Contractor’s Role Clarified by High Court Decisions
In early February, the High Court delivered two long-awaited decisions regarding independent contractors employed by businesses – ZG Operations Australia Pty Ltd v Jamsek, and CFMMEU v Personnel Contracting Pty Ltd.
The rationale behind the decisions marked a clear departure from previous High Court approaches, with the court focusing on how roles were defined in their contracts, rather than how the relationships played out in real life.
For employers, the new approach means investing in well-constructed contracts will provide greater certainty for relationship classification.
ZG Operations Australia Pty Ltd v Jamsek
Two workers who were employed as truck drivers by ZG Operations agreed to end their employment relationship and enter into arrangements to purchase the trucks from their employer and become independent contractors. The workers set up partnerships with their wives as the contracting entities. The workers paid for and maintained their trucks at their own expense and invoiced the company for services provided. They split the partnership income with their wives.
In 2017, after more than 30 years of engagement, the workers sought employee entitlements in court proceedings. At first instance, the court held that the workers were not employees. The Full Court overturned the decision, finding both were employees.
The High Court unanimously held that both truck drivers were not employees, concluding that where parties have a written contract setting out the terms of the relationship, provided it is not a sham contract, the characterisation of that relationship must be determined by the contractual terms.
As the contracts provided for the use of the partnerships’ trucks and the services of a driver to drive those trucks for the company, this was not an employment relationship.
CFMMEU v Personnel Contracting Pty Ltd
A British backpacker in Australia on a working holiday was employed by a labour hire company, with the contract describing him as a “self-employed contractor”. The worker worked on two construction sites operated by a client of the labour hire company, performing basic labouring work under the direction and supervision of the client.
The Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) and the worker took the labour hire company to court, seeking compensation and penalties. At first instance, the judge, and, later, the Full Court, held that the worker was not an employee of the labour hire company.
The High Court overturned the Full Court’s decision and held that the worker was an employee of the labour hire company. While written terms of the contract will generally determine the relationship, the High Court found that on a proper analysis, the terms in the independent contractor agreement amounted to an employer/employee relationship, regardless of the “contractor” label being used. This case was an example of the reasoning in previous cases where “the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everyone else recognise it as a duck”.
These two decisions are in line with the recent approach taken by the High Court in WorkPac Pty Ltd v Rossato, where emphasis was placed on the written terms of the employment agreement and not on the conduct of the parties.
Employers should take two key learnings from the recent High Court decisions.
- The High Court’s approach has fundamentally shifted. There is a greater focus on the terms of the contract than on the working relationship of the two parties. This differs from the court’s previous ‘multi-factorial’ approach, which took into account various issues when assessing the nature of a relationship. As such, contracts need to be explicitly clear in defining the roles of employees and contractors.
- This new focus does not mean that the actual label used in the contract – ‘contractor’ or ‘employee’ – is definitive, especially if the terms of the contract amount to a different relationship. Contracts need to be explicit and correct in their definition of roles.
In light of those learnings, employers with complicated employee/contractor relationships should carefully review their existing contracts to ensure that their classifications align with the High Court’s most recent approach. Correct, well-constructed contracts are now the defining feature of relationships, providing certainty for organisations who have properly classified their employees and contractors.
If you’re wondering what the High Court’s decisions mean for your business, contact our experienced commercial law team for advice. With over 50 years of experience in top-level commercial advice, we’ve helped small businesses and multinationals successfully navigate changing legislative landscapes – contact us on 07 5597 3366, at email@example.com, or via our contact form.
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