From contractor to employee – The Federal Court reaffirms employment status and brings to light the implied term of reasonable notice

The recent Federal Court decision in Cropper v Energy Action provides a timely reminder for employers to look beyond contractual labels when determining a worker’s legal status. While a contract may describe someone as an independent contractor, the Court will focus on the substance of the working relationship. This case not only reaffirmed when a contractor may in fact be considered an employee, but also highlighted the risks of failing to include express termination provisions in employment contracts - particularly the potential implication of a right to reasonable notice.

Background

In Cropper v Energy Action (Australia) Pty Ltd (No 2) [2025] FCA 663, Mr Cropper was initially engaged by Energy Action as an independent contractor in 2005 to work on a specific project. At the time, his engagement was structured around invoicing for services provided.

However, by January 2006, the nature of the work had begun to shift. The project seemed to be ongoing and with no clear end, prompting Mr Cropper to propose he be added to Energy Action’s payroll. Energy Action soon after this request, began issuing Mr Cropper regular “pay advices” that included deductions for tax and superannuation.

Despite the absence of a formal written employment contract, Mr Cropper continued working in a stable capacity for Energy Australia for the next 14 years. His role became embedded within the organisation, and he was treated in many respects like a permanent employee.

In February 2020, Energy Action terminated Mr Cropper’s “engagement”. At that point, Energy Action maintained that he had remained a contractor throughout and denied him employee entitlements such as annual leave, personal, carers’ leave and reasonable notice. This dispute ultimately led to proceedings in the Federal Court of Australia.

The employee v contractor question

At the centre of the dispute was whether Mr Cropper was retained pursuant to a contract of service or a contract for services.

Although Mr Cropper began as a contractor in 2005, the Court closely examined the nature of the relationship from January 2006 onwards, when Mr Cropper was placed on the payroll as it was and began receiving pay advices with tax and superannuation deductions.

Snaden J emphasised that the absence of a formal employment contract did not override the practical realities of the arrangement. Mr Cropper worked regular hours, was integrated into the business and was treated like any other staff member.

The Court concluded that these factors pointed clearly to an employment relationship and that Mr Cropper had in fact been a permanent employee from 2006.

Implied term of reasonable notice

Notably, the Court found that a term of reasonable notice is to be implied into an employment contract.

This was the case despite Energy Action advancing the argument that Mr Cropper’s contract of service was able to be terminated upon payment equivalent to the amount of notice required under section 117(2) of the Fair Work Act 2009 (FW Act).

The Court ultimately held that section 117 of the FW Act does not confer a right of termination, rather it assumes that such a right exists elsewhere.

What is reasonable notice?

An employment contract for a permanent employee should contain an express provision permitting termination. Along with this should be the provision for either party to terminate the contract in line with a prescribed notice period.

In the absence of such an express contractual term that permits termination, an employment contract may still be terminated upon the provision of reasonable notice.

What is considered “reasonable notice” will depend on an assessment of various circumstances, including, but not limited to, the length of service that an employee has completed, the seniority of the employee’s position, the employee’s age and the ease with which they might be expected to find suitable alternate employment.

In Mr Cropper’s case, the Court determined that three months’ notice was appropriate, based on the length and nature of his service. This was significantly more than the five weeks he had been paid upon termination.

Key takeaways for employers

• It is important to look past labels. A worker’s status may shift from contractor to employee when the practical reality of the relationship reflects employment as opposed to independent contracting. This may include factors such as:

  • Regular hours of work,

  • Integration into the business, and

  • Payment through the business’ payroll system.

• An implied term of reasonable notice may arise in employment contracts where there is no express provision dealing with termination. This is particularly relevant for award-free employees but is also applicable to award covered employees.

• It is therefore important for contracts to be drafted in clear terms. With respect to employment contracts, clear termination and notice provisions are vital.

Authors: Shawn Skyring & Jacob Ward

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.