The question as to whether a worker is an employee or contractor has been a source of consternation for decades. However, last week the High Court has now provided some clarity to the question and much-needed guidance on this thorny issue in two court cases. The 2 cases were ZG Operations Australia Pty Ltd v Jamsek (“Jamsek”) and CFMMEU & Anor v Personnel Contracting Pty Ltd (“Personnel Contracting”)
In the first case of Jamsek, it was determined that two truck drivers, Mr Jamsek and Mr Whitby, were independent contractors and not employees. Both men were initially engaged as employees in the late 1970’s however in 1986 the employees were told that their services would only be re-engaged if they entered into arrangements as independent contractors, where they would buy their own trucks to carry goods.
In 2017, the contracts were terminated and the two truck drivers initiated proceedings in the Federal Court of Australia. Upon appeal to the Federal Circuit Court of Australia it was decided that they were employees. The High Court has now overturned that decision.
The High Court upheld the primacy of the terms of the written agreement as a key factor in establishing the legal character of the relationship.
In Personnel Contracting, the High Court considered an appeal from the Full Court of the Federal Court as to whether a labourer was considered an employee or an independent contractor while engaged by a labour-hire company.
On appeal to the High Court, the High Court overturned the Federal Court decision, and using the same principles established in Jamsek, finding that the worker was an employee and not an independent contractor
In summary, since 2001, the Court has considered the issue of whether a person is an employee or an independent contractor using what is called “the multifactorial test”. The test considered a range of factors, including the degree of control an employer had over the employee or independent contractor, any of the assets and tools of trade owned by the contractor and uniforms required to be worn by the contractor/employee.
The High Court, in clarifying the application of the multifactorial test, focused upon the written agreement when determining the legal character of the relationship. The High Court held that if the rights and obligations of both parties in the written agreement point to a person being an employee or independent contractor, then the characterisation of the relationship will not be affected by the way in which the agreement operates.
The High Court stated ‘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 cases have emphasised the importance of contracts when assessing the character of employee/contractor relationships.
Therefore, it is important that employers ensure that all independent contractors are bound by clear and comprehensive written agreements, and that the terms and conditions of which demonstrate that the intent of the parties that the arrangement is a contract for services as opposed to a contract of service or employment.
In light of these decisions, we would recommend that our client’s revisit the documentation they have in place in relation to their contractors. To book a time to review your current arrangements and associated documentation please contact our office.
Greg Arnold – Director & Principal Consultant
Disclaimer: This article provides a summary only of the subject matter without the assumption of a duty of care by Effective Workplace Solutions. No person should rely on the contents as a substitute for legal of other professional advice.