If you're an Australian business owner with staff in the Philippines, two recent Fair Work Commission decisions have quietly redrawn the rules — and most owners still haven't caught up.

For years, the working assumption was simple: hire offshore, call them contractors, and Australian workplace law stays on the other side of the ocean. Two cases have now tested that assumption in opposite directions. One business was found liable. The other had the claim against it dismissed.

The difference between them is the most important lesson in offshore hiring right now — and it isn't about where your team sits. It's about how they're engaged.

Here's what happened, what it can cost, and what the outcome tells you about protecting your business.

(This article is general information, not legal advice. Every situation turns on its own facts — seek advice specific to your circumstances.)

Case one: Pascua v Doessel Group — when "contractor" didn't hold

What happened

Ms Pascua worked remotely from the Philippines for an Australian law firm, the Doessel Group. On paper, she was an independent contractor. She invoiced for her time, she was based overseas, and she never set foot in Australia. By most owners' mental model, that's about as clearly "not an Australian employee" as an arrangement can get.

The Fair Work Commission disagreed.

When the relationship ended and Ms Pascua brought an unfair dismissal claim, the Commission looked past the label on the paperwork and examined how the relationship actually worked in practice — the degree of control, the integration into the business, and the substance of the engagement. It found she was an employee, not a contractor, and therefore protected under the Fair Work Act.

The detail most people miss

Here's the part that should stop every offshore employer in their tracks: one of the decisive factors was that the contract was formed in Australia.

Not her physical location. Not her tax residency. Not the word "contractor." The Commission found a sufficient connection to Australia to bring the arrangement within the Act's reach — and the way the contract came into being was central to that.

The paperwork itself worked against the employer, too. The contract reportedly referred to Ms Pascua as an "independent contractor" dozens of times — and it still didn't save the classification. That's the whole point: you cannot label your way out of a relationship that functions like employment.

What it actually cost

This is where a lot of online commentary gets it wrong, so it's worth being precise.

Pascua was an unfair dismissal case. Unfair dismissal is not a "fine" or a penalty — the remedy is compensation, capped at six months' pay. Ms Pascua was awarded roughly $10,800 (about 15 weeks' pay).

So the direct cost of this particular case was modest. But that figure badly understates the real exposure — because being found to have misclassified a worker as a contractor can open the door to a completely different category of liability. Which brings us to the numbers that actually matter.

The bigger picture: what Fair Work breaches can really cost

Misclassifying an employee as a contractor doesn't just risk an unfair dismissal claim. It can expose a business to underpayment and sham contracting liability — and those carry civil penalties (genuine fines) that dwarf a compensation order.

Under the Fair Work Act, the maximum civil penalties per breach currently sit at:

  • Standard contravention: up to $19,800 for an individual and $99,000 for a company.
  • Serious contravention (conduct that is knowing or reckless): up to $198,000 for an individual, and for larger companies, into the millions per breach.
  • Small businesses (fewer than 15 employees) face lower caps than large corporations.

On top of any penalty, a business can be ordered to back-pay the wage gap plus interest and entitlements — and for non-small businesses, underpayment penalties can be calculated at up to three times the amount underpaid.

Two critical caveats, because accuracy matters here:

1. These are maximums, and courts rarely impose them in full. The actual penalty depends on the seriousness, the number of breaches, and whether the employer took reasonable steps to comply.

2. Penalties apply per breach — and multiply across workers. If five offshore staff were engaged the same way, the exposure isn't one figure; it's that figure repeated.

There's also a newer dimension: since 1 January 2025, intentional wage underpayment can be a criminal offence in Australia. Honest mistakes aren't criminalised — but the direction of travel is unmistakable. Regulators are taking classification and underpayment more seriously than ever.

For a business running an offshore team on informal "contractor" arrangements, that's the real risk profile. Not a $10,800 compensation order — the underpayment and penalty exposure sitting quietly underneath it.

