Employment vs Independent Contractor: the High Court decides
The question of whether a worker is characterised as an independent contractor or an employee for the purposes of the Fair Work Act 2009 has significant consequences for employers, not least of which is exposure to penalties and underpayments.
Two recent High Court rulings have given primacy to written contract terms, to determine whether an employment or independent contractor relationship exists.[1]
Traditional Approach
Courts have traditionally determined the question by applying common law tests, which review the reality or substance of the work relationship, using criterion such as:
- the exercise and degree of control over the worker;
- the extent of integration of the worker into the business for example, whether there is a requirement to wear a uniform or follow business procedures (such as a manual);
- provision of equipment;
- how the payments are made via invoice and the regularity of the same;
- whether leave is provided, taken and paid for; and
- whether the worker can refuse / delegate and/or subcontract work.
These considerations are referred to collectively as the ‘multi factor test’.
Movement by the High Court
The recent 2022 High Court decisions have moved away from using this assessment, confirming that it is not appropriate to look at the ‘reality’ of a work relationship, but rather to focus on the contractually agreed terms.
In Personnel Contracting, the majority of the High Court held at [59]:
“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. Where no party seeks to challenge the efficacy of the contract as the charter of the parties’ rights and duties, on the basis that it is either a sham or otherwise ineffective under the general law or statute , there is no occasion to seek to determine the character of the parties’ relationship by a wide-ranging review of the entire history of the parties’ dealings. Such a review is neither necessary nor appropriate because the task of the court is to enforce the parties’ rights and obligations, not to form a view as to what a fair adjustment of the parties’ rights might require” .
Application of the Principles
The application of the principles in Personnel Contracting found that a Worker under an Odco style arrangement with labour hire provider, Construct, was in fact an employee. This was primarily due to the elements of employment being found in the written contract between the Worker and Construct, notwithstanding that the arrangement labelled the Worker as a self-employed contractor. The Worker had performed work for the host, Hanssen, for several projects in 2016 and 2017.
Similarly the approach in Jamsek focused on the validity of the commercial agreement setting out the terms of operation; once confirmed, it determined the legal character of the relationship, finding that an independent contractor relationship did indeed exist.
Next Steps
To determine the impact of these decisions to your contracting arrangements and templates, please contact our friendly and experienced team of employment lawyers at Pace Lawyers on (08) 8410 9294.
- This information is of a general nature only and is not intended to be relied upon as a substitute for specific legal advice.
[1] Construction, Forestry, Maritime and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and ZG Operations Australia Pty Ltd & Anor and Martin Jamsek & Ors [2022] HCA 2 (Jamsek)