Until recently, the courts have referred to not only the terms of the contract between the parties but the objective character and totality of the relationship by referring to a range of indicia to determine contractor/employee status.
The indicia included:
- whether the worker is the servant of another in that other’s business, or whether the worker carries on a trade or business of his or her own behalf
- whether the putative employer exercises, or has the right to exercise, control over the manner in which work is performed, place or work, hours of work and the like
- whether the worker performs work for others (or has a genuine and practical entitlement to do so)
- whether the worker has a separate place of work and or advertises his or her services to the world at large
- whether the worker provides and maintains significant tools or equipment
- whether the work can be delegated or subcontracted
- whether the putative employer has the right to suspend or dismiss the person engaged
- whether the putative employer presents the worker to the world at large as an emanation of the business, e.g. wearