Employee or independent contractor: the High Court decides
By Matthew Needham and Lauren Armstrong
Two recent significant High Court cases have determined the nature of an employment relationship. The cases promise to be of significance in the ACT in matters where the parties’ rights and duties have been comprehensively committed to writing, and this contract is valid.
On 9 February 2022, the High Court made orders in separate proceedings about whether or not an employment relationship existed between the parties: Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (CFMMEU) and ZG Operations Australia Pty Ltd & Anor v Martin Jamsek & Ors [2022] HCA 2 (Jamsek).
The key finding in both decisions was that, where the parties’ rights and duties have been comprehensively committed to writing, the nature of the relationship is to be determined by the terms of this written contract. The High Court acknowledged that a ‘multifactorial balancing exercise’ of the totality of the parties’ relationship had been determinative in its decisions in Hollis v Vabu Pty Ltd (2001) 27 CLR 21 (Hollis) and Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 (Stevens). However, the Hollis and Stevens matters involved relationships which had only partly been committed to writing, or not at all.
As Chief Justice Kiefel CJ and Justices Keane and Edelman stated in CFMMEU [at 59]:
Where the parties have comprehensively committed the terms of their relationship to a written contract the validity of which is not in dispute, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract. Where no party seeks to challenge the efficacy of the contract as the charter of the parties’ rights and duties, on the basis that it is either a sham or otherwise ineffective under the general law or statute, there is no occasion to seek to determine the character of the parties’ relationship by a wide-ranging view of the entire history of the parties’ dealings.
In CFMMEU, Mr McCourt was a 22-year-old British backpacker who had entered into a contract with the respondent (referred to as ‘Construct’ in the judgment), in which he was described as a ‘self-employed contractor’. Construct was a labour-hire company which supplied labour to construction clients, including Hanssen Pty Ltd. Construct arranged for McCourt to perform work for Hanssen, and he did so for various periods of time in 2016 and 2017.
McCourt was found to have been an employee of Construct at all material times, despite the contract’s description of him as a self-employed contractor. The contract authorised Construct to (among other things): fix the hourly rate that Hanssen paid for McCourt’s work; to act as McCourt’s ‘paymaster’, and to terminate McCourt’s engagement if he failed to obey directions of Construct or Hanssen.
Rather than simply being introduced by Construct to Hanssen, the High Court found that McCourt was instead working as an asset of Construct’s labour-hire business and in furtherance of its ongoing relationship with its customer, Hanssen. The terms of the written contract also gave Construct control over McCourt’s work. It was immaterial that Construct did not have any control over the detail of McCourt’s day-to-day work activities because the contract allowed it to, for example, terminate McCourt’s contract if he did not cooperate with Hanssen in the course of his work. This right to control McCourt’s activities, in furtherance of Construct’s core business, caused the High Court to determine that McCourt was an employee rather than independent contractor.
In Jamsek, the High Court found that Mr Jamsek and Mr Whitby (respondents) had been independent contractors of ZG Operations Australia Pty Ltd (company).
The respondents worked as employed truck drivers of the company between 1977 and 1986. In 1986, at the company’s insistence, the respondents each set up a partnership with their respective wives, purchased trucks from the company and entered into contracts to provide transport services for the company’s goods. The company was invoiced for these services. Part of that income was used by the partnerships to pay the trucks’ operating costs and these were then claimed as tax deductions.
The High Court accepted that the respondents, as members of the partnerships, were engaged in the conduct of their own businesses. They bore the costs associated with purchasing and operating the trucks, and therefore bore the risk that the provision of services under the contract would not be profitable. It was argued that clause 2.1(a) of the contract, which required the partnerships to ‘undertake the carriage of goods as reasonably directed’ imposed a level of control by the company that was consistent with an employment relationship. This argument was rejected by the High Court on the basis that the clause simply qualified the company’s ability to control the partnership’s activities by ensuring that ‘the company could not over-stretch the partnerships’ capacity by requiring them to deliver goods in such volumes as might put them in breach of their obligations.’
In CFMMEU and Jamsek, the High Court has reiterated the key principle that the terms of a valid written contract will determine whether or not an employment relationship existed between the parties. In doing so, it has expressed its desire that a renewed focus on contractual interpretation in employee/contractor cases will facilitate the administration of justice by reducing the ‘task of raking over the day-to-day workings’ of relationships which may have spanned over many years.
Prior ACT cases on the employee/independent contractor issue have also emphasised the importance of control as the key factor in characterising the work relationship. To this extent, the recent High Court cases are consistent with the existing ACT case law. However, the ACT case law has generally involved factual scenarios where the parties’ rights and duties have not been comprehensively committed to writing, and where the court has examined matters (like in Hollis and Stevens) which involved relationships which had only partly been committed to writing, or not at all, meaning that the court was required to examine the totality of the parties’ relationship.
The High Court cases promise to be of significance in the ACT in matters where the parties’ rights and duties have been comprehensively committed to writing, and this contract is valid. Independent contractor arrangements are often implemented by employers with unsophisticated systems and processes, and rarely with a comprehensive and enforceable written contract. Typically, ACT employee/independent contractor matters involve the ‘multifactorial balancing exercise’ in which control is one of the most significant tests.