Court Rules Contractor of 14 Years was Actually an Employee: Key Lessons for Employers

In a significant ruling highlighting the complexities of employment classification, the recent Federal Court decision in Cropper v Energy Action (Australia) Pty Ltd [2025] FCA 663 provides clear guidance on the distinction between contractors and employees. The Court found that an IT specialist, initially engaged as an independent contractor, had effectively become an employee for more than 14 years due to multiple employment indicators, such as payroll integration, exclusive working arrangements, management responsibilities, and participation in performance reviews.

Consequently, the Court ordered significant compensation exceeding $100,000 in unpaid leave entitlements (Cropper v Energy Action (Australia) Pty Ltd [2025] FCA 663 at [54]-[56]).

Court Rules Contractor of 14 Years was Actually an Employee: Key Lessons for Employers

This recent decision resonates closely with the principles established in a similar case handled by 1800ADVOCATES, Tidmarsh v Aspire to Life (2024).

In Tidmarsh, it was successfully argued that despite being initially classified as a contractor, the worker’s regular and systematic hours, employer control, integrated role within the business, and ongoing management oversight clearly demonstrated an employment relationship rather than an independent contracting arrangement.

Key principles from Tidmarsh highlighted the courts’ consistent approach that the substance of the working relationship significantly outweighs contractual labels when determining employment status (Tidmarsh v Aspire to Life (2024) at [32]-[35]).

Both Cropper and Tidmarsh underscore critical lessons for employers:

1. Regular Employment Audits: Companies must proactively conduct regular audits and evaluations of ongoing contractor arrangements, particularly those extending over long periods, to mitigate risks of misclassification.

2. Substance Over Form: Judicial assessments consistently prioritize practical work arrangements over formal contractual designations. Employers should be vigilant that the actual work conditions align with their intended employment classifications.

3. Proactive HR Management: HR departments must promptly address potential ambiguities concerning worker classifications, clearly document arrangements, and take immediate corrective actions when discrepancies are identified.

These cases provide a strong reminder for employers to review and ensure compliance with Fair Work laws, thereby avoiding significant liabilities and legal complications.

For guidance and assistance in accurately classifying worker relationships and managing employment law complexities, contact 1800ADVOCATES today. Cropper v Energy Action (Australia) Pty Ltd (No 2) [2025] FCA 663 (23 June 2025)

Tidmarsh v Aspire to Life [2024] FWC 2480