By Ben Schefe
A common issue that continues to arise is how businesses classify their workers – ie are the workers independent contractors or employees?
There have been two recent decisions handed down by the High Court that confirm how critical a written contract is when determining whether a worker is an employee or an independent contractor.
First Case – Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1
Relevant Facts and Earlier Decisions
The worker in question was a 22 year old backpacker hired by Personnel Contracting to provide labouring services on a construction site. The contract entered into by the worker described the worker as a “self employed” contractor. The work disputed this description and sought compensation on the basis that he was an employee.
Both the Federal Court and the Full Federal Court dismissed the worker’s claims because both of those courts considered that the worker was an independent contractor. The worker then appealed to the High Court.
High Court Decision
In summary, and to keep things simple, the High Court decided that the proper approach is to look at the “totality of the relationship” to determine if a worker is an employee or a contractor. In approaching this task, the terms of the written contract need to be considered, as well as the legal rights and obligations that are established by the contract.
The High Court held that whether a worker “is conducting his or her own independent business, as distinct from serving in the business of the employer, provides a more meaningful framework to guide the characterisation of the parties’ relationship.” To that end, Justice Gordon commented “the better question to ask is whether, by construction of the terms of the contract, the person is contracted to work in the business or enterprise of the purported employer.”
Based on the above, and given that the worker’s contract provided that: Personnel Contracting would determine who the worker would work for, how much he would be paid, and that the worker would only be paid for the labouring work and would have to comply with all requests by the builder client, the High Court determined that the worker was not running his own business, and was controlled by Personnel Contracting. Accordingly, unsurprisingly, the High Court held that the worker was an employee in this case.
Second Case – ZG Operations Australia Pty Ltd and Anor v Jamsek and Anor [2022] HCA 2
Relevant Facts and Earlier Decisions
The workers in question were 2 truck drivers who had driven trucks for ZG operations between 1977 and 2017, when they were told their services were no longer required. The workers had set up partnerships with their wives, and entered into written contracts with ZG Operations that provided that, amongst other things, that the drivers were in partnership with ZG Operations, were required to provide and maintain a truck, were able to delegate their services, and were entitled to payment on fees on provision of a tax invoice. After the termination of their contracts, the drivers sought declarations from the courts that they were employees and were entitled to compensation.
The primary judge in the Federal Court concluded that the workers were not employees of the company, and instead were independent contractors. The Full Court of the Federal Court allowed the workers’ appeal, holding that the workers were employees of the company . The company then appealed to the High Court.
High Court Decision
In summary, in a detailed review of the terms of the written contract, including considering the rights and obligations created by the contract, the High Court decided in allowing the company’s appeal, held that in reality, the workers were in fact operating their own businesses and were not employees of the company.
Key Lessons
1) Review your independent contractor agreements to ensure that all relevant terms are included in your written contracts and to ensure your contractors are genuine contractors and are not in fact employees;
2) There were no allegations in the cases that “sham contracts” were involved, or that there was any variation of the contracts by conduct, in either of those cases. If there had been similar allegations, then it is possible, that the outcomes may have been different. However, these cases confirm how critical it is to have robust written contracts in place.
Need some more advice on independent contracting or contracting with your workers generally?
If you would like further advice on sham contracting or contracting with your workers, MDL’s Employment Law team can help.
