Earlier this month, the High Court turned the current approach of how to determine a contractor from an employee on its head when it handed down two significant decisions. 

The High Court has decisively and unanimously held that the written terms of the contractual agreement between the employer and individual should be the primary factor when determining whether a worker is an employee or contractor – not the behaviours of the parties afterwards. This is consistent with the Court’s earlier decision in Rosatto, where it was established that contract is king when it comes to determining employment status. 

Both CFMMEU v Personnel Contracting [2022] HCA 1 (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek) overturned the decisions of the Full Bench of the Federal Court which were based on an analysis of the “multifactorial indicia”. That is, to look at the way in which a working arrangement actually operates, which would then take precedence over what was written in the contract. 

In both cases the applicants were engaged as contractors. The owner-drivers in Jamsek were held to be contractors, however the applicant in Personnel Contracting was found to be an employee. 

So, what happened?

The Cases 

Jamsek concerned two truck drivers who in 1986 agreed to “become contractors”, by forming partnerships with their respective spouses and re-engaging under fresh contracts between the company and these partnerships, while also purchasing their own trucks. After the working relationship was terminated in 2017, the two men then began proceedings in the Federal Court seeking entitlements alleged to be owed to them as employees of the company. 

Personnel Contracting involved a backpacker from the UK who had a written contract with labour hire company Construct, was required to perform work for Construct’s clients who would oversee his day-to day work and directly pay the labour hir company. In turn, Construct would remunerate the backpacker. 

The last time the High Court looked at this issue was in 2001, in Hollis v Vabu, since which the courts have emphasised the need to look beyond the contract to the way in which a working arrangement actually operates. 

The Decision 

The High Court has now confirmed that where the terms of the parties’ relationship are reduced to a written contract (and there is no challenge to its validity, such as on the basis that it is a sham), the legal rights and obligations established under the contract should be decisive of the character of the relationship. The conduct and expectations of the parties after entering into the contract is not relevant to determining the status. 

This was clear in the decision in Jamsek. The contract was between the company and the partnerships, and the truck drivers were found to be members of partnerships -not employees of the company. Since the subsequent conduct of the parties and their ‘expectations’ regarding the work to be performed was irrelevant, the Court determined they were contractors. 

However, the High Court also stated that, without infringing on parties’ legitimate rights to define their own rights and duties, this does not mean that their relationship can be labelled as something inconsistent with those rights and duties. Consequently, calling an individual a ‘contractor’ will have no effect if the contract is one of employment. 

This matter was of importance to the different decision in Personnel Contracting. 

Since the Court determined that the nature of the relationship between the parties was to be determined by the written contract, the Court undertook an analysis of the contract itself, in particular, assessments relating to the degree of control exercised over the person and the extent to which the person operates an independent business: 

1. Control: the greater the degree of control by the employer over the work performed, the greater the likelihood of an employment relationship existing instead of a contractor partnership. Crucial to the decision was the fact that Construct could control the backpacker’s work, as he was effectively obliged under his contract to follow the direction of Construct’s client, or else be terminated by Construct.
2. Own business: the greater the degree of integration and subservience of the worker into the principal’s organisation, the greater the likelihood of an employment relationship existing. Conversely, the greater degree to which it is the running of an independent enterprise by the person, the more likely it is that the worker will be a contractor. The court considered the core of the backpacker’s obligation under his contract was to work as directed by Construct or its client and therefore did not have the same liberties that a contractor would be allowed in regard to the level of autonomy and control over the work he carried out. 

Consequently, the relationship between the backpacker and Construct was characterised as a contract of service (employee) rather than contract for services (contractor). 

Key Takeaways 

When a contract between the parties sets down the terms of a contractor relationship, legally, that is what the relationship is. For example, if a contract provides that a worker is providing services through their own company or partnership, has some control over when they accept or reject work and the flexibility to perform work for other companies, then it is likely they are a contractor. 

This does not mean that simply writing in the contract that the worker is a “contractor” is enough. In the case of Personnel Contracting, despite the contract labelling the worker as an independent contractor, the High Court found he was an employee because of the written terms of the contract. It was the company, not himself, who had the right to determined how and to who he provided his labour and required him to cooperate in all respects in supplying his labour. 

With a well-drafted contract between the parties, organisations can be reassured that workers engaged as independent contractors cannot later claim that they are entitled to employment-related payments, such as minimum hourly rates, leave and superannuation. 

These decisions highlight a clear risk for organisations who don’t have written contractor agreements or where the content of the contractor agreement would be seen as one of employment. 

In light of the High Court’s decisions, you should: 

• Ensure the arrangement is articulated in writing. Whether the person is an employee or a contractor, businesses should have a written agreement in place that sets out the rights and obligations of the parties. 
• Review existing contractor arrangements to ensure that the terms of the arrangements are clearly set out. 

Bayside Group’s specialist Workplace Relations team can help to ensure your employment contracts protect you and your business. Contact us today  to see how we can assist.