Unfair dismissal case a wake-up call for employers

A landmark decision by the Fair Work Commission (FWC) has revealed many Australian businesses currently engaging offshore contractors could be vulnerable to costly unfair dismissal claims.

A recent case by the FWC of Pascua v Doessel Group was a monumental decision, which found a Philippines-based legal assistant was unfairly dismissed. The case serves as a needed wake-up call for Aussie employers who outsource their functions to offshore workers.

HR Leader reached out to Amanda Lyras, partner at Clayton Utz, about what businesses must be aware of in terms of their employment obligations while hiring offshore workers.

“The application of the Fair Work Act to foreign workers is somewhat complex, but it is important for businesses to be aware that the employee protections under the act can extend to worker who is based outside Australia,” Lyras said.

“There are a number of factors that go into the assessment, but where the employer is an Australian business, in all likelihood, any individuals it employs directly will be covered by the Fair Work Act regardless of their actual location.

“A foreign employee is only expressly exempt from the Fair Work Act where they perform duties wholly outside Australia and are engaged outside Australia (including where the acceptance of their contract, and the receipt of that acceptance, takes place outside Australia).”

Lyras explained a major distinction that was made in the Pascua case, which hinged on the form of employment the worker was under.

“In the Pascua case, whether the worker was within the jurisdiction of the Fair Work Act was not challenged. Instead, the primary issue was whether the relationship was an employment relationship or one of a principal and independent contractor,” Lyras said.

“This is important because the unfair dismissal protections considered in the Pascua case are only provided to employees under the Fair Work Act. When considering the employment contract, the Fair Work Commission determined that the nature of the relationship between Pascua and Doessel Group was an employment relationship.”

This example offers a stark warning to employers who are already having to juggle new regulations such as the Closing Loopholes reforms.

“In light of this decision, and following the Closing Loopholes reforms, Australian businesses [that] engage contractors overseas need to ensure they accurately characterise the engagement of independent contractors based on the real substance, practical reality and true nature of the relationship in practice,” Lyras said.

“Where the relationship is more reflective of employment, businesses may still be required to provide minimum employee entitlements under the Fair Work Act and may be exposed to Fair Work claims such as unfair dismissal.”

Lyras advised that employers looking towards offshore workers in their recruitment processes must carefully consider how and why they are engaging such workers.

“It is not possible to contract out of the protections under the Fair Work Act, but businesses should give careful consideration to how and why they are engaging foreign workers and, consequently, how the arrangement should be structured,” Lyras said.

“If the foreign worker is an employee who will primarily be performing duties offshore, then it may be more appropriate for them to be engaged by a foreign company in the group or a foreign employer of record. It is also important to carefully consider whether foreign workers should be engaged as employees or independent contractors, with reference to the nature of the engagement in practice.

“Following the Closing Loopholes reforms, it is not possible to rely on a well-drafted contract alone in establishing that a worker is an independent contractor. Where a worker is a bona fide contractor, they will not be able to access employee protections under the Fair Work Act.”

Overall, having well-drafted agreements with an overseas employee is the bare minimum that employers can do in this circumstance. Having clarity on the employment status of an overseas worker is crucial to mitigating potential risks.

“We always encourage our clients to have a robust process that properly characterises workers as employees or independent contractors so they are not caught out in a situation where the nature of the relationship is successfully challenged.

“This can be best achieved by accurately characterising workers at the outset, having well-drafted agreements and implementing regular checkpoints to monitor changes in nature of the relationship,” Lyras said.

“More broadly, for businesses with global operations, careful consideration should be given to which entities should engage workers across the business and which laws may apply to their engagement, to ensure compliance and mitigate against any potentially perverse consequences.

“This is of particular relevance in the post-COVID environment where it is not uncommon for workers to be engaged by Australian businesses in remote locations.”