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How to determine whether an employment relationship exists

Most of the rights and entitlements in the Fair Work Act 2009 (Cth) will not apply to a person unless they are an employee in an employment relationship.

When does an employment relationship exist?

An employment relationship can only exist where a person agrees to perform work pursuant to a contract of service or a contract of employment.

This requires:

  • agreement being reached between the worker and the person for whom the work is performed about the terms of the contract;
  • each party doing or promising to do something of value in return for what the other is doing or promising to do, i.e. ‘consideration’;
  • both parties intending that the arrangement will be legally enforceable; and
  • the terms of the agreement being certain and complete, and not involving anything that might make the agreement of no legal effect, e.g. duress and illegality.

An agreement to do something is only regarded as a contract if the parties intended the agreement to be legally binding and carry legal consequences. That is, if something goes wrong, if one party failed to act in accordance with the agreement, the other party would be entitled to take legal action to seek performance. In employment situations where work is intended to be performed for payment, the necessary legal relations are generally present.

Sometimes, where there is no evidence that the parties reached agreement either verbally or in writing, the intention to enter into legal relations can be inferred from the way the parties have treated each other.

Internships, unpaid work experience or legal clerkships may not be employment if:

  • they are mainly for the benefit of the person rather than the firm;
  • they are in place for a relatively short period, i.e. a few weeks at most;
  • the person is not required or expected to undertake productive work; and
  • the work doesn’t give the business any significant commercial gain or value.

‘Case’ in point

In Barbour v Derbas Lawyers (2021), the Fair Work Commission (FWC) had to determine whether a law graduate doing unpaid work at a law firm was an employee of the firm.

The FWC ruled the relationship was one of work experience, not employment.

The FWC was not satisfied that the parties had reached an agreement on the terms of a contract. The claimant (graduate) relied on the fact that he was told of appropriate dress standards in a legal office, but the FWC considered this would be consistent for work experience.

The FWC was also not satisfied that the training or supervision the firm provided to the claimant constituted consideration to support a finding of employment.

The claimant argued the intention to create legal relations was shown by:

  • his practising certificate describing him as an employee of the firm;
  • the fact he held an account with Legal Aid NSW as a solicitor under the firm’s name;
  • the firm issuing him with a business card describing him as a lawyer; and
  • the work he undertook (i.e. drafting affidavits and court documents) for which the firm charged fees.

The FWC disagreed and ruled there was no intention to create a legal relationship of employment (noting that the above were questionable practices given the potential for clients to be misled about the skills, experience, qualifications and employment status of volunteers or work experience placements).

The FWC found:

  • the fact that the parties contemplate the possibility of having legal relations in the future is not of itself sufficient – the parties must have intended to create enforceable legal relations in the period in question;
  • the placement mainly provided a benefit for the claimant rather than the firm – the benefit being experience, which improved the claimant’s employability (the time spent reviewing and amending his work was a business cost not a business benefit);
  • the firm did not derive any significant commercial gain or value from the work the claimant performed;
  • while the period of placement was 14 weeks, which would be the outer limits of what might be described as a relatively short period, this did not make the arrangement one of employment;
  • there was no expectation by the firm and the claimant that the latter would attend and perform the duties on any day;
  • while the firm offered the claimant the opportunity to do productive work, he was not expected or required to do so;
  • the firm did not need or want additional staff, and did not proactively solicit the claimant to perform paid or unpaid work; and
  • there was no expectation on the claimant’s part to receive wages for the time he spent at the office of the firm.
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