Contracts determine whether a worker is an employee or an independent contractor

Contracts determine whether a worker is an employee or an independent contractor

On 9 February 2022 the High Court delivered two judgements which change the way Courts determine whether a worker is an independent contractor or an employee (therefore entitled to the benefits of an employee). These decisions were:

 

  1. Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting); and
  2. ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek). 

 

In both of the above cases, the lower courts had largely applied the “multi-factorial” approach (the principal in the High Court decision Hollis v Vabu (2001) 207 CLR 21) which gave more weight to the conduct of the alleged employee and employer rather than the terms of the contract between the parties.

 

The two decisions provided that if the terms of the contract clearly intend the worker to be an independent contractor, then other factors of conduct indicative of an employee and employer relationship may be relevant, but not necessarily determinative. In doing so, the High Court by majority, in Personnel Contracting and Jamsek affirmed and considered its recent decision in WorkPac Pty Ltd v Rossato [2021] HCA 23. In Personnel Contracting, Kiefel CJ, Keane and Edelman JJ provide:

 

“Where the parties have comprehensively committed the terms of their relationship to a written contract the validity of which is not in dispute, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract”.

 

Notably, on balance of each of the cases, the High Court provided:

 

  1. Whether a worker has their own business or works for the business of another is relevant but not determinative.

 

  1. The ‘totality’ of the relationship between the parties should be considered, but the judgements provided differing opinion as to how the relationship should be characterised.

 

  1. Where the parties’ relationship is not fully written, certain obligations on the worker may manifest a contractual right of control which may indicate an employer relationship.

 

  1. Whether the parties have an exclusive arrangement is not determinative (e.g. the worker cannot work for another party or must not work for another party during certain hours).

 

  1. How the parties label the worker (e.g. employee or contractor) is not relevant, nor their opinions on a matter of law, but the terms of the contract as a whole.

 

  1. Whether a party has superior bargaining power has no bearing on the meaning and effect of the terms between the parties if the validity of the contract is not challenged.

Further, the Personnel Contracting decision may have an effect on labour hire agencies (such as Personnel Contracting) known as an “Odco” relationship (from a previous Federal Court Case of that name).

 

It was found, Personnel Contracting had a ‘right of control’ over Mr McCourt (represented by the CFMMEU) and was able to terminate him where he failed to obey the directions of Personal Contracting or Hanssen (the company to whom the labour was ultimately provided). Pursuant to the terms of their agreement Mr McCourt was paid directly by Personnel Contracting for work that he had performed for them. Therefore, the construction of the contract in Personnel Contracting was not a contract for services but a contract of service (employment) and therefore Mr McCourt was determined to be an employee.

 

In Jamsek, notably, the High Court remitted the matter back to the Full Court of the Federal Court to determine whether the workers were in fact employees under the expanded definition in the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA). It is also an important reminder to have regard to the expanded definition in the SGAA when determining your full liabilities to employees and independent contractors.

 

These decisions may considerably change advice you have received in recent years in respect of an independent contractor relationship. The decisions mean that any contractor agreements should be reviewed and if necessary, updated to reflect the current status of the law. If you have “Odco” agreements in place, be prepared for potential claims from those parties who may now be considered employees seeking payment of entitlements. If you are concerned these changes may impact you, please call us to discuss reviewing your circumstances.

 

The blog published by Rostron Carlyle Rojas Lawyers is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the author. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.

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