28 Feb Employee or Contractor? The Law After s 15AA of the Fair Work Act
Determining if a worker is an employee or an individual contractor is one of the fundamental issues for workers a company engages.
Incorrect classification can expose businesses to claims, including for:
- Unfair dismissal
- Underpayment of wages
- Superannuation liability
- Sham contracting penalties
Understanding whether a working relationship is one of employee and employer or contractor and principal is critical under the Fair Work Act 2009 (Cth) (FW Act).
Contractor: Section 15AA of the Fair Work Act 2009
Following two 2022 High Court decisions — CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 the Federal Government included section 15AA into the FW Act.
Section 15AA provides that determining whether a person is an employee requires identifying:
“the real substance, practical reality and true nature of the relationship.”
The section requires:
- Consideration of the totality of the relationship
- Regard not only to the written contract
- But also to how the contract is performed in practice
What Is the Law Today?
Under section 15AA(2) of the FW Act is instructive. It provides that to ascertain the real substance, practical reality and true nature of a relationship the totality of the relationship between the parties must be considered, including not only the terms of any contract but also other factors, such as how the contract is performed in practice.
In Murray v 239 Brunswick Pty Ltd and Raffoul [2025] FWC 978, Deputy President Roberts stated:
“Section 15AA(2) requires a consideration of the totality of the relationship … The approach involves a reversion to the multifactorial test that was well known and widely applied prior to the High Court decisions…”
As a result, the current position requires a consideration of the whole relationship between the parties, including how any contractual relationship is carried out in practice.
Applying Section 15AA: Recent Fair Work Commission Decision
Donnely v KWB Group Pty Ltd [2025] FWC 2321
Mr Donnely worked as an installer for KWB Group, a kitchen and wardrobe renovation business. After his dismissal, he lodged an unfair dismissal claim, requiring the Commission to determine whether he was in fact an employee.
Factors Considered by the Commission
- Mr Donnely followed detailed job sheets and plans provided by KWB.
- All rostering (five days per week) was controlled by KWB’s scheduling team.
- He was presented as part of KWB’s business.
- KWB set all installation prices and rates without negotiation.
- He was “booked out” by KWB for at least 90% of his working capacity.
- Contractor indicators (such as paying his own tax) reflected the formal structure imposed by KWB rather than the practical reality.
The Fair Work Commission concluded that, when viewed holistically, Mr Donnely was economically dependent, integrated into the business and subject to significant control.
He was therefore found to be an employee for the purposes of the FW Act and eligible to pursue an unfair dismissal remedy.
Key Takeaways for Businesses and Workers
Under Australian law today:
- The written contract alone does not determine classification.
- The real substance and practical reality of the relationship is critical.
- Courts will assess control, integration, economic dependency and how the work is performed in practice.
- Simply labelling someone a “contractor” will not avoid liability.
For employers, incorrectly classifying workers can result in significant financial exposure, including backpay, penalties and superannuation liabilities.
Conclusion: The Return of the Multifactorial Test
The insertion of section 15AA into the FW Act confirms that Australian law requires a holistic assessment of working relationships.
The totality of the relationship — including how the contract operates in practice — determines whether a worker is an employee or independent contractor.
If you would like more information about whether a worker is an employee or a contract, please see our article here.
GENERAL AND CONTACT INFORMATION
The article, the content and references made are intended to keep an audience updated with information. It is not intended that the article or part of it should be relied upon as advice. Information provided may not apply to in all circumstances or in particular situations. If you do want particular advice, we welcome you to contact us on (02) 9189 5905 or at general@cdclaw.com.au.