Daily caffeine buzz: Can a director be an employee?

A recent case out of Melbourne raises a new question of whether a director of a company, who works at said company, is an employee for the purposes of accessing Fair Work provisions, specifically an unfair dismissal remedy.

What Happened?

Mr Aaron Pottenger (the Applicant), director of Department of Caffeine Pty Ltd (the Respondent) – which operated a cafe called Two Feet First – made an application for unfair dismissal under section 394 of the Fair Work Act 2009 (the Act). The other two company directors argued (in addition to his filing outside of the 21 day time limit) that the Applicant was not an employee of the cafe.

The Applicant had been working as a front of house manager at the cafe for approximately 40 hours per week before the other two directors had allegedly raised concerns about his performance in that role. No contract of employment was signed.

The Respondent alleged that the Applicant lacked managerial skills and had issues with timeliness, on one occasion leaving the cafe unsupervised for two days. After a warning letter, they offered the Applicant a contract of employment in an attempt to encourage him to make improvements, but the Applicant did not sign it and continued to work. They eventually “terminated” him on 2 March 2018 during a board meeting.

Now, here’s where things get murky: When asked to return the keys to the cafe, the Applicant replied that he had been given the opportunity to resign and had chosen not to. The Applicant states that the date of “termination” was actually 10 March 2018, when they held a further board meeting, advising him he was dismissed from his position.

Was he an employee?

The Respondent argued that the Applicant was not an employee, and that he simply undertook work for the company to help it become a success (apparently common in small private companies). They did not deny that a director couldn’t be an employee of that business also, however.

Now it gets more murky: the Respondent paid the Applicant each week, deducting tax and making superannuation contributions to his preferred fund, as well as providing him with payslips.

The Decision

The law states that whether a person is an employee is a question to be answered by reference to all relevant considerations.

The Fair Work Commission (the Commission) found that the Applicant was in fact an employee of the company for the following reasons:

  • He was paid a salary, with tax contributions and superannuation deductions made;
  • He was paid accrued leave entitlements on termination; and
  • He was described as an ’employee’ on multiple occasions.

Despite this, the Applicant was not entitled to bring a claim for unfair dismissal as he was not able to have the 21 day requirement extended.

Lesson Learned

Ensure that your position and obligations within the company are clarified outside of the shareholder agreement when individuals are undertaking work on behalf of the company in their own time.

If you are a company director, make sure you have contracts of employment drawn up and ready for signature before a director decides to undertake work for the company.

Read the full decision here.

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