Two cases which are critical to our ongoing understanding of determination when it comes to contractor v employee

The High Court delivers decisions regarding contractor vs employee

Earlier this year, the High Court delivered two decisions which are critical to our ongoing understanding of determination when it comes to contractor versus employee. The first case was Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel) and the second is the case of ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek).

Why are these cases so important? Well, until this time, our go-to decision handed down some 30+ years ago referred us to the long standing “multi factorial” test to determine this question (i.e. looking at all factors and circumstances between the parties).

A summary of each are as follows:

This case was about a 22-year-old English backpacker (Mr McCourt) on a working holiday visa who entered a contract with a labour hire company, Personnel Contracting Pty Ltd. The contract between them referred to Mr McCourt as a contractor. Personnel would identify opportunities with its clients, and hire Mr McCourt to provide labour, then pay him for the work he undertook. Mr McCourt was offered a job at a Hanssen construction site, whereby Personnel was engaged by Hanssen under a labour hire agreement. McCourt undertook basic labouring and was paid an hourly rate. The CFMEU argued on behalf of Mr McCourt that he was actually a casual employee of Personnel and was entitled to rates and benefits under the applicable Award. Initially, the Federal Court held that McCourt was a independent contractor based on the circumstances of such similar arrangements taking place in Western Australia where labourers were engaged under a tripartite contractor structure, which was materially identical to Mr McCourt’s situation and engagement, as independent contractors. Not employees. But, six out of seven of the High Court justices overturned this decision to determine that Mr McCourt was in fact an employee.

Why? The High Court focused on two primary factors when deciding:

  1. Under the contract between Personnel and Mr McCourt the overall right to control the work of Mr McCourt (rather than the detail of the actual exercise of control) rested with Personnel, including its right to control the provision of Mr McCourt’s labour to its customers; and
  2. Mr McCourt’s obligation to work for Personnel’s customers, and his entitlement to be paid for that work was central to Personnel’s business of supplying labour to builders, such that it was clear under the contract that Mr McCourt’s work was dependent upon, and subservient to, Personnel’s business.

The case was about two truck drivers who were contracting to a lighting company. Mr Jamsek and Mr Whitby were former employees of the of the lighting company (engaged from about 1977). At the end of 1985, the lighting company asked all of their drivers to convert to independent contractors. All drivers agreed, including Mr Jamsek and Mr Whitby. They each set up partnerships with their respective wives. The partnerships invoiced the lighting company, and the lighting company paid for their services.

The majority of the High Court held that, in these particular cases the inquiry by the Court should be limited to the terms of the written agreement, and not consider post-contractual conduct. In this particular case, the terms of the written contracts were extensive. It was not argued by the parties that the contracts were a sham or that the contracts had been varied by conduct. So, the High Court’s sole focus was the terms of the agreement. The High Court’s judgement emphasised various aspects, including:

  • The workers provided their own trucks;
  • The lighting company had specifically set out to move away from an employment model;
  • The contracts were with partnerships rather than individual drivers; and
  • The contract did not exclude the possibility of the partnerships engaging alternate drivers with the lighting company’s approval (required to ensure the safe transport of the lighting company’s goods).

These two decisions provide greater certainty for companies who properly record their relationships with employees and independent contractors in written contracts.

The key take away from both cases is that where the terms of the written agreement are not in dispute (either a sham or otherwise ineffective under the general law or statute), a detailed enquiry into the ‘substance and reality’ of the relationship is not required.

Where to from here? It is now critical to ensure well-written contracts, which accurately capture the arrangements between the parties. An assessment of who controls the work and how is it performed, are the focal points. As such, it is important to ensure that the terms of the contract reflect the parties’ intentions about these aspects.  

In our view, this cannot be the end of further debate on this area of the law. These cases had particularly clear written terms. No doubt there will be cases where the arrangements have not been fully captured within terms of a written agreement. So, the multi factorial test is not completely off the table. Stay tuned…

Please contact us if we can assist you with any employment matter.

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