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On 9 February 2022, the High Court of Australia (High Court) altered the legal test used to determine whether a person is an independent contractor or employee at law, with the focus now on what the parties have agreed. In analysing the “totality of the relationship between the parties”, Courts will consider the rights and obligations conferred and give less weight to how the relationship operates in practice. Notwithstanding this development, it remains the case that “parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck”.[1]
This article provides an overview of the High Court judgment and its recent application by another Court.
High Court’s Decisions
In brief:
- ZG Operations & Anor v Jamsek & Ors (Jamsek) concerned two truck drivers who had been employed and then subsequently contracted by ZG Operations Australia Pty Ltd (ACN 060 142 501) for over 40 years; and
- In Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd (Personnel Contracting), Mr McCourt was engaged as a “self-employed contractor” and placed by Personnel Contracting with a host company pursuant to a labour hire agreement.
In each case, a dispute arose as to the workers’ entitlements following the end of their engagements, with each of the workers claiming they were employees at law. Consequentially, the scene was set for the High Court to authoritatively consider whether these workers were genuinely independent contractors.
The test: employee vs independent contractor
The High Court has sent a clear message that unchallenged and comprehensive written contracts will be given primacy in determining the legitimacy of employee/contractor relationships. In both Jamsek and Personnel Contracting, the High Court held that where a company and a worker have comprehensively committed the terms of their relationship to a written contract (the validity of which is not in dispute or a ‘sham’), the characterisation of their relationship shall be determined by the rights and obligations of the parties under that contract. However, the parties’ “label” for the relationship will not be in itself determinative. Rather, factors such as the worker’s ability to subcontract, refuse work and determine how the work is performed as recorded in the contract will be given greater weight. While both Personnel Contracting and Jamsek signify a shift from earlier heavy reliance on the ‘multifactorial test’ (as applied to the ‘relationship’) and provide some certainty for businesses, for the reasons which follow, a degree of caution is still recommended.
Is the ‘multifactorial test’ now irrelevant?
In Personnel Contracting, the High Court found it unnecessary and inappropriate to “determine the character of the parties' relationship by a wide-ranging review of the entire history of the parties' dealings” where neither party seeks to challenge the reliability of the contract. It is centrally the Court’s task to uphold the parties’ rights and obligations under contract.
However, the conduct of the parties will not be irrelevant in every instance, and businesses should be aware of situations where what occurs in practice may still be scrutinised:
- Scenario 1: If the parties have not entered into a comprehensive written contract, or the validity of the contract is disputed, it will still be necessary to apply the multifactorial test to matters outside of the contract to determine the legal rights and obligations of the parties.
- Scenario 2: If the parties have varied the written contract by their own conduct after entry into the contract.
- Scenario 3: If the contract is a ‘sham’.
Jamsek and Personnel Contracting: where to from here?
Taarnby v Mungoorbada Aboriginal Corporation[2] is the first lower court decision to apply Personnel Contracting. In that case, Mungoorbada Aboriginal Corporation applied to strike out part of Mr Taarnby’s claim which related to his status as an employee/contractor. Judge Young of the Federal Circuit and Family Court of Australia relied upon Personnel Contracting finding that he could not determine, from the contract alone, whether Mr Taarnby was an employee or an independent contractor and therefore was not prepared to strike out Mr Taarnby’s claim.
Judge Young recognised the High Court’s reasoning in Personnel Contracting that “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”. His Honour further found: “I think the limitation of that interpretation in relation to this case, is that the fact that the Contract does not appear to me to be inconsistent with [an employment contract] or [a contractor agreement] existing between Mr Taarnby and Mungoorbaba”.[3]
In essence, the High Court’s recent decisions may prove difficult to apply where the contract is unclear.
Practical Implications
The High Court’s decisions present a timely reminder of the importance of a clear and comprehensive written contract that accurately and comprehensively records the legal rights and obligations of both parties. The Courts have signalled that they are generally unwilling to ‘re-write’ contracts however, there is still scope for the post-contractual conduct to be scrutinised where there is discord between what is written and what the actual legal rights and obligations.
Read other items in the Australian Employment Brief - March 2022
Footnotes
[1] Re Porter; Re Transport Workers Union of Australia (1989) 34 IR 179 at [184].
[2] [2022] FedCFamC2G 120.
[3] Taarnby v Mungoorbada Aboriginal Corporation [2022] FedCFamC2G 120 at [15].
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