High Court delivers certainty on contractor test

The High Court recently delivered two important decisions clarifying the test for characterising workers as employees or contractors.

Background

In recent years, Courts have adopted a multi-factorial approach, assessing the nature of the relationship by reference to a range of factors, including control over the performance of work, exclusivity, delegation, and supply of equipment. In considering these factors, regard had been given to the terms of any written agreement, as well as the conduct of the parties throughout the relationship, to form a view about the totality of the relationship. This intuitive approach led to inconsistent outcomes, often in favour of low-paid or vulnerable workers, giving businesses little certainty.

Facts of the decisions

Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) considered a trilateral relationship between a labourer, a labour hire company and a host employer. The labourer was described as “self-employed” in the agreement with the labour hire company, although the labour hire company determined where the labourer would work, his hours and his rate of pay.

ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 (Jamsek) involved two truck drivers who, in partnership with their wives, provided delivery services to a lighting company over a period of 30 years pursuant to various agreements (having been engaged as employees before that). Each partnership owned and operated their own delivery vehicles, invoiced the lighting company for services and received income through the partnership.

Clarity from the High Court: what is the test?

The High Court clarified that whether a worker is an employee or a contractor is to be determined by considering the totality of the relationship, assessed by reference to the rights and obligations of the parties. Where the parties’ rights and obligations are set out comprehensively in writing, there is no scope to look beyond the contract to the subsequent conduct of the parties in assessing the relationship.

When considering the totality of the relationship, regard may be had to the established indicia of employment (eg control), but the parties’ rights should be considered based on the terms of the contract only, not their subsequent conduct. The label the parties give to the relationship is not determinative.

However, if the written agreement is a sham (and does not reflect reality), or the terms are not wholly in writing, regard may be had to the conduct of the parties.

Outcomes in the cases

In Personnel Contracting, the High Court found the labourer was the labour hire company’s employee. Under the written agreement, the labour hire company had considerable control over the performance of work, hours and pay.

By contrast, in Jamsek, the High Court confirmed the two truck drivers were independent contractors, not employees. As members of partnerships, it was clear that they were engaged in their own business. They owned and operated their own trucks and had control over the performance of work (they were contracted to deliver to customers, but could structure their delivery routes).

Key takeaways

For contractor relationships, businesses should ensure written contracts are comprehensive.

Where written terms are comprehensive, businesses will have greater certainty when engaging contractors.

We can help:

• Advise on the characterisation of individual workers.
• Review current arrangements and contractor agreements to ensure your business is protected.