In two key decisions, the High Court has clarified the approach to determine whether a worker is an employee or an independent contractor. These decisions reinforce the importance of ensuring contracts used to engage personnel correctly reflect the nature of the engagement from the outset.
In both decisions, a majority of the High Court held that where the parties have committed the engagement to a complete written contract, it is not appropriate to consider the subsequent behaviour of the parties. Rather, the “character” of the relationship between the parties, as that of employer‑employee or principal‑independent contractor, must be assessed by reference to the contractual terms and obligations as written. This echoes the reasoning of the High Court in WorkPac Pty Ltd v Rossato [2021] HCA 23, which turned on the terms of the casual employment contract rather than how the employment relationship carried on after the contract was formed.
These decisions represent a departure from the ‘multifactorial test’ previously used to determine whether a person is an employee or a contractor. However while employers and principals may be able to rely on written agreements with more certainty, they should still be vigilant about whether the terms of the contract sufficiently reflect the labels used to describe the relationship.
In the first case – Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) – the worker, Mr McCourt, was a 22-year old British backpacker who contracted with a labour hire agency, Construct. The contract described Mr McCourt as a ‘self-employed contractor’, and he supplied his own workwear when he was sent to work for one of Construct’s clients, Hanssen, performing laboring tasks over two continuous periods. This triangular labour-hire arrangement involved an agency hiring independent contractors who were sent to work for a client of the agency, who had control over the day-to-day activities of the worker, without any contract existing between the client and the worker.
When Mr McCourt’s engagement with Construct came to an end, he and the Construction, Forestry, Maritime, Mining and Energy Union initiated a claim against Construct for breaches of the Fair Work Act 2009 (Cth). Mr McCourt and the Union argued that he had been an employee of Construct, and was therefore owed the extra entitlements of that status.
The trial judge and the Full Court of the Federal Court, in assessing the case, both applied the ‘multifactorial test’ which had become the accepted approach over the last 30 years in Australia following the decisions of the High Court in Stevens v Bodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 and Hollis v Vabu (2001) 207 CLR 21.
However, a majority of the High Court found that where the relationship between the parties is wholly committed to contract, Stevens and Hollis could be distinguished. Similar factors as enshrined in the ‘multifactorial test’ were considered by the majority: the right of control Construct had over Mr McCourt, the fixed amount of his pay, and the untenable proposition that he was carrying on his own business. Yet the weight attributed to these factors, and the confinement of their consideration to the written terms of the contract, represented a clear departure from how similar cases were decided in the past.
The majority of the High Court determined that even though Mr McCourt’s contract with Construct had labelled him a ‘contractor’ in the contract itself, he had actually been an employee of Construct because the written contract between Mr McCourt and Construct was indicative of an employment relationship. The High Court therefore made it unambiguously clear that how parties choose to label their relationship will have little bearing on the determination of the true character of the relationship. The adage from Black J in Re Porter (1989) 34 IR 179 on this issue remains relevant: ‘the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck’.
This approach was carried by the majority into the second case, ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2. This case involved two truck drivers, Mr Whitby and Mr Jamsek, who had been employees of ZG Operations Australia Pty Ltd (ZG) for several years before ZG requested in 1986 that they become independent contractors, or risk redundancy. The drivers agreed, purchasing the trucks from ZG and entering into legal partnerships with their wives. ZG entered into contracts with these partnerships, and paid to the partnerships all money owing for the delivery services.
When the relationships were terminated in 2017, Mr Whitby and Mr Jamsek commenced proceedings in the Federal Court claiming that they were properly categorised as employees and seeking the relevant entitlements. The High Court unanimously ruled that the drivers were independent contractors, though some members of the Court disagreed on what ought to be a relevant consideration in reaching this conclusion. The majority focused purely on the contractual terms and the relationship that they established. The invoicing and pay structure of the partnership, the supply and maintenance of the trucks by the workers, and the flexibility built into the contracts which diminished ZG’s control over the workers were considered persuasive of an independent contractor relationship. The majority, in overturning the Federal Court’s decision that the drivers were employees, criticised the expansive approach taken as an unjustified departure from orthodox contractual analysis.
Through these decisions, the High Court has made it clear that whether a worker is considered an employee or an independent contractor is to be determined by reference to the contractual terms if that relationship is wholly committed in writing.
How we can help?
The importance of ensuring employment or independent contractor agreements are well-drafted is now more important than ever. Russell Kennedy's Workplace Relations, Employment and Safety Team can assist businesses to ensure that the legal relationships they are intending to create via written contracts are accurately reflected in the terms.
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