CEO who became business owner wins employee status claim

FWC rules control and duties, not payment method, define employment relationship

CEO who became business owner wins employee status claim

The Fair Work Commission (FWC) recently dealt with a dispute around employment status after a worker was dismissed from his CEO position and filed a general protections application against his former employer. 

The worker argued that despite becoming a principal (unitholder) in the business several years before his dismissal, he remained an employee throughout because he continued performing the same CEO duties under the direction and control of the board. He maintained that his status as a principal was in addition to, not instead of, his employment. 

The employer objected to the application, claiming the worker ceased being an employee when he became a principal. They argued that when the worker acquired units in the trust, his employment relationship ended and was replaced by a different legal relationship, meaning he had no grounds to make a general protections claim under the Fair Work Act. 

CEO's initial employment arrangement 

The worker started employment with the management consultancy as CEO in August 2016. The company provided consultancy services to large-scale family and corporate farming operations. Before appointing the worker, the company had never previously had a full-time CEO. 

During his initial job interview, the worker expressed interest in eventually becoming a unitholder in the business. This possibility was confirmed by the acting CEO at the time, who told the worker that the company's structure allowed senior staff to buy into the business. 

After three years of employment, with revenues and profits growing, the worker proposed to the Board that he be made a principal. The Board agreed, partly because they were concerned he might leave if not offered this opportunity. 

Principal status and payment changes 

In November 2019, the worker signed an agreement to purchase units in the company's trust. The buy-in amount was $280,858, payable over six years, with part coming from the worker's personal funds and part from profits generated through his "profit centre." 

The agreement specifically stated: "While [the worker] is employed as the CEO of [the employer] he will receive drawings equivalent to his current wage package of $204,000." It also specified that while employed as CEO, he could not be a member of the Board. 

After becoming a principal, the worker's payment structure changed. He stopped receiving a salary with PAYG tax deductions and superannuation.  

Instead, he received payments described as "drawings" through his family trust, and became responsible for paying his own tax. His accrued annual leave was paid out as a credit toward his unit purchase price. 

Ongoing CEO duties and control 

The central issue was whether the worker's role fundamentally changed after becoming a principal. The worker testified that his duties remained unchanged - he continued managing day-to-day operations, overseeing administrative functions, undertaking HR duties, developing strategic plans, and reporting to the Board. 

Unlike other principals who developed their own client bases, the worker was not permitted to develop clients. The other principals did not manage day-to-day operations but focused on activities to find more clients and earn profits. 

The worker remained highly accountable to the Board, attending monthly meetings that ran for 4-5 hours and providing detailed briefing documentation. He also met quarterly with all Principals to brief them on business operations. 

FWC's employee status determination 

In May 2024, the worker was dismissed from his CEO position. He filed a general protections application, which the employer objected to on grounds that he was not an employee when dismissed. 

The FWC examined whether a comprehensive written contract existed between the parties, concluding that the relationship was governed partly by written agreements and partly by oral arrangements about the worker's duties as CEO. 

In assessing control, the FWC found: "Taking into account the high degree of accountability which [the worker] had towards the Board and other Principals, the nature of his duties and requirement to be available during usual business hours and to attend all Board and Principal meetings, I find that [the employer] exercised control over the work performed by [the worker]... consistent with an employment relationship." 

The FWC also found the worker was clearly working in the employer's business, not his own: "The evidence overwhelmingly establishes that [the worker] was working in [the employer's] business." All duties undertaken as CEO were for advancing the company's interests, not his personal business interests. 

Employee relationship ruling upheld 

While acknowledging factors that pointed away from an employment relationship (payment structure, leave arrangements, taxation), the FWC found stronger evidence supporting continued employment: required work hours, expense reimbursement, company-provided equipment, and work performed at company premises. 

The FWC concluded: "Although I have found that the mode of remuneration, the provision for holidays and the deduction of income tax are matters which weigh against a finding there was an employment relationship, I find that the totality of the relationship between the parties... establish that [the worker] was an employee of [the employer] for the purpose of the FW Act." 

This finding meant the worker's general protections application could proceed, with the FWC confirming: "Accordingly, I find that [the worker] was an employee of [the employer] and that he was dismissed within the meaning of s.365 of the Fair Work Act." 

The FWC's decision allowed the worker's application to move forward to the next stage where the Commission will deal with the dispute as required under section 368 of the Fair Work Act.