Fair Work Commission rejects argument that an unwritten employment agreement existed concurrently with a written director agreement

Posted by March 07, 2024 | Articles | No Comments

Earlier this year, the Fair Work Commission dismissed a general protections application on the basis the applicant was solely a director – and not an employee. Consequently, the applicant could not have been “dismissed” as that term is defined within the Fair Work Act 2009 (Cth) and his general protections claim failed.

In Mark Feldschuh v Strong Room Technology Pty Ltd [2024] FWC 216 the applicant, Mr Feldschuh, was engaged as a director of Strong Room Technology under a written Non-Executive Director Agreement. While both parties accepted that Mr Feldschuh was a director, Mr Feldschuh argued that he was also an employee.

Primacy of the written contract

Two years on from the significant Personnel Contracting and Jamsek decisions, the primacy of the written contract in determining whether a person is an employee at common law was accepted by both parties.

The respondent argued that on an analysis of the written and signed Non-Executive Director Agreement between the parties, the Commission should be satisfied that Mr Feldschuh was not an employee.

Mr Feldschuh argued that before the Commission could be satisfied that the principles established by the Personnel Contracting and Jamsec decision applied, it must first be satisfied that the rights and duties of the parties were found exclusively within a written contract and that the terms of the parties’ relationship were comprehensively committed to a written contract.

Mr Feldschuh submitted that in the absence of a written contract, or where the contract has not comprehensively committed the terms of the relationship between the parties, the well-established multifactorial test should be used to analyse whether an employment relationship exists.

Mr Feldschuh submitted that his relationship with the respondent was not limited to, or comprehensively defined, within the written Non-Executive Director Agreement and that a separate employment contract operated alongside the Non-Executive Director Agreement.  In support of a simultaneous employment relationship Mr Feldschuh pointed to the fact he was paid annual leave and superannuation, that his payments were recorded by the respondent as ‘wages’ and ‘salary’, that the respondent exercised significant control over him, including setting KPIs for his performance, and that his duties extended well beyond those referenced in the written Non-Executive Director Agreement.

On assessment of the evidence, Commissioner Connolly concluded that the terms of the agreement between the parties were comprehensively contained in the written Non-Executive Director agreement, and therefore concluded that, as per the terms of that agreement, Mr Feldschuh was solely a director of the respondent and not an employee. Commissioner Conolly confirmed that critical to the decision was the fact that the applicant had not shown any compelling evidence that he was required to perform work other than what was set out in the written Non-Executive Director Agreement. The Commissioner considered the reference to Mr Feldschuh being an “employee” on pay slips as “a mere label used inaccurately and out of inexperience.”

Key takeaways

Key takeaways from the decision include the following:

  • it is important to have comprehensive and well drafted written contracts setting out the relationship between persons engaged to perform work in a business – these will be crucial in the event of a dispute about the nature of the relationship between parties; and
  • Commissioner Connolly noted at [70] that the situation the respondent found itself in was “a consequence of his poor relationship management and inexperience… and his failure to inform himself of the relevant employment law and corporate governance principles required of him to deal with the challenges of not only commencing a start-up business… but to sustain it.” This observation makes clear that, even for startups and small businesses, a sound understanding of employment laws and solid contractual infrastructure is critical.

Read the full decision here.

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