Employment

The Employment Law Review, 8th edition

12 April, 2017

On Wednesday the High Court delivered two long awaited decisions on determining whether a worker is an employee or an independent contractor. The decisions in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (CFMMEU v Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek) and their implications are discussed below.

ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2

In Jamsek, Mr Jamsek and Mr Whitby (the respondents) were initially engaged as employees of ZG as truck drivers. However, in 1985 or 1986, the respondents were informed by their employer that they would no longer be employed but could provide their services as independent contractors if they purchased their own trucks and entered into contracts to carry goods for the company. The respondents agreed and subsequently set up separate partnerships with their wives and executed written agreements with the company for the provision of delivery services. The partnerships would invoice the company for the services provided and the company would then pay for the services. Part of this revenue was used to pay truck operating costs and the net revenue was split between the husband and wife as income.

In 2017, the agreements between the partnerships and company were terminated. The respondents then initiated proceedings in the Federal Court alleging statutory entitlements were owed to them as employees of the company. The issue was then, were the workers considered employees or independent contractors? The primary judge concluded the respondents were independent contractors however on appeal, the Full Court of the Federal Court held that the respondents were employees. The Full Court came to their decision that the workers were employees by looking at factors such as the length of time over which they had provided services to the company and that the work for the company was their sole source of income.

The High Court overturned the decision of the Full Court, finding the respondents to be independent contractors. The High Court stated that none of the considerations discussed by the Full Court were the basis for disregarding the effect of the written agreement between the partnerships and the company.

The High Court outlined two main errors in the Full Court’s reasoning:

  1. The Full Court devoted significant attention to the way the parties conducted themselves over the decades as the Court took the view that proper characterisation of the relationship required a consideration of how the parties’ contract played out in practice; and
  2. The Full Court reasoned that the disparity in bargaining power between the parties affected the contract, so that the ‘reality’ of the relationship was one of employment.

The High Court asserted that where parties have committed their relationship to a written contract, the characterisation of that relationship must be determined by the terms of the contract. Consequently, the High Court deemed that the terms of the truck drivers contract established them as independent contractors.

CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1

In CFMMEU v Personnel Contracting, a British backpacker, Mr McCourt, had travelled to Australia on a working holiday visa and sought work from the respondent, a labour hire company (trading as Construct). Construct offered Mr McCourt a role as a “self-employed contractor” under an Administrative Services Agreement (ASA), which Mr McCourt signed. Construct directed Mr McCourt to work on two construction sites run by Construct’s client, Hanssen Pty Ltd. Mr McCourt worked on the sites performing labouring work under the day-to-day direction and supervision of Hanssen. The relationship between Construct and Hanssen was governed by a Labour Hire Agreement.

Mr McCourt commenced proceedings against Construct in the Federal Court seeking compensation and penalties pursuant to the Fair Work Act 2009. The issue, similarly, to Jamsek, was whether Mr McCourt was an employee or independent contractor. The primary judge found that Mr McCourt was an independent contractor. Mr McCourt appealed to the Full Court, but this was dismissed, with the Full Court applying the multi-factor approach and deeming Mr McCourt an independent contractor.

The High Court have now overturned this decision, deeming Mr McCourt an employee of Construct. The High Court held that although Mr McCourt had been labelled as an independent contractor in the ASA, the effect of the terms under the ASA established rights and obligations consistent with that of an employment relationship. Some of these rights and obligations included Mr McCourt being required to follow the direction of Personnel Contracting and Personnel Contracting having control over Mr McCourt.  The High Court established that subject to statutory provisions and awards, established legal rights and obligations in a written contract should determine the relationship between parties. Essentially, despite Mr McCourt’s label in the ASA as an independent contractor, the terms of the contract established that he was instead an employee of Construct.

The case of CFMMEU v Personnel Contracting is consistent with the approach taken in Jamsek. Both cases highlighting that:

‘where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract.’     

The decisions of CFMMEU v Personnel Contracting and Jamsek are consistent with the High Court’s decision of Rossato, which gave primacy to the written agreement when determining the true relationship between parties. It is clear the High Court have turned to a more orthodox approach of contractual interpretation, prioritising the terms of the written contract rather than the multi-factor test.

 

What do these decisions mean for employers?

These decisions highlight the importance of ensuring that  careful consideration is given to drafting legal rights and obligations between parties to ensure the correct relationship is established. Mischaracterising an employee as an independent contractor can have severe consequences The decisions give comfort that where the legal rights and obligations are agreed in a written contract, and they are consistent with how the parties have characterised that relationship,  that considerable weight will be given to those terms if the nature of the relationship is ever challenged.

If you need advice on your company’s independent contractor or employment contracts, our employment team at McCabes are able to assist.

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Published by Foez Dewan
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