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Franco v Franco's Smash Repairs Pty Ltd (NSWPIC 2025)

Key Takeaways

This decision confirms that being a director of a company does not of itself preclude that director from being employed by the same company. However, if a director is to recover compensation for injury, it is necessary to prove that the injury occurred in their capacity as an employee and not as a director.

Brief Facts

The worker operated a smash repair business from 1989 to 2021 holding the positions of director and manager within the company. He claimed a psychological injury as a result of his employment as a working director.

The worker’s role included working as a panel beater, assessing and quoting for jobs and supervising employees.

Psychological symptoms first emerged in 1992 when the worker’s brother left the business. This resulted in the worker having to work for and manage the expanding panel beating shop on his own. He felt increasingly overwhelmed by his duties and displayed symptoms of anxiety and depression.

His symptoms continued following the expansion of his business. Over the next 20 years the worker experienced frequent anxiety attacks and was hospitalised numerous times due to episodes of palpitations and chest pains.

The restrictions introduced during the Covid pandemic led to further stress leading to an exacerbation of the worker’s anxiety and depressive symptoms. By the end of 2020, the worker was increasingly symptomatic and reported difficulty managing his workflow, orders and maintaining staff. This led to him closing the business. Following this, he was hospitalised for various periods and diagnosed with major depressive disorder.

The worker made a claim for weekly benefits and lump sum compensation.

The insurer did not agree that the injury resulted from the worker’s employment as a panel beater, but rather from his duties as a director, and the claim was declined.

The worker commenced proceedings in the Personal Injury Commission (PIC) and the matter proceeded to arbitration hearing before member Catherine McDonald.

Decision

The issue for determination was whether the worker suffered injury in his capacity as a worker or whether he was precluded from recovering compensation because he suffered injury in his capacity as a director.

Contract of service

In making her determination, the member reasoned that if a director was to recover compensation, then it was necessary that they have a contract of service with the company.

The member cited the case of Cabra-Vale Ex-Active Servicemen’s Club Ltd v Thompson (NSWWCCPD 2013), which established that there were four essential features of a contract of employment:

• there can be no employment without a contract;
• the contract must involve work done by a person in performance of a contractual obligation to a second person;
• there must be a wage or other remuneration, otherwise there will be no consideration; and
• there must be an obligation on one party to provide, and on another party to undertake work.

In applying these factors, the member determined that the worker had a contract of service to perform the role of manager. This was evidenced by the worker’s play slips and tax returns which showed he was being paid wages and having tax deducted for the role. He also had leave entitlements and was being paid superannuation by the company. Further, the worker’s employment title on these documents was manager.

The worker also performed tasks that were commonly associated with a managerial role such as interacting with clients, hiring and retaining staff and maintaining relations with the businesses who provided him work. The member was of the opinion that these functions were not undertaken solely within the worker’s role as a director.

Main Contributing Factor

It followed that the member determined that the main contributing factor to the worker’s psychological injury was his tasks as manager. In making her determination, she referred to the clinical records of the worker’s general practitioner. She noted that the records which first reported the onset of symptomology in 2001, consistently attributed the worker’s psychological symptoms to his duties as a manager within the company. While his role as a director may have had a role in the causation of his injury, the member determined that it was his role as a manager that was the main contributing factor to it.

Implications

Claims by working directors are not uncommon in the PIC. Being a director does not of itself preclude employment by the company. However, if a director is to recover compensation, it is necessary to prove that the injury occurred in their capacity as an employee and not as a director That is, there must be a contract of service.