The Contractor Illusion: Why Your Offshore Team Might Actually Be Employees

Remote working and easy access to talent has transformed how Australian consumer brands build their teams. From customer service representatives in Manila to social media managers in Bali, D2C businesses are increasingly tapping into global talent pools to scale efficiently while managing costs.

This shift has created the perfect storm of opportunity and risk. While the flexibility of engaging offshore contractors seems ideal for lean, fast-growing brands, the decision in Pascua v Doessel Group Pty Ltd [2024] FWC 2669 (Pascua) and its appeal in [2025] FWCFB 43 (Pascua Appeal) serves as a reminder for businesses that their foreign workers may be subject to Australian employment laws.

The Pascua Decision

Two of the key discussion points following Pascua and the Pascua Appeal are:

1. Misclassifying a worker as a contractor, when they are an employee; and
2. The application of Australian law to a foreign worker.

Joanna Pascua worked for a Queensland based law firm from the Philippines, engaged under what was labelled an"Independent Contractor’s Agreement". Her relationship with the law firm (Respondent) soured and her engagement was terminated, following which she filed an unfair dismissal claim.

Classification

The Fair Work Commission found that despite the contractor label, an employment relationship existed for the purposes of the Fair Work Act 2009 (Cth) (FW Act). This question was determined by primarily examining the nature of the express contractual obligations, which was consistent with earlier case law. However, since thehearing of Pascua the FW Act has introduced what is referred to as the ‘whole of relationship’ test. That test requires a consideration of the real substance, practical reality and true nature of the relationship whendetermining whether a worker is an employee or contractor (i.e., not just thecontract).

Whilst Pascua predates the whole of relationship test, it analysed several factors that remain relevant to the whole of relationship test (which moving forward, should be considered more broadly and not only as relevant in the contractual context):

• Personal Service: Pascua's contract required her specifically to perform the work. She couldn't delegate tasks to someone else. In contrast, contractors typically have flexibility over who performs the work.
• ‍Set Hours and Availability: Despite being labelled a contractor, Pascua was required to work during Australian business hours for a maximum of 40 hours per week.
• ‍Below-Market Remuneration: At $18 per hour, Pascua was paid less than minimum wage. Contractors typically command premium rates to compensate for lack of entitlements and business risk.
• Integration Into Business Operations: Pascua used a company email address, was identified as a paralegal, and used a phone system that made her appear to be calling from the Australian office.
• ‍Daily Direction and Supervision: Pascua took daily task assignments via email and was supervised in her work. The Respondent hadcontrol over the work she performed, and she did not operate her own business.

Ultimately, the Commission found that therelationship was an employment relationship and rejected the Respondents objection to Ms Pascua’s claim.

Australian-based Employee

In Pascua Appeal, the Full Bench gave some consideration to the extraterritorial application of the FW Act, given Ms Pascua lived and worked from the Philippines.

Pursuant to section 35(2)(b), an Australian-based employee includes an employee that is employed by an Australian employer (whether or not the employee is located in Australia). However, an exception to this is if that employee is engaged outside of and to perform duties outside of Australia (s 35(3)). A conclusive decision on this point was not made by the Full Bench in Pascua Appeal because the question was not dealt with initially in Pascua and the evidence before the Full Bench was therefore incomplete. The Respondent’s argument in Pascua as to application was simply that Ms Pascua was not an employee and in which case, section 35(2)(b)did not apply in the first place.  

The Full Bench did however refer to other cases which concluded that where an employee is engaged for the purposes of section 35(3) is dependent on where the contract was formed (the place where acceptance of contract communicated). Usually and by email, this would be the place in which the employer receives an email from the employee attaching asigned contract.

Practical Implications for D2C Brands

Foreign customer services terms, social media and content managers or other creative roles may well be deemed employees when considering the real substance, practical reality and true nature of therelationship. If you engage workers in the Philippines, India, or elsewhere depending on those considerations it may constitute employment, with labels and contracts being less determinative following the 2024 amendments to the FW Act.

Overseas workers that are deemed to be Australian-based employees may be subject to Australian workplace entitlements [https://library.fairwork.gov.au/viewer/?krn=K600417.]

The Pascua decision doesn't mean D2C brands can't engage overseas workers or must convert all existing contractors to employees. It does mean that businesses need to think deeply about the nature of their working relationships and structure them accordingly, which may include a foreign entity engaging those workers. If you have overseas teammembers who work regular hours, take daily direction, can't delegate their work, and perform core business functions, they may well be employees. Treatingthem as such from the outset avoids the far more expensive problem ofrectifying years of misclassification.

For genuine contractor engagements, ensure your contracts and actual practices reflect the characteristics of independent contracting: autonomy, flexibility and project-based work. Regular legal review of these arrangements is prudent, particularly as relationships evolve and working patterns change.

The cost-saving illusion of contractorarrangements often masks greater risks. When misclassification results inback-payment of entitlements, penalties, and potential unfair dismissal claims,the economic advantage disappears rapidly.

This article is general legal analysis and does not constitute specific legal advice. Brands should consult qualified legal professionals for guidance on their particular circumstances.