Case clarifies the status of a joint venture partner claiming dismissal
A recent Fair Work Commission (FWC) decision dealt with a case that had conflicting views on the nature of the relationship between the parties. One claimed employment, while the other said they entered into a joint venture agreement.
The party who believed he was an employee filed for unfair dismissal when the alleged employer terminated his services.
The alleged employer is a manufacturer of baked goods and operates bakeries in South Australia. The other party is a Queensland-based pastry chef with knowledge of the wholesale market for baked pastry products.
The alleged employer contacted a business broker who dealt with the pastry chef. The former realized that the latter had skills, entrepreneurialism, and business associates that “could be of value” to its business. For his part, the pastry chef found that a business relationship with the alleged employer “could be mutually productive.”
Since the alleged employer is in the baking industry, it started to strategize that through the pastry chef and his associates, it may secure a major retail café client (Starbucks), where they could supply baked manufactured products on the wholesale market.
Thus, the alleged employer and the pastry chef agreed that a new business entity would be created (jointly owned, with others), and a manufacturing plant would be leased in Brisbane. Under the terms, the pastry chef would be employed by the joint venture company and bake products to supply the prospective client (Starbucks) with supplementary manufacturing in South Australia.
Shortly after they signed the joint venture agreement, the pastry chef traveled to South Australia to start working with the alleged employer.
His duties are mainly:
The pastry chef did not use any corporate entity for this venture. The work was done personally, and “monies were also paid personally.” His hours were not controlled, but he generally worked the four days per week as identified in their agreement and on other days from time to time at his discretion.
According to records, the relationship was “amicable” in the early months, but no partnership agreement nor complete business plan, nor the intended new corporate entity were finalised. Both parties understood that securing a major café client was necessary before the new business venture could start, as “its viability” depended on that condition.
Later, the relationship between the parties “began to fracture” when the pastry and his associates failed to secure Starbucks or another major café operator as a client of the proposed joint venture. A dispute also arose involving kitchen equipment and other assets owned by the alleged employer.
After receiving a “warning” after the dispute, the pastry chef was “stood down” and stopped performing work. He shortly filed an unfair dismissal claim before the FWC.
The pastry chef argued that he worked four to six days a week. He also said he was flown to the business location “at the employer’s expense to work in its businesses and for its benefit.” While in South Australia, he said he resided in a commercial accommodation financed by the employer. He further said he was paid a regular sum weekly.
In its decision, the FWC said a person is only protected from unfair dismissal if they were an employee under a contract of employment at the date of alleged dismissal.
An “employee” means a national system employee under the FW Act. Additionally, a “national system employee” is an individual employed by a national system employer.
“A variety of relationships exist which result in work being performed in the economy. Not all are employment relationships. The common law has long distinguished between a contract of service (an employment relationship) and a contract for services (a contractor/principal relationship). Further, other business arrangements under which work is performed (such as sole traders or partnerships) exist alongside both direct employment and contracting,” the FWC said.
The FWC further looked in the “purpose” of the pastry chef’s transactions with the employer, saying that his work “primarily involved seeking out a major café retail client, manufacturing samples of the product to get that client (or other clients) over the line, establish the legal entities to commence the venture, to develop business plans and ideas for business plans, and to undertake administrative and regulatory work related [to it].”
It said that the “nature of these activities was directly aligned to [the pastry chef’s] entrepreneurial ambition to enter into a joint business venture with [the employer].”
“They are strongly indicative of work as a contractor. The [pastry chef] provided information and knowledge on how to secure wholesale contracts” the FWC said.
“[He] was acting as an entrepreneur and, in these respects at least, was undertaking the work of an entrepreneur.”
The FWC concluded that no employment contract existed between the parties despite the pastry chef being “stood down” by the employer “when the relationship fractured.”
“Following a commercial dispute over business assets, he was stood down from working as a contractor, not an employee,” the FWC said.
Thus, the unfair dismissal claim was dismissed. The decision was handed down on 23 March.
