Australia: Recent High Court decisions provide Clarity on Determining ‘Employee’ vs ‘Independent Contractor’ Status

Author: Justin Pen

The High Court of Australia has clarified the proper approach to be taken when determining if a worker has been engaged as an ‘employee’ or an ‘independent contractor’, in cases where the parties’ contractual arrangements are wholly in writing.

In Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (“CFMMEU v Personnel”) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (“ZG Operations v Jamsek”), the a majority of the High Court held that, in a case in which the parties’ contract is wholly written, a court or workplace tribunal is prohibited from considering the subsequent conduct of the parties, including the substance or reality of the how the contract was performed, and must assess exclusively the parties’ written contractual rights and obligations.

In both of these matters, it was accepted that the engagements between a labour-hire firm and a casual construction labourer (CFMMEU v Personnel) and an electrical lighting firm and a pair of truck drivers (ZG Operations v Jamsek) were arrangements that had been comprehensively committed to written contracts.

Relevantly, the High Court ruled that, in such cases:

• a multifactorial analysis of the indicia of the parties’ contractual relationship is confined to the parties’ written contractual rights and obligations;
• the indicia to be examined includes (but is not limited to) the putative employer’s control over the putative employee, the putative employee’s right to delegate or substitute their work to another or with another, the putative employer’s right to discipline or manage the putative employee;
• the subsequent conduct of the parties is to be considered in very limited circumstances – for example, if the putative employee alleges the written contract is a ‘sham’ or the written contract has been subject to a contractual variation by conduct;
• contractual labels, being descriptions of the character of the contract provided by the parties, are broadly considered to be irrelevant;
• the centralising question of whether or not a worker is ‘conducting their own business’ or ‘serves in the employer’s business’, and the alternative centralising question of whether or not a worker was ‘contracted to work in the business or enterprise of the putative employer’, were each endorsed as a lens through which to conduct a multifactorial analysis of the parties’ contractual rights and obligations.

It was also observed that the surrounding circumstances of the parties’ conduct, prior to, and at the time of, entering into a contract that is wholly written could still be relevant to the resolution of legal issues such as contractual formation, rectification, estoppel, and the availability of any other legal, equitable, or statutory rights and remedies.

On the application of this legal approach, in CFMMEU v Personnel, a majority of the High Court found that a casual construction labourer, Mr Daniel McCourt, was engaged under a contract of employment with the labour-hire firm, Personnel Contracting Pty Ltd (trading as “Construct”), in relation to work he performed for a host business, Hanssen Pty Ltd, over a two-year period in 2016 and 2017.

Relevantly, the High Court considered the totality of the written terms of the parties’ contract, and, notwithstanding recitals and contractual language that pointed towards an independent contractor relationship, the totality of the parties’ contractual rights and obligations were found to be consistent with an employment contractual relationship. Such rights and obligations included the parties’ agreements as to pay, dismissal, control, and the role that played by Mr McCourt in Construct’s broader business.

In contrast, in ZG Operations v Jamsek, the High Court unanimously found that a pair of truck drivers, Mr Martin Jamsek and Mr Robert Whitby, had been engaged as independent contractors despite performing work exclusively for the same firm, ZG Lighting Australia Pty Limited (and its related predecessor companies), for a period of about 40 years.

In this case, the High Court emphasised two features of the parties’ contractual relationships – first, the firm engaged the truck drivers pursuant to a partnership arrangement (which relevantly carried with it particular tax and financial benefits), and, secondly, the fact that the truck drivers were required to own and maintain their own vehicles (which were relevantly observed to constitute “substantial item[s] of mechanical equipment” and “expensive equipment”) – were consistent with independent contractor relationships, rather than employment contractual relationships.

Key Action Points for Human Resources and In-house Counsel

In light of this decision employers should be advised that:

• Courts and workplace tribunals will examine carefully and strictly parties’ contractual rights and obligations when determining ‘employee’ or ‘independent contractor’ status.
• Contractual labels provide little to no assurance that a worker has been engaged as an ‘independent contractor’, rather than as an employee; consideration will be given to the totality of the contractual rights and obligations contained in the parties’ written agreement.
• If a worker is not engaged pursuant to a wholly written contract – for example, if the contract is partly written and partly oral, or wholly oral – regard can still be had to the conduct of the parties subsequent to their entry into the contractual agreement.
• Employers should take the initiative to review and potentially revisit their contracts with any workers considered to be engaged as ‘independent contractors’.