Employee or Contractor? High Court Alters Approach to Determining Working Relationships

The question of whether a particular worker is an employee or independent contractor at law has often been a vexed one for businesses and organisations. Until recently, it had been established that to answer that question, the Court must consider the totality of the relationship between the parties by taking into account a range of relevant factors. This was known as the multi-factor test, and was to be applied even where the parties had entered into a written contract agreeing that the worker was an independent contractor. However, the High Court of Australia recently rejected this approach and established a new way for determining whether a particular worker is a contractor or employee at law.

The Cases

The High Court recently considered two very different cases concerning whether particular workers were independent contractors or employees.

In the case of ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, two truck drivers who had originally been employed by ZG Operations were informed after several years that the business would only continue to use their services if they purchased their trucks and entered into new contracts as independent contractors. The drivers agreed and provided their services as contractors for many years before eventually challenging the nature of their relationship. The drivers had worked for ZG Operations for a total of nearly 40 years.

The High Court found the drivers were independent contractors. In reaching this decision, the High Court rejected the multi-factor test and instead found that primacy should be given to the terms of the written agreement between the parties. In particular, the Court relevantly stated as follows:

‘Where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract.’

According to the High Court, the relationship between ZG Operations and the drivers had fundamentally changed when they signed the independent contractor agreements. Those agreements comprehensively captured the nature of the new relationship between the parties and the terms of the agreements had been followed by the parties ever since. The drivers were therefore contractors at law.

In the other case of CFMEU v Personnel Contracting Pty Ltd [2022] HCA 1, the High Court followed the same approach to find that a particular worker was an employee of a labour hire company. This was notwithstanding the parties had signed an agreement describing the worker as an independent contractor. This was because under the terms of the agreement, the labour hire company had a right to exercise considerable control over the worker, including when and where the worker worked, and that the worker complied with all client directions. These contractual terms aligned more closely with an employment relationship.

Implications for Employers

The High Court’s ruling that primacy should be given to the terms of any applicable written contract in determining whether a particular worker is an employee or independent contractor at law should be welcome news to most businesses. In light of this new approach, businesses and organisations should try to ensure that any contracts they have with independent contractors are carefully drafted to comprehensively regulate the relationship between the parties and properly reflect an independent contractor relationship. Further, businesses and organisations should try to ensure that the parties act in accordance with the terms of any contracts in place at all times.

Queries

For further information regarding the above, please contact Martin Alden, Partner at m.alden@cornwalls.com.au, Olivia Henson-Inkster, Trainee Lawyer at o.henson-inkster@cornwalls.com.au, or any member of our Employment, Workplace Relations & Safety team.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.