The High Court of Australia has established that the terms stated within an employment contract, provided they cannot be lawfully challenged, are binding and override any adverse inferences to determine the nature of the relationship between the contracting parties.
Employers cannot use a label to describe a relationship that is inconsistent with the rights and duties set out within the employment contract.
Summary of a recent Court case
The Respondent in this 2022 High Court case was a labour-hire company that engaged workers to supply labour to its building clients. The case is Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1.
The Applicant (the person performing the work) was offered a role at a client of the labour-hire company. At the commencement of the engagement, the Applicant signed an agreement with the labour-hire company which described him as a ‘self-employed contractor’. He was paid an hourly rate, and when at work, was given specific tasks.
Soon thereafter, he was offered work at a job-site run by a client of the labour-hire company. When he arrived on site, he was given various induction documents by the labour-hire company’s client but did not sign any contracts.
The Applicant ultimately stopped receiving work from the labour-hire company and commenced a claim in Court seeking orders for compensation and penalties per the Fair Work Act 2009 (Cth).
The question put before the Court in this case was whether or not the Applicant was an employee of the labour-hire company.
Previously, when faced with the task of determining an employment relationship, the Courts would look to the totality of the employment relationship between the parties, despite what was stated in an employment contract. For example, if an employer exerted a certain level of control over an employee, this would indicate an employment relationship not an independent contractor / principal relationship.
Previously, if a contract stated that the person was an independent contractor but the nature of the relationship between the parties indicated that they were an employee, the Court could make a determination based on examining the totality of the relationship.
Following the High Court’s recent decision, primacy on the terms stated in the employment contract are of paramount importance.
What does this mean for employers?
If a signed employment contract states that the signing party is an employee, that will be a strong factor in determining whether the person is an employee or contractor if a dispute is raised in future.
In contrast, if an agreement states that the signing party is an independent contractor, that will be a strong factor in determining whether the person is an independent contractor if a dispute is raised in future.
Therefore, it is crucial that employment contracts are in writing and that they clearly define the terms and obligations on the parties, to best protect your business.
If you are an employer who has a question regarding employment contracts, please contact Aaran Johnson or Simon Kumar to discuss how Marsdens can assist 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.
