect’s business and “not his own business.”
The Commission found that the control World Gym Prospect had over Mr. Franklin’s work outweighed the factors suggesting he was an independent contractor. It therefore found that he was an employee and not an independent contractor. World Gym Prospect’s jurisdictional objection was dismissed and Mr. Franklin’s unfair dismissal claim was allowed to proceed.
Gym found to have ended working relationship
At Mr. Franklin’s hearing, the Fair Work Commission had to work out if he, as an employee, had been unfairly dismissed. Following the ruling that he was an employee, World Gym Prospect argued that the end to its working relationship with Mr. Franklin was by “mutual agreement.”
The Commission, however, rejected this argument. It found that the gym’s decision to remove Mr. Franklin from the roster effectively ended the employment relationship. It said that this “amounted” to a dismissal.
Was denied procedural fairness
Further examining the nature of his sacking, the Fair Work Commission also found that Mr. Franklin’s dismissal was unfair. It said that it’s “common practice” for fitness instructors to work across multiple gyms. It also noted that there was no prohibition in Mr. Franklin’s contract regarding working for competitors. Based on this, the Commission concluded that World Gym Prospect’s reason for dismissal was not valid.
It also found that the gym failed to give Mr. Franklin procedural fairness. This was because it did not have any discussions with him prior to cutting his shifts. The Commission criticised the gym for not considering alternative solutions to resolve the matter collaboratively.
Read more: Casual Employee Rights
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