On 9 February 2022, the High Court of Australia published two decisions determining whether workers are contractors or employees. This question had ordinarily been answered by the Courts using a ‘multifactorial approach’ by looking at several factors to determine the ‘true nature’ of the relationship. The High Court’s decision is likely to change the way future decisions will be made.
Last year, the High Court decision in WorkPac Pty Ltd v Rossato (see EMA Note Issue 19, 2021 for a summary) effectively found that where the terms of a contract are wholly in writing, those terms will determine the nature of an employment relationship— not the nature or evolution of the relationship following the contract.
Following that decision, there was significant commentary about the potential effects on the employee v contractor test that had been applied to that point. The High Court has now ruled on this.
This EMA Note is a summary only and should not be relied upon in place of the original decisions, or as a substitute for specific advice.
The High Court Cases – Background and Summary
The High Court heard two separate cases: Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (“CFMEU v Personnel Contracting”) and ZG Operations Australia Pty Ltd v Jamsek (“ZG Operations v Jamsek”). You can read the High Court summaries for CFMEU v Personnel Contracting here and for ZG Operations v Jamsek here.
CFMEU v Personnel Contracting involved a construction site worker under a contract with a labour-hire firm which described him as a ‘self-employed contractor’. However, the rights and obligations set out in this contract effectively reflected an employment relationship. A majority of the High Court held on this basis that the worker was an employee and not a contractor, regardless of the contract labelling the employee as a contractor.
ZG Operations v Jamsek involved two workers, each a truck driver initially directly employed for approximately nine years before agreeing to an arrangement to purchase their own trucks and “become contractors” to carry goods for the company. They effectively worked exclusively for the company for many years thereafter. The High Court unanimously found that each driver was a contractor based on the rights and obligations set out in the contracts (being indicative of a contractor rather than an employee).
Key Take-aways for Employers
The key principles for employers to consider across these two cases can be summarised as follows.
Focus should be given to the rights and obligations set out in the contract when determining the character of the contractual relationship. The ‘label’ that parties choose to apply to their contractual relationship carries little weight.
The often applied ‘multi-factorial test’ may still be useful where the terms of a contract are not wholly in writing.
Elements of the ‘multi-factorial test’ may also still be relevant when looking at the rights and obligations set out in the contract. For example, some factors considered in the High Court decisions included: the ‘control’ over the individual that the contract provided the companies; the provision of invoices for work performed; and the ability for the workers to perform work for other parties.
Post-contractual conduct by the parties may still be relevant in determining whether a contract was a ‘sham’ or has been terminated or varied.
In summary, the key to determining whether a worker is an employee or a contractor will lie primarily in the rights and obligations in the contract. But this will only apply if there is a comprehensive written contract, and that contract is not otherwise invalid (for example under sham contracting rules).
What Should I do?
This matter is legally complex. Organisations seeking to engage contractors (or who already engage contractors) should speak with their legal advisors to ensure that the contract accurately reflects the entire relationship between the parties.
If an employer is unsure about the nature of their relationship with a worker—whether that is because of evolution in the nature of the relationship between the employer and worker or because the arrangement is not set out wholly in writing—they should seek a legal opinion.
Require further information/assistance?
If you require further information or advice, please contact your Consultant. If you require a legal opinion and do not have a preferred lawyer who specialises in this area, please contact your Consultant who will be able to refer you to an appropriate lawyer.
EMA Consulting is not a law firm and therefore does not provide legal advice or services. The information contained within this document and associated material is general in nature and should not be relied upon. If you require specific advice on a particular matter, we recommend that you contact EMA Consulting on 08 8203 1700. Subject to the matter at hand, your EMAC Consultant may recommend that you obtain formal legal advice. If formal legal advice is required, upon your written instruction EMAC will brief your matter to a legal practitioner for this purpose. The contents of this document and associated materials do not represent legal advice.