- Two landmark High Court decisions recently handed down have altered, and now confirmed, the approach to be taken when assessing whether a worker is an independent contractor or employee.
- The High Court decisions upheld the primacy of the contract terms as the key factor in establishing the legal relationship.
- These decisions follow a previous High Court decision (WorkPac v Rossato) that emphasised the importance of the written contract. For further information on this case please visit our article here.
- The cases are known as Construction, Forestry, Maritime, Mining and Energy Union & Anor v. Personnel Contracting Pty Ltd  HCA 1 (“CFMMEU v Personnel Contracting”) and ZG Operations Australia Pty Ltd & Anor v. Jamsek & Ors  HCA 2 (“ZG v Jamsek”) (together, referred to in this article as the “High Court Decisions”).
- The High Court Decisions provides greater certainty for businesses that properly record and engage their independent contractor relationships via written contracts.
The position prior to the High Court Decisions
The High Court Decisions indicate a slight shift in the factors considered when identifying whether a worker is an independent contractor or an employee. Prior to the High Court Decisions, a ‘multi-factor’ test of the post-contract conduct was commonly used to assess the classification of the worker – that is, an assessment of how the relationship between the worker and the employer operated in practice, despite the terms of the contract between the worker and the employer.
The multi-factor test considered the following items (among others):
- the degree of control the employer has over the worker;
- the existence of a written employment contract or independent contracting agreement;
- whether or not the worker can refuse work or choose when to work;
- whether or not the worker could exercise control as to how work is performed (or whether they were under the control and direction of the employer);
- whether the worker is paid or entitled to paid leave entitlements;
- whether the worker operates under their own ABN; and
- whether the worker is seen or ‘put out’ as a worker of the business, for example, the requirement to wear a uniform, or the branding of their card with the business logo.
An assessment of the above factors (being the subsequent conduct following a contract), on a case-by-case basis, is no longer the correct approach or the determinative approach when classifying an employment relationship.
Rather, the correct approach is to now assess the totality of the relationship, based on the contractual terms and conditions of the employment contract. This entails the identification of the correct contractual terms, with an assessment of the conduct between the parties in light of those contractual terms.
The position following the High Court Decisions
The High Court Decisions now indicate that, where the parties have entered into a valid and comprehensive written agreement, the ultimate factor to be considered is the rights and duties that are established and described in the written contract.
Essentially, the High Court Decisions rejected the notion that the parties actual conduct following entering a written contract is relevant when determining the employment relationship. The High Court Decisions identified that post-contractual conduct is only relevant to assist the parties in circumstances where:
- the actual contract terms require identification or clarification (for example, where the contract is partly verbal and partly written); and
- if the validity and the enforceability of the contract is being challenged (for example. If the contract has been ‘varied’ or if there is an allegation that the contract is a sham contract).
The correct approach is to now identify the terms of the contract, and then (only then) assess the relationship with reference to the multi-factor tests with reference to the terms of the contract.
Action Items for Employers
The High Court Decisions provides great certainty to business that frequently engage subcontractors and have written agreements with those subcontractors. Despite this certainty, following the High Court Decisions (and in light of the same), Coutts nonetheless recommends that each business take the time to:
- Review your processes to ensure a written agreement is entered into with each independent contractor;
- Review your independent contractor agreements carefully, to ensure they properly identify and describe the employment relationship correctly; and
- Review your current engagements of independent contractors and employees, and the process in advertising for new subcontractors, to ensure the advertisements are correctly worded.
As always, should you require assistance with your employees or subcontractors, please contact Coutts’ friendly employment law team today.
Contact Coutts Lawyers & Conveyancers office today.
This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.