Misclassification risk, the case that won, and why an Employer of Record matters
If you hire remote talent in the Philippines, here is a question worth sitting with. Is the person on your team really a contractor, or have you built an employment relationship without realising it? For years, many foreign companies assumed that calling someone an “independent contractor” in a signed agreement settled the matter. A 2024 Australian decision, Pascua v Doessel Group, made it clear that it does not.
Remote work has made offshore hiring easy. Getting the employment relationship right is the part that still trips companies up.
The hidden cost of misclassifying a contractor
Misclassification happens when a worker is engaged and paid as a contractor but, in substance, works like an employee. It is one of the most underestimated risks in offshore hiring, because everything can look fine on paper right up until it doesn’t, usually when a working relationship ends badly.
The exposure is real and it compounds. Depending on the jurisdiction, a business that gets this wrong can face:
Back-payment of wages, leave, and statutory entitlements the worker should have received as an employee
Unfair dismissal claims, penalties, and legal costs
Tax and social-contribution liabilities that were never withheld or remitted
Reputational damage and the loss of a worker you actually valued
Crucially, the label in the contract is not what decides the question. Courts and tribunals look at the true nature of the relationship: who controls the work, how the person is paid, whether they run their own business, and whether they are genuinely free to work for others.
The Pascua case: the worker who won
Joanna Pascua lived in the Philippines and worked remotely as a paralegal for MyCRA Lawyers, the trading name of an Australian firm operating through Doessel Group Pty Ltd in Queensland. She had signed an “Independent Contractor’s Agreement,” invoiced weekly, and was paid AUD $18 per hour. When the firm terminated her in March 2024, she filed an unfair dismissal claim. Doessel objected, arguing she was never an employee, just a contractor, and so had no right to bring the claim.
The Fair Work Commission disagreed. In a decision handed down on 26 September 2024, Deputy President Slevin examined the contract itself and found the relationship was, in substance, employment. The factors that mattered:
Control: she was allocated files daily, supervised, given a company email and a phone setup that made her calls appear to originate from Australia, and required to meet the firm’s directions and KPIs
She worked in the firm’s business, not her own. The work was paralegal work, not an independent trade or enterprise
Her pay was described in the contract itself as a “salary… as a Full Time Employee,” and the rate was below the relevant Australian award minimum
The work could not be delegated to anyone else; she personally had to perform it
The “contractor” label, the Commission held, could not override the rights and duties the contract actually created. Doessel appealed. On 21 February 2025, a Full Bench of the Commission refused permission to appeal, upholding the decision. The Full Bench also rejected the argument that her working location mattered, noting there is nothing preventing an Australian employer from engaging an employee to perform work overseas. The Commission later found Pascua had been unfairly dismissed and awarded her compensation.
The takeaway is blunt. A worker sitting in the Philippines, paid as a contractor by an overseas company, can still be found to be an employee, with all the rights that brings.
Why this matters far beyond Australia
Pascua was decided under Australian law, but the principle behind it is not unique to Australia. Most jurisdictions, including the Philippines, apply a “substance over form” test to employment. Philippine labour law applies a test with four elements (selection and engagement, payment of wages, power of dismissal, and the power to control the work), and it looks at how the relationship actually works, not what the document calls it.
So a foreign company directing daily work, setting hours, providing equipment, and paying a fixed monthly amount to a “contractor” in Manila is exposed on two fronts at once. There is potential misclassification under its own country’s law, and there is the risk of failing to comply with Philippine employment, tax, and mandatory benefit obligations (SSS, PhilHealth, Pag-IBIG, 13th month pay). Hiring across borders does not make these obligations disappear. It multiplies them.
Why an Employer of Record matters in the Philippines
This is exactly the gap an Employer of Record (EOR) closes. Instead of engaging your Filipino hire as a contractor and hoping the arrangement holds up, an EOR becomes the legal employer on record, so the person you work with is properly and compliantly employed from day one. You direct the work. The EOR carries the employment.
With an EOR like UpStaff Remote handling the relationship, you get:
A compliant local employment contract, with no misclassification risk and no need to set up a Philippine entity
Payroll processed and statutory contributions (SSS, PhilHealth, Pag-IBIG, BIR) remitted correctly every month
13th month pay, mandatory leave, and benefits administered properly
HR documentation and labour law compliance handled, so a termination or dispute doesn’t become a liability
In other words, an EOR turns the precise weaknesses that sank Doessel’s position, namely a mismatched “contractor” label, pay below the legal minimum, and no statutory entitlements, into a clean and defensible employment arrangement, while you keep full control of the work itself.
The bottom line
The cheapest way to engage offshore talent is rarely the safest. Pascua is a reminder that the “contractor” shortcut can quietly become an employment liability, and that the bill arrives at the worst possible moment. If you’re hiring in the Philippines, the question isn’t whether you can call someone a contractor. It’s whether that label would survive scrutiny. An EOR means you never have to find out the hard way.
Thinking about your offshore team’s setup?
UpStaff Remote helps foreign companies hire and employ top Filipino talent compliantly, handling recruitment, EOR, payroll, and full HR. Let’s make sure your team is set up right. Book a call with us now https://calendly.com/maria-upstaff/30min or visit www.upstaffremote.com.
Sources
Pascua v Doessel Group Pty Ltd [2024] FWC 2669 (26 September 2024), Fair Work Commission. Appeal: Doessel Group Pty Ltd v Pascua [2025] FWCFB 43 (21 February 2025); permission to appeal refused.