Employee or Independent Contractor – Ruling by High Court

Recently, the High Court made two important decisions about workplace contracts and how employers should classify workers as either an employee or independent contractor. These decisions have confirmed the importance of having comprehensive and up to date written contracts in place for workers.

The High Court examined two different cases.

First Case – employee or independent contractor

The first case, ZG Operations Australia Pty Ltd v Jamsek, involved two truck drivers.

Between 1977 and 2017, the men were engaged as truck drivers for the same company. The two men started working for the company as employees in 1977, and became delivery drivers in 1980.

Around 1985 or 1986, the company said it would no longer employ them and it would continue to use their services only if they purchased their trucks from the company and entered into individual contracts to carry goods for the company.

Both men agreed, and they set up partnerships with their wives. They used their partnerships to purchase the trucks from the company and they executed written agreements with the company for the provision of delivery of services.

From then on, both men made deliveries, as requested, by the company, and their partnerships invoiced the company for the delivery of services provided. They only delivered goods for that company. They had no other customers.

In 2017, the agreements between the two partnerships and the company were terminated. The two men then began proceedings in the Federal Court seeking entitlements alleged to be owed to them as Employees of the company.

They worked more-or-less regular hours for the company. At various times, the men were asked by the company to install tarpaulins bearing the company logo on their trucks and were supplied with uniforms bearing the company logo, although they weren’t told to wear a uniform. The men were also occasionally asked to perform tasks beyond their core delivery duties, such as cleaning up behind the warehouse.

In 2020, the Federal court found that the men were employees.

High Court Ruling in this case

The employer challenged the Federal Court’s decision in the High Court which ruled that, despite those details of an ongoing regular relationship with the company over many decades, the men were engaged as Contractors for the company, not Employees, subsequently overturning the original decision.

The court acknowledged the reality of the difference in bargaining power between the company and the men. That is, the drivers could have performed delivery services for other customers if they wished, because there were no restrictions in their contracts preventing them from serving other customers outside of the hours, which they were contracted to work for the company. The high court determined that the lengthy working relationship shouldn’t mean that the contract entered into is disregarded, and hence a greater emphasis was placed on the contract by the court.

Second Case – employee or independent contractor

The second case, Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd, involved a 22-year old British backpacker.

He had travelled to Australia on a working holiday visa.

In 2016, seeking a source of income and with limited work experience as a part-time brick-layer and in hospitality, he obtained a “white card”, which enabled him to work on construction sites.

He was offered a role and given paperwork to sign. Among the documents he signed was an Administrative Services Agreement with Construct, which described him as a “self-employed contractor”.

The next day, Construct contacted him and offered him work at a project site of a major client, Hanssen (a builder of high-rise residential apartments and offices) for the following day. When he arrived on the Hanssen site, he was told he’d be supervised, primarily by a leading hand employed by Hanssen.

He worked on the site for between three and four months, from July to November. His basic labouring tasks included emptying bins, cleaning workspaces and moving materials. He was paid by the hour and, when at work was told what to do and how to do it.

Then, in June 2017, he started work on a different Hanssen project, doing practically identical work. However, four days later, he was told by Construct he was not to continue working on that second Hanssen project. Thereafter, he did not receive any more work from Construct.

Eventually, the young man and the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) began proceedings in court against Construct, seeking orders for compensation and penalties. Their claims were made on the basis that Construct had not paid the man his entitlement, as an employee of Construct, in accordance with the Building and Construction General On-site Award 2010.

The crucial question in the court proceedings was whether the man was an employee of Construct, rather than a contractor. The original court decisions found that the worker was a contractor, but this was challenged in the High Court.

High Court Ruling in this Case

This week, the High Court ruled that the man was employed by Construct.

It emphasised the fact that, under the contract, Construct was entitled to control who the man worked for and that, once the man was assigned to a client (i.e., Hanssen), he had to do what the client told him to do. He was simply not permitted to do otherwise.

The judge concluded the right of control was a key asset of Construct’s business and that the young man had no right to exercise any control over what work he was to do and how that work was to be carried out.

And that being so, the man’s relationship with Construct was characterised as a contract of service (employee) rather than contract for services.

Therefore, the man was Construct’s employee, not a contractor.

What do these rulings mean?

The ruling by the High Court is significant because it emphasised the importance of written contracts.

Where work is undertaken on the basis of a comprehensive set of written terms, it’s those terms which will be the basis for determining whether or not it’s an employee or an independent contractor relationship.

This finding is significant. We say this because the last time the High Court looked at this issue was in 2001, in Hollis v Vabu Pty Ltd and, since then, the practice has grown up of courts emphasising the need to look beyond the contract and to look at the way in which a working arrangement actually operates.

The High Court is now of the view that while the employee versus independent contractor test still applies, any contractual terms which are fair and equitable must be applied to the decision making, rather than the working arrangement alone.

This had become a contested area of common law and the High Court has now corrected.

The importance of Written Contracts

The decision by the High Court reiterates the absolute importance of written contracts, whether it’s for an employee or independent contractor.

If you have any concerns or questions on the wording of a written contract, give Industryus a call and we can help you get it right.

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