So does this mean offshore hiring is a legal minefield to be avoided? Not at all. Because a second case shows exactly how to get it right.

Case two: Pe v Pepperstone — when the claim was dismissed

What happened

Around the same time, a very different offshore case reached the opposite result.

John Harris Pe worked as a developer, based in the Philippines, providing services exclusively to Pepperstone — a well-known Australian company. On the surface, this looks a lot like Pascua: an offshore worker, one Australian business, full-time exclusive work. If control and integration were the whole story, you'd expect the same outcome.

But when Mr Pe brought a claim under the Fair Work Act, it was dismissed.

Why the outcome was different

The decisive factor was structure. Mr Pe wasn't engaged directly by Pepperstone on a thin contractor agreement. He was employed through a genuine third-party provider — Satellite Office Solutions, an offshore staffing business with real operational substance.

That provider did the things a real employer does:

  • It ran its own HR and people support.
  • It handled payroll.
  • It conducted performance reviews and signed off on salary adjustments.
  • It operated as a genuine staffing business supplying workers, not a paper shell.

On top of that, Mr Pe's contract was formed in the Philippines and his work was performed in the Philippines — so the relevant provision of the Fair Work Act meant he was not an "Australian-based employee" for the purposes of the claim.

The Commission couldn't recast a genuine, substantive third-party employment arrangement as a sham. The structure held.

The lesson, side by side

Put the two cases together and the takeaway is impossible to miss:

  • Pascua v Doessel — direct "contractor" engagement, contract formed in Australia, no genuine third-party employer → found to be an employee; business liable.
  • Pe v Pepperstone — employed through a genuine offshore provider with real HR and payroll substance, contract formed in the Philippines → claim dismissed; business protected.

Same country. Similar day-to-day work. Opposite legal outcomes. The difference wasn't luck, and it wasn't location. It was how the employment was structured.

The takeaway: structure is the protection

If there's one thing these two rulings establish, it's this: the risk in offshore hiring isn't offshore hiring itself. It's unstructured offshore hiring.

The businesses that get caught are the ones operating on a contractor label and a handshake, assuming distance equals immunity — exactly the assumption Pascua demolished. The businesses that are protected are the ones who engage their offshore team through a genuine, compliant employment structure — exactly what shielded the arrangement in Pepperstone.

The good news is that you don't have to choose between the benefits of an offshore team and peace of mind. You don't need to build your own Philippine legal entity, navigate local labour law, or run offshore payroll yourself to get this right.

That's precisely what an Employer of Record (EOR) is for.

How an EOR solves this

A genuine EOR legally employs your team in the Philippines for you. The EOR becomes the substantive employer of record — handling local employment contracts, payroll, statutory contributions, and HR compliance under Philippine law — while you keep full day-to-day control of the work your team does.

In other words, it gives you the structure that made the difference in Pepperstone:

  • Your team is genuinely, properly employed under local law — not misclassified.
  • Contracts are formed and performed in the Philippines, correctly.
  • A real third party carries the HR, payroll, and compliance substance.
  • You get your team, your output, and your control — without inheriting the exposure.

Structure isn't the expensive option. As Pascua shows, the underpayment claim is.

Where Australian Outsourcing Services fits in

At Australian Outsourcing Services, this is exactly what we do. We're Australian-owned and Philippine-based — a division of Compliance PH — and we build managed offshore teams for Australian businesses on a properly structured Employer of Record model.

That means your team in the Philippines is employed correctly, paid correctly, and protected correctly, with the compliance substance behind it that these rulings show actually matters. You get the talent and the cost efficiency of offshore hiring, structured the way that stands up to scrutiny.

If you already have staff in the Philippines — or you're planning to — it's worth a conversation about whether your current setup looks more like the first case or the second.

Talk to your Australian-born offshore solution. Contact us to review your offshore structure.

This article is provided for general information only and does not constitute legal advice. Case outcomes depend on their specific facts. For advice about your own circumstances, consult a qualified Australian employment lawyer.