One of the vexed questions for many businesses in Australia is the classification of their workers and in particular, if they are contractors or employees. The complexity often arises as a result of the application of what is commonly referred to as the ‘multifactorial test’ or in more simple words, a subjective analysis of the ‘totality of the relationship’ taking into consideration aspects such as (just to name a few) the:
- degree of control in the relationship;
- ability of a worker to delegate tasks;
- ownership of tools of trade;
- ability of a worker to refuse work; and
- cost of rectifying defective work.
In two landmark industrial decisions, the High Court last week revised its approach to the classification of contractors and employees by focusing on the importance and significance of the terms of the written contract and in doing so, reframed the applicability of the ‘multi-factorial’ test analysis.
In short, the High Court held that if the terms of the written contract between the parties characterised the relationship as that of an employee or alternatively, a contractor, then in the absence of either party suggesting that the contract is unlawful (for example, a sham arrangement), then the contract operates on the basis of the type of relationship it establishes (that is, an employee or a contractor). Accordingly, there is then no requirement to undertake a review of the history of the parties’ dealings (such as the multifactorial test) to determine the nature of the relationship.
Whilst not completely removing the multifactorial test from consideration, it clarified the multifactorial test’s applicability and held:
“The foregoing should not be taken to suggest that it is not appropriate, in the characterisation of a relationship as one of employment or of principal and independent contractor, to consider “the totality of the relationship between the parties” by reference to the various indicia of employment that have been identified in the authorities. What must be appreciated, however, is that in a case such as the present, for a matter to bear upon the ultimate characterisation of a relationship, it must be concerned with the rights and duties established by the parties’ contract, and not simply an aspect of how the parties’ relationship has come to play out in practice but bearing no necessary connection to the contractual obligations of the parties”. (emphasis added)
The Decision
CFMMEU v Personnel Contracting
The decision of CFMMEU v Personnel Contracting[1] (Personnel) involved a British backpacker, Mr McCourt, who was engaged by ‘Construct’ (the trading name of Personnel Contracting) pursuant to an ‘Administrative Services Agreement’ (essentially, an Independent Contractors Agreement). Construct was a labour hire firm and supplied labour to its clients. Mr McCourt was one of its ‘contractors’ that supplied the labour.
In short, the CFMMEU and Mr McCourt contended that Mr McCourt was an employee and not a contractor and commenced proceedings in the Federal Court for an Order to that effect. Ultimately, the Full Court of the Federal Court (on appeal) held that Mr McCourt was a contractor of Construct. In reaching its decision, the Full Court applied the multi factorial test.
The CFMMEU and Mr McCourt appealed the Full Court’s decision to the High Court. In upholding the appeal and applying the new reasoning, the High Court held that the terms of Mr McCourt’s ‘Administrative Services Agreement’ clearly evidenced a promise that he would work as directed by Construct and Construct’s customers and that he would be entitled to be paid in return. The High Court held that the right to control the provision of Mr McCourt’s labour (as set out in the Agreement) was an essential asset of the business. It ultimately held that:
“In these circumstances, it is impossible to conclude other than that Mr McCourt’s work was dependent upon, and subservient to, Construct’s business. That being so, Mr McCourt’s relationship with Construct is rightly characterised as a contract of service rather than a contract for services. Mr McCourt was Construct’s employee”.
In a further point of clarity, the High Court held that even though the Agreement referred to Mr McCourt as a ‘contractor’ (which is not uncommon in Independent Contractor Agreements)…
“The rights and duties agreed between Construct and Mr McCourt leave no room for ambiguity as to the character of that relationship. For the reasons stated above, that the parties have described their relationship a certain way cannot change the character of the relationship established by their rights and obligations”.
Further Decision
On the same day that the High Court delivered the Personnel decision, it also delivered the decision of ZG Operations Australia Pty Ltd v Jamsek[2] which applied the same principles of Personnel.
Take Home Messages
- An Independent Contractor Agreement should include terms that clearly articulate the relationship between the parties as being one of Principal and Contractor;
- Businesses should review their Independent Contractor Agreements to ensure that they do not include any terms that are referable to the worker being an employee regardless of how the parties work relationship plays out in practice; and
- All Independent Contactor Agreements should be in writing.
If you require more information as to whether the High Courts decision may affect you or your business, please don’t hesitate to contact our Workplace Law team.
[1] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1
[2] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2
For further information please contact Danny Clifford, Director.
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