On 9 February 2022, the High Court delivered two landmark judgments providing much-needed certainty for organisations who need to reduce the risk of their contractors being characterised as employees with employee entitlements.
What are the cases?
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1.
A labour-hire company engaged a backpacker to perform labour services at a client construction site. The backpacker was described as “self-employed”, but the High Court determined he was an employee. A key consideration was the backpacker’s lack of control and ability to exercise judgement in the performance of his “business”.ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.
Two previous employees set up separate partnerships and purchased their own trucks to continue to provide delivery services for their previous employer as contractors. The High Court determined that the relationship was a true contractor relationship at law, and that any alleged inequality of bargaining power at the time of contracting was not a relevant consideration.
What’s new?
In recent years, the courts have considered both the terms of a contract and all the surrounding circumstances of the working relationship to determine whether a “contractor” is really a contractor or an employee at law.
The High Court in these latest cases determined that this is not the correct approach. Instead, in circumstances where there is no allegation of sham contracting the court should only consider the terms of the contract to determine the legal relationship.
The rationale of this approach appears to be that in circumstances where the parties have gone to considerable effort to remove ambiguity by entering into a comprehensive contract and acting in a manner consistent with the agreed terms, the court’s role is to interpret those agreed terms to determine what the agreed legal relationship is rather than looking beyond those terms in search of a legal relationship that may be different to what was agreed.
It is important to note that there were no allegations of sham contracting in either case, and this approach is unlikely to be adopted in circumstances where sham contracting is alleged.
What remains the same?
These cases mark a significant change, but it is important to understand what has not changed to avoid unintentionally breaking the law. For example:
Titles of contracts and people are still irrelevant. Calling someone a “contractor” or titling a contract a “contractor agreement” does not necessarily mean there is a client/contractor relationship at law. The substantive terms of the contract are what counts.
The courts will still consider all the relevant work arrangements of the parties when determining what the legal relationship is. And whether the contractor can be characterised as genuinely carrying on their own business in their own way, exercising their own judgements, and for their own purposes, is still a key consideration.
How confident are you in your contracts?
Having a robust independent contractor agreement, with terms that are consistent with employment laws and reflect the latest developments in case law, is more important than ever. If a contractor took your organisation to court, how confident are you that the court would find in your favour?
We can assess and improve your contractor and employment agreements. To find out more, call us on 02 9199 4563.
This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you. Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.