The High Court has recently clarified that the terms of written contractual documents are critical in determining whether a person is an employee or an independent contractor. This is a significant development because different rights and obligations may flow depending on which of these categories a person fits into.
When a court is asked to determine whether a person is an employee or an independent contractor, it will apply the usual principles of contractual interpretation. This will involve giving the words in the contract their ‘natural and ordinary’ meaning.
Two recent cases highlight the Court’s method for determining whether someone is an employee or independent contractor.
In the matter of Construction, Forestry, Maritime, Mining & Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 the Court was asked to determine whether a British Backpacker was classified as an employee or an independent contractor.
The Backpacker had signed an Administrative Services Agreement (ASA) that described him as a “self-employed contractor”. The ASA determined who the Backpacker could work for and in return he promised to supply his labour.
The Backpacker was outsourced to work on a construction site. The builder of that site did not have a contract with the Backpacker, despite having a Labour Hire Agreement with the entity that had the ASA with the Backpacker.
The High Court held that the Backpacker was an employee of the entity with whom he had entered into the ASA with. The Court explained that where parties have entered into a written contract, an employment relationship exists if an interpretation of the contract indicates that the parties are employee and employer.
In the matter of ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 the High Court had to determine whether two truck drivers working for a company were classified as employees or independent contractors.
Both Truckies had originally been engaged as employees of the company. Years later, opportunities arose for them to “become contractors”. They took up the opportunity to become contractors and they each set up their own partnerships with their wives.
Written contracts were formed between the company and each of the partnerships established by the Truckies and their wives. Under these contracts, it was provided that the partnerships would purchase trucks from the company, pay for the maintenance of those trucks, provide delivery services to the company, invoice the company for those delivery services, and be paid by the company for its services.
It wasn’t long before the company decided to start stripping away previously enjoyed entitlements of the Truckies by claiming they were contractors and therefore not entitled to those benefits.
Proceedings were commenced in the Federal Court by the Truckies who sought entitlements under the Fair Work Act 2009 (Cth) and other relevant legislation. These entitlements were sought on the basis that they were employees of the company.
It was originally held that the Truckies were independent contractors. However, the Federal Court overturned that decision and held that the Truckies were employees.
On appeal to the High Court, it was determined that the Truckies were not employees, but were independent contractors. The Court found that when the company entered into the contracts with each of the partnerships, the Truckies ceased to be employees of the company. It was held that the relationship between the partnerships and the company was not a relationship of employment.
How can Marsdens help you?
Understanding and interpreting contracts can be a very complex and difficult task. It is important that you know whether you are an employee or an independent contractor, so that you are aware of your rights, obligations and entitlements.
If you need advice regarding whether you are an employee or independent contractor, contact Aaran Johnson or Bharath Balasubramanian (contact details below) to discuss how Marsdens can assist you and your business.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
