Marriage vs employment: Federal Circuit Court's landmark ruling on employment relationship with marital ties

In brief - family businesses and employers will be interested in the outcome of an underpayment claim case involving parties who were married.

On 16 March 2023, the Federal Circuit Court of Australia has considered in the case of Testart v Testart (No 2) [2023] FCA 209 whether an employment relationship existed where the Applicant and Respondent were parties to a marriage.

In this case, a woman who had worked for her barrister ex-husband as his personal assistant, was allowed to pursue an underpayment claim against him. 

Facts

Ms Testart worked for Mr Testart as his personal assistant from July 2009 to June 2017. Mr Testart had made Ms Testart a written offer of employment including an $80,000 annual salary plus superannuation, sick leave and annual leave. 

The parties divorced in 2020 and property orders were made. In November 2021, Ms Testart commenced proceedings against Mr Testart alleging, among other things, that he failed to pay her wages between 2009 and 2016 and failed to pay her annual leave entitlements and to make superannuation contributions on her behalf (Fair Work Proceeding). She claimed a total of $434,683.88. Mr Testart applied for this claim to be summarily dismissed on various grounds. 

Decision

O’Callaghan J rejected the argument that the Fair Work Proceeding was a “matrimonial cause” within the meaning of s 4(1)(ca) of the Family Law Act 1975 (Cth) (FL Act). This was because claims for compensation for breach of civil remedy provisions of the Fair Work Act 2009 (Cth) (FW Act) were not “property” within the meaning of s 79 of the FL Act. Moreover, the Fair Work Proceeding did not “arise out of the marital relationship” between the parties. Rather, it arose out of their employment relationship. 

O’Callaghan J also rejected the argument that the Fair Work Proceeding related to completed divorce proceedings between the parties. Ms Testart was not estopped from pursuing the Fair Work Proceedings. O’Callaghan J did however find that Ms Testart’s claims in relation to unpaid entitlements before 11 November 2015 were statute barred and so these claims were dismissed.

Who else is an employee?

This decision brings us back to the High Court case of Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8.

This case dealt with the issue of the intention to create legal relations in employment agreements of a social nature.

Facts

The Greek Orthodox Community of South Australia, an incorporated group/association that organised cultural, social, recreational, and religious events for its members, requested Ermogenous, who was living in the United States of America at the time, to become the head of the Greek Orthodox Church in Australia. He accepted the offer and relocated to Australia, where he served as archbishop for the next 23 years. He was paid a salary by the Community during this period.

At the end of his tenure, the Community declined to pay Ermogenous for the accumulated leave that he would have been entitled to under a legally enforceable contract of employment.

The Community contended that their arrangement with Ermogenous was never meant to be legally enforceable.

Decision

The High Court confirmed that presumptions regarding intention should not be used. It held that the Full Court of South Australia, where the matter was appealed from, erred in concluding that there was no intention to create legal relations.

The High Court decided that the agreement between Ermogenous and the Community was intended to be legally binding. Therefore, Ermogenous was entitled to payment for accumulated leave.

What do these cases mean?

These cases serve as a timely reminder for employers, including those in personal relationships, to ensure that they understand the nature of those relationships, that correct entitlements are accrued and paid, and that superannuation contributions comply with the Fair Work Act 2009 (Cth). When the nature of the relationship between the parties is ambiguous, it is important to be aware of what might constitute an "employment relationship".

When is an employment relationship created?

There are several factors that determine when an employment relationship is created. Employers should carefully consider these factors to ensure they are not in breach of the FW Act. Some of these factors include:

• whether there is an employment contract
• the nature and purpose of the agreement
• the length of the arrangement
• the significance of the arrangement
• who benefits from the arrangement.

It is important to remember that the existence of a social or employment relationship between parties to a marriage, does not exempt the parties from fulfilling the requirements associated with a contractual relationship.

Employee or contractor?

Recently, the Fair Work Commission and the High Court of Australia analysed the distinction between employees and independent contractors. 

Our colleagues, Amaya Hettige, Cathryn Prowse and Nicholas Bolton, recently published an article discussing the distinction between employees and independent contractors. You may also be interested in reading Adam Foster's article that explores when superannuation is payable.