The High Court has handed down important judgments in two cases that provide guidance on the meaning of an independent contractor. The judgments in these cases give a lot more emphasis to the terms of the written contract between the business and the worker than the approach adopted in many earlier Court judgments which considered the difference between an employment relationship (a contract of service) and an independent contracting relationship (a contract for services).
In CFMMEU v Personnel Contracting Pty Ltd  HCA 1, a young backpacker engaged by a labour hire business to work as a labourer on construction sites was held by the High Court to be an employee, rather than an independent contractor . In ZG Operations Australia Pty Ltd v Jamsek  HCA 2, two truck drivers engaged by a company were held by the High Court to be independent contractors and not employees.
The CFMMEU v Personnel Contracting case
In their joint judgment in CFMMEU v Personnel Contracting, Chief Justice Kiefel and Justices Keane and Edelman held that where there is a comprehensive written contract between the parties, “the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract”.
They stated that “where no party seeks to challenge the efficacy of the contract . . . on the basis that it is a sham or otherwise ineffective under the general law or statute”, there is no need to conduct a “wide-ranging review of the entire history of the parties’ dealings. Such a review is neither necessary nor appropriate because the task of the court is to enforce the parties’ rights and obligations, not to form a view as to what a fair adjustment of the parties’ rights might require”.
Chief Justice Kiefel and Justices Keane and Edelman held that the business (a labour hire firm) had engaged the backpacker (Mr McCourt) under a written contract that expressly gave the firm the ability to determine for whom Mr McCourt would work and gave him no discretion to determine what work he would do or how he would do it.
Given that Mr McCourt had no right to exercise any control over what work he was to do and how that work was to be carried out and that this state of affairs was attributable to the written contract, Chief Justice Kiefel and Justices Keane and Edelman determined that Mr McCourt was an employee and not an independent contractor. In a separate judgment, Justice Gordon came to a similar conclusion.
The ZG Operations v Jamsek case
In ZG Operations v Jamsek, the High Court unanimously determined that two truck drivers who had been engaged by a company for nearly 40 years were independent contractors and not employees.
The Court’s reasoning in this case was similar to that adopted by the Court in the CFMMEU v Personnel Contracting case. The terms of the written contract were central to the Court’s conclusion that the two truck drivers were independent contractors and not employees.
The terms of written contracts for independent contractors
It is important for businesses to review the terms of their existing independent contracting arrangements in light of the High Court’s judgments to ensure that contracts with independent contractors:
- Contain clear terms which describe the nature of the relationship; and
- Do not include terms that are inconsistent with the nature of the relationship.
The Sham Contracting Provisions in the Fair Work Act 2009 (Cth)
It is very important that businesses are mindful of the sham contracting provisions in the Fair Work Act 2009 (Cth) (the Act). These provisions are included in the general protections provisions of the Act. Penalties of up to $66,600 for each contravention can apply for:
- Misrepresenting an employment relationship as an independent contracting arrangement;
- Making false statements to a worker with the intention of persuading or influencing that worker to become an independent contractor; or
- Dismissing or threatening to dismiss a person to engage the person as an independent contractor to perform the same, or substantially the same, work.
As highlighted by the High Court in CFMMEU v Personnel Contracting, a contract that purports to engage a person as an independent contractor will not be valid if it is a sham contract. In such circumstances, a Court can determine that the person is an employee and hefty penalties can be imposed.
Businesses should be careful not to offer or enter into a contract which misrepresents an employment relationship as an independent contracting relationship, e.g. by including terms in the written contract that are inconsistent with an independent contracting relationship.
If you would like more information about the general protections provisions in the Act, please contact Ai Group’s Workplace Advice Service on 1300 55 66 77. Alternatively, if you would like advice or assistance with drafting or reviewing contracts for independent contractors, or if you would like advice about whether a worker is an employee or independent contractor, we would be happy to assist from any of our Ai Group Workplace offices in Sydney, Newcastle, Melbourne, Wollongong, Brisbane, Adelaide or Perth