In its first two decisions of the 2022 calendar year, the High Court of Australia has considered the question of what makes a worker an employee or an independent contractor.
In both cases, the critical factor in answering this question appeared to be – look at the contract!
Case 1: Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd - the Construct Case
In this case, Mr McCourt was a 22 year old backpacker who was hired by a labour hire company, Construct. Mr McCourt worked as a labourer on two construction sites for Construct’s builder clients.
Mr McCourt signed a document with Construct called an "Administrative Services Agreement" which described him as a "self-employed contractor". The terms of Mr McCourt's contract included requirements that:
Construct would liaise with its builder clients and Mr McCourt about matters including:
the duration the builder required labour
the location where the labour was to be supplied
the daily hours of work during which labour was to be supplied
any other terms and conditions upon which labour was to be supplied by Mr McCourt to the builder
Construct would negotiate Mr McCourt’s payment rate directly with its builder clients (although Mr McCourt still had the ability to negotiate some other terms and conditions with the builder clients)
Once assigned to a builder client for work, Mr McCourt was required to co-operate in all respects with Construct and the builder in the supply of labour to the builder
Mr McCourt would attend at any building site as agreed with the builder at the time required by the Builder.
Once he was hired, Mr McCourt worked a regular pattern of hours and took instructions from Construct’s builder clients about the work he was to perform onsite, such as cleaning the site and moving materials. Construct was able to direct Mr McCourt to perform work for particular builder clients, which it did over the course of Mr McCourt’s engagement.
The High Court noted these were not traditional features of a principal / independent contractor relationship. It determined Mr McCourt was not an independent contractor because he was not conducting his own independent business but was working within Construct’s business at its direction. Construct had control over where, when and how Mr McCourt worked as a labourer under the terms of his contract. These features were consistent with an employer/employee relationship, rather than a principal / independent contractor relationship.
While Mr McCourt was described as a “contractor” in his contract with Construct, the Court found the duties and rights contained in the contract’s terms were inconsistent with this label. He was, in actuality, an employee of Construct’s labour hire business. This is an important reminder that the label given to a contractual relationship is not determinative of the true nature of the relationship.
Case 2: ZG Operations Australia Pty Ltd v Jamsek – the Jamsek Case
The opposite decision was reached by the High Court in the Jamsek Case.
In this case, Mr Jamsek and Mr Whitby were previously employees of ZG Operations from 1980 to 1986. In 1986, Mr Jamsek and Mr Whitby were offered work as “contractors”, which they accepted. Mr Jamsek and Mr Whitby formed separate partnerships with their wives and entered into agreements with ZG Operations to provide truck driving services and purchased their own trucks.
The partnerships paid for all expenses associated with the trucks, such as registration and maintenance costs. The partnerships issued invoices for the work they performed and charged GST. ZG Operations paid the partnership entities for their truck driving services, and the payments were then distributed between the husband and wife in each partnership.
Mr Jamsek and Mr Whitby provided services under their respective partnerships to ZG Operations over the course of approximately 32 years.
The High Court determined that the terms of the agreement between each of the two partnerships and ZG Operations supported the characterisation that Mr Jamsek and Mr Whitby were independent contractors as:
Mr Jamsek and Mr Whitby had established their respective partnerships following ZG Operations’ decision not to employ Mr Jamsek or Mr Whitby after 1986;
The partnerships purchased trucks to undertake deliveries for ZG Operations; and,
It was the partnerships who provided the services of making deliveries.
Final thoughts
These cases indicate the terms of a contract will be critical in determining whether a worker is an employee or independent contractor. They reinforce the importance of the ‘getting it right’ from the outset when hiring a new worker and are a reminder for all businesses to properly document their contractual arrangements with their workers.
When contract is king, clear contract preparation may be key to avoid confusion and (at worst) lengthy litigation when it comes to the identification of your workers.
How we can help
If you need assistance preparing contracts for the engagement of employees or contractors or conducting a review of your current employment arrangements, the employment team at Shand Taylor Lawyers is here to help.
John Sneddon, Director (07) 3307 4504 jsneddon@shandtaylor.com.au
Ruby Nielsen, Senior Associate (07) 3307 4551 rnielsen@shandtaylor.com.au
Charlie Hodgetts, Solicitor (07) 3307 4513 chodgetts@shandtaylor.com.au
Emma Lewis, Solicitor (07) 3307 4546 elewis@shandtaylor.com.au