Outsourcing overseas just became riskier for Australian businesses

A trio of Fair Work Commission (FWC) decisions have quietly but significantly shifted the landscape for Australian businesses engaging offshore workers. In Pascua v Doessel Group Pty Ltd, the FWC has found that a legal assistant working remotely from the Philippines for an Australian law firm was an employee, not a contractor, as the firm had intended. That original decision was upheld by a Full Bench of the FWC, with a third decision finding that the worker was unfairly dismissed and entitled to compensation.

The decisions carry real consequences for employers who engage offshore employees or contractors on the assumption that Australian employment laws don’t apply. While the practise of engaging overseas workers has become more common in our globalised world, businesses should be aware of the risk that these overseas workers may be entitled to the benefit of unfair dismissal protections under the Fair Work Act 2009 (Cth) (FW Act) and minimum entitlements under the National Employment Standards and modern awards.

Background: A ‘Contractor’ Who Looked a Lot Like an Employee

Joanna Pascua was engaged by Doessel Group, a Queensland-based legal business, under a contract that described her as an independent contractor. She was based in the Philippines but worked set hours aligned with Australian business times, took instructions from Australian employees, and carried out legal support work that was tightly integrated with the firm’s operations.

When her engagement was terminated via email following performance concerns, Ms Pascua filed an unfair dismissal claim in the Fair Work Commission in Australia.

The Initial Decision: Labels Don’t Decide Legal Status

Deputy President Slevin was not convinced by the independent contractor label contained within Ms Pascua’s employment contract, and the submissions made by the employer regarding the nature of the relationship in practice. The FWC applied the principles of Personnel Contracting and Jamsek (Personnel Contracting), that the nature of the legal relationship is to be determined by evaluating the contractual duties of the parties arising from their contract. It is worth noting that this hearing occurred before the FW Act definition of employment commenced operating. That definition now requires the FWC and Courts to consider the real substance, practical reality and true nature of the relationship. Suffice it to say, calling a worker a ‘contractor’ will not necessarily make it so.

The law firm contended that Ms Pascua was not an employee and was therefore not entitled to protection from unfair dismissal. Rightly or wrongly, the business did not run an argument that Ms Pacua’s Filipino location meant she could not be a national system employee in Australia. In that context, with Doessel being found to be a ‘national system employer’ for the purposes of section 14 of the FW Act, Ms Pascua would be eligible for unfair dismissal protections if she was found to be an employee, rather than a contractor.

Applying the multi-factorial test from Personnel Contracting, the FWC found that Ms Pascua was in fact an employee, indicated by the:

• nature of the tasks performed by Ms Pascua
• high degree of control and direction from the law firm
• set hours and consistent remuneration, with no ability for Ms Pascua to subcontract these duties or delegate them
• relatively low hourly rate (AUD$18 per hour), which indicated a lack of ‘specific expertise’ or ‘specialist work’ being performed
• fact that the arrangement was ongoing unless terminated in accordance with the contract.

The Appeal – Working from the Philippines, but ‘engaged’ in Australia

Doessel appealed the decision, alleging that Ms Pascua was a contractor, not an employee, for various reasons, including that the work performed by Ms Pascua was performed outside of Australia.

Importantly, the Full Bench confirmed that geographic location alone does not defeat application of the FW Act, which is intended to apply to employment that has a significant connection to Australia. The FW Act excludes application of the unfair dismissal protections where an employee is engaged outside of Australia and performs duties outside of Australia, with both limbs needing to be satisfied for the worker to be ineligible to bring a claim.

While the Full Bench found that Ms Pascua’s work was performed entirely outside Australia (being in the Philippines), she had been ‘engaged’ within Australia because that’s where her acceptance of the offer of engagement was received by Doessel. This is in line with existing authorities about the location of formation of contracts.

The Third Decision – Fired over Skype, Vindicated by the Fair Work Commission

Having found that Ms Pascua was an employee, not a contractor, the Full Bench reverted the matter to Deputy President Slevin to decide whether Ms Pascua had been unfairly dismissed.

After considering the fact that the decision to terminate her employment appeared to be based on a single email that contained errors, plus alleged earlier errors, the Deputy President found there was not valid grounds for dismissal. As such, the dismissal was unfair. The FWC ordered compensation of 15 weeks’ pay, which, in the circumstances, amounted to AUD$10,800.

More Than Just Unfair Dismissal: Broader Risks for Employers

While the decision confirms that overseas workers may be able to claim unfair dismissal, the implications stretch beyond that. If an overseas worker is an employee for FW Act purposes, they may also be:

• entitled to the national minimum wage, currently AUD$24.95 per hour (or higher under a modern award)
• covered by a modern award, including entitlements to overtime, penalties, leave loading and allowances. In the initial decision, Deputy President Slevin characterised Ms Pascua as a Level 2/Level 3 Legal Clerical and Administrative employee under the Legal Services Award 2020, entitling her to an hourly rate of AUD$30.95 per hour, in comparison to the AUD$18 an hour she was paid by Doessel
• entitled to make a claim for underpayment of wages, along with non-payment of entitlements such as annual leave and personal leave
• eligible for superannuation contributions, even if working from overseas.

For businesses that engage overseas staff based on cost-efficiency, this could significantly undercut the commercial rationale and create substantial back pay liabilities if the arrangements are challenged.

what employers should do now

Businesses using offshore contractors, particularly for non-specialist functions such as administration, customer service, IT and legal support, should review their existing offshore arrangements and recruitment processes to identify whether the FW Act applies to these engagements.