MARKET WATCH: High Court delivers Two Landmark Decisions

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High Court delivers Two Landmark Decisions

 

Last week, the High Court delivered two landmark decisions which clarify whether a worker is considered an employee or a contractor.

The High Court decisions have taken the more traditional view that the contract terms take primacy over how the relationship between the worker and the employer operates.

It used to be that the Courts would take a multi-factor test when determining what makes an employee or a contractor and considered practical reality and true nature or substance of the working relationship. However, the relevant test is now one that is reduced to merely the written terms of the employment contract.

The seminal decisions were Construction, Forestry, Maritime, Mining and Energy Union & Anor. v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.

 

Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1

Personnel Contracting Pty Ltd (’Construct’) is a labour-hire company based in Perth which engages workers to supply their labour to building clients. In 2016, Mr McCourt signed an agreement which described Mr McCourt as a “self-employed contractor”. Following this, construct offered him to work for Hanssen Pty Ltd (’Hanssen’), where he worked for under four months. He then left Perth. He later returned to work on a separate project for Hanssen, but within less than a week he was told he was not to continue work and did not receive further work from Construct.

Mr McCourt and the Construction, Forestry, Maritime, Mining and Energy Union commenced proceedings against Construct seeking orders for compensation and penalties on the basis that Construct had not paid Mr McCourt his entitlement as an employee of Construct. The primary judge and later, the Full Court of the Federal Court of Australia found that Mr McCourt was an independent contractor and not an employee.

The High Court overturned these prior decisions and found that Mr McCourt was an employee. In coming to this conclusion, the majority observed the circumstances of the relationship between McCourt, Construct and Hanssen. The fact that the parties described their relationship a certain way did not change the character of the relationship established by their legal rights and obligations. McCourt’s work was dependent upon, and subservient to, Construct’s business and should be characterised as a contract of service rather than a contract for services.

 

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

Between 1977 and 2017, Mr Jamsek and Mr Whitby (’the respondents’) were engaged by ZG Operations Australia Pty Ltd (’the company’). Initially, the respondents were employees of the company and drove trucks provided by the company. However, in the mid 1980’s, the company insisted that it would no longer employ the respondents and would only use their services if they purchased their trucks and entered into contracts to carry goods for the company. The respondents agreed to the new arrangement, purchased their trucks and executed a written agreement with the company for the provision of delivery services.

The agreement was terminated in 2017. The respondents then commenced proceedings seeking declarations in respect of statutory entitlements alleged to be owed to them as employees of the company. The primary judge concluded that respondents were independent contractors. However, the Full Court of the Federal Court of Australia held that the respondents were employees of the company.

The High Court overturned the Full Court of the Federal Court and found that the respondents were engaged in the conduct of their own business. The respondents provided their truck driving skills and trucks. Importantly, the provision of this service has consistently been held in Australia to have been characteristic of independent contractors.

 

As the above decisions demonstrate, the Courts look to the characteristics of the rights, obligations, and overall relationship between the parties through the written terms of their employment contract, rather than the conduct that occurs after the contract is formed.

Companies that employ workers on a contractor basis, such as real estate agencies and gig workers, should ensure that their contracts adequately capture the type of arrangement they have. While the parties may describe their relationship being between an independent contractor, the characteristics of the relationship as drafted within their contract may give rise to a relationship of employer and employee.

It is important that companies understand the difference between a valid independent contracting arrangement and an employment relationship. If an agency were to ‘label’ a sales agent as an independent contractor only to have them later be considered an employee, there are major legal and financial implications that may arise as the worker may have additional rights that would allow for workers’ compensation and other statutory entitlements.

A well-drafted and carefully considered contract can prevent such implications.

If you require advice about your employment contracts, we are here to help.
Please contact our expert team.

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