Employment & Safety Update – 18 May 2022

High Court guidance on whether a worker is an employee or an independent contractor – Personnel and Jamsek decisions

On 9 February 2022, the High Court handed down two landmark cases which both provide clear guidance on how to determine whether a worker is an independent contractor or an employee.

In both Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek), the Court found that the key factor that will determine a worker’s employment status is the terms of that worker’s employment contract. This approach is consistent with the earlier decision of Workpac v Rossato which we discussed in our earlier article, here.

Background on the two cases

Personnel Contracting

In Personnel, the issue to be determined was whether a labour hire worker was in fact an employee of a labour hire company, as opposed to an independent contractor.

In that case, Mr McCourt had signed an Administrative Services Agreement (ASA) with a labour hire company trading as Construct.

The Full Court of the Federal Court of Australia decided that Mr McCourt was an independent contractor, based on the “multi-factorial” test.

However, this approach and decision was overturned by the High Court. The High Court by majority found that Mr McCourt was in fact an employee because:

  • the contract gave Construct the right to determine who Mr McCourt could work for and required him to cooperate in all respects in relation to supplying his labour;
  • Mr McCourt was entitled to be paid for work performed; and
  • the key element of control that Construct had over Mr McCourt rendered the relationship one of employment.

The majority found that Mr McCourt was an employee despite the numerous times that he was referred to as a “contractor” in the agreement, because the substance of the rights and obligations in the contract were characteristic of an employment relationship.

Jamsek

In Jamsek, the issue to be determined was whether two delivery truck drivers were employed by ZG Operations Australia Pty Ltd (ZG) as employees or independent contractors.

In that case, Mr Jamsek and Mr Whitby had each set up partnerships and the respective partnerships had contracted with ZG.

The Full Court of the Federal Court had found that the workers were employees of ZG, based on the “substance and reality” of the relationship.

On appeal, the High Court unanimously overturned the Full Court’s decision, and found that they were both independent contractors.

The High Court said that the approach of the Federal Court was wrong because there was too much emphasis on the post contractual conduct of the parties. The High Court found that the focus should be on the terms of the contractual agreement.

Key to the High Court’s reasoning was that Mr Jamsek and Mr Whitby:

  • had each set up their own partnerships and the contracts were between ZG and the partnerships;
  • agreed in the contracts that it was the responsibility of each of the partnerships to maintain their own truck; and
  • under their respective partnership, could service clients other than ZG.

In addition, the High Court stated that ZG did not have much control over the delivery services provided by the partnerships.

What do these landmark cases mean for business?

The High Court decisions highlight the fundamental importance of drafting written contracts that properly reflect the intention of the parties.  The High Court confirmed that the following interpretation principles should be adopted:

  • Where there is no evidence that the contract is a sham, ineffective under general law or statute, or has been varied, then the terms of the contract will determine the question of whether the worker is an employee or independent contractor. There is no scope to look beyond the contract terms to answer this question.
  • The rights and obligations as provided in the contract are to be understood using normal principles of contractual interpretation.

Key takeaway

Moving forward, it is critical for businesses to review their contracts to make sure they reflect the intention of the parties and truly give effect to the intended legal relationship.  A well-drafted contract will provide businesses with certainty as to how the relationship would be viewed by a Court.

More information

If you require assistance drafting or reviewing any of your employment contracts or service agreements, please contact the Employment & Safety Team at Page Seager.

Joe Mullavey
Principal
M: 0416 794 061
E: jmullavey@pageseager.com.au

Audrey Clarkson
Lawyer
T: (03) 6235 5125
E: aclarkson@pageseager.com.au

Published: 18 May 2022

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