High Court decisions shift ground on independent contracting, but confusion will continue to reign

Directors from Australian Business Lawyers & Advisors dissect rulings and ask: where do we go from here?

High Court decisions shift ground on independent contracting, but confusion will continue to reign

Luis Izzo, Managing Director and Julian Arndt, Associate Director, of Australian Business Lawyers & Advisors give their verdict on two important High Court cases.

The High Court on Wednesday delivered two judgments pertaining to independent contracting which will substantially influence how workers are characterised in future.

In summary, the two cases, Jamsek v ZG Operations and CFMMEU v Personnel Contracting, have:

  1.  Reinforced the multi-factor approach as the means to determine whether a worker is in fact an employee or contractor to a principal. That is, all factors relevant to the contractual relationship are assessed to determine the worker’s true status.
  2.  Reinforced that the label the parties’ ascribe to the relationship is of minimal importance.
  3.  By a majority, overturned the previous Federal Court approach of looking at conduct post-formation of a contract to determine the true status of the relationship. Rather, where a contract is wholly recorded in writing, the majority held that the terms that determine the worker’s status are those agreed at contract formation.
  4.  Reinforced that, the mere existence of a bargaining disparity between parties should not form the basis to re-characterise a contractual relationship. Rather, there are existing common law principles (misrepresentation, undue influence, unconscionability) that need to be satisfied if a party is to undo a contractual bargain.
  5.  Reinforced the notion that where workers significantly invest in an asset and maintain it (such as owner-drivers), this is a very strong indicator of a contracting relationship.

The decision helpfully shifts the ground for employers with well documented contracting relationships.

ABLA is pleased to have acted for BNSW, which intervened in the Jamsek proceedings. Jamsek will be of significant assistance to our transport industry clients who engage owner-drivers in all jurisdictions.

However, there can be no doubt that in other industries, with the ongoing application of the multi-factor test, ambiguity will remain for some cases of workers.

The Jamsek Case

Jamsek concerned two truck drivers, initially employed in 1980. In 1986, the drivers were told by the company manager that if they did not agree to becoming ‘contractors’, a job would not be guaranteed for them. They became owner drivers.

They chose, paid for and maintained their own trucks. They each formed a partnership with their wife, split their income, issued invoices and remitted GST. Their work agreements described them as contract carriers.

Applying the multi-factor test for employment that has prevailed since 2001, the Full Federal Court found that the drivers were in fact employees. Of significance was their exclusive relationship to the company for a “long and uninterrupted period” and that the company asserted day-to-day control over the drivers: the drivers were required to make themselves available for nine hours a day during the working week for almost 40 years. Their trucks and their apparel also carried the company logo.

The High Court unanimously overturned the finding. The Court was significantly influenced by (amongst other things):

- the purchase of significant assets to perform the services (and maintenance of those assets);

- the existence of partnerships to deliver the services - as opposed to providing the services as an individual;

- the nature of the work (being carriage of goods); and

- the skill required to drive vehicles, as determinative of a contracting relationship.

Gageler and Gleeson JJ in particular held:

“Where work contracted for, actually performed by an individual, and paid for, involves use of a substantial item of mechanical equipment for which the provider of the work is wholly responsible, the personal is overshadowed by the mechanical…. they support what has become the "conventional view" that "owners of expensive equipment, such as [a truck], are independent contractors…

The services provided by the partnerships involved, compendiously, the truck-driving skills of the respondents and the use of the trucks owned by the partnerships. The provision of such services has consistently been held, both in Australia and in England, to have been characteristic of independent contractors, not employees.”

Personnel Contracting

These proceedings concerned the employment of an individual (Mr Daniel McCourt) under a contractor agreement. McCourt worked as a general labourer on two construction sites in Perth for a labour hire company, Personnel Contracting.

McCourt had no specialist skills. He arrived in Australia having only previously worked as a barman. McCourt did not appear to be running his own business in any way.

McCourt spent regular working hours on a client site taking instruction from, and being under the control of, supervisors at the client (Hanssen) in respect of basic building work such as cleaning the site, removing rubbish and preparing the site for the work of others.

Moreover, Personnel Contracting had the ability to direct the clients for which McCourt worked. McCourt also had to supply his labour in accordance with client directions.

This high level of control placed over McCourt, together with the fact that McCourt was not in any meaningful sense in business for himself, ultimately led to the determination that he was Personnel Contracting’s employee, despite being labelled as their contractor.

Post-contractual conduct

In both cases, a 4-judge majority of the court expressly held that post-contractual conduct should not be relied upon to change the nature of the worker’s status.

Kiefel CJ, Keane and Edelman JJ summarised the position as follows:

In cases such as the present, where the terms of the parties' relationship are comprehensively committed to a written contract, the validity of which is not challenged as a sham nor the terms of which otherwise varied, waived or the subject of an estoppel, there is no reason why the legal rights and obligations so established should not be decisive of the character of the relationship.

(Jamsek)

Gordon J endorsed this approach in Personnel Contracting, however, Gordon J noted that post contractual conduct could, on occasions be so significant so as to vary or ‘remake’ a contract or to demonstrate that the whole relationship formed is part of a sham. This leave an opening for conduct on some occasions to change a relationship (particularly where contracts may have expired).

Label parties give to the relationship not hugely relevant

The majority in both cases also undermined the label the parties give to their relationship in determining the relationship’s true status:

As a matter of principle, however, it is difficult to see how the expression by the parties of their opinion as to the character of their relationship can assist the court, whose task it is to characterise their relationship by reference to their rights and duties. Generally speaking, the opinion of the parties on a matter of law is irrelevant. Even if it be accepted that there may be cases where descriptive language chosen by the parties can shed light on the objective understanding of the operative provisions of their contract, the cases where the parties' description of their status or relationship will be helpful to the court in ascertaining their rights and duties will be rare.

(per Kiefel CJ, Keane and Edelman JJ in Personnel Contracting)

Where to from here?

The primacy placed by the Court on the exchange of obligations in the parties’ contracts at formation is going to bring a laser-like focus on the terms actually agreed with workers.

This means businesses engaging contractors will need to ensure their contracts are as robust as possible to defend against employment claims. A renewed focus is likely to be required on the contractual treatment of issues such as delegation, discretion to choose hours of work, ability to work for others, provision of equipment and many others.

ABLA is happy to assist clients in reviewing and transitioning to new contractual arrangements to minimise the prospects of future employment claims.

For our many transport clients, this case is a big win and reinforces advice our firm has provided for some time about the Federal Court’s departure in Jamsek from the conventional authorities pertaining to owner-drivers.

Again, however, it will be important to ensure owner-driver contracts are well drafted and remain within their operative term to minimise any possible exposure to liability.

If you need assistance reviewing this decision, please get in touch with us at [email protected]

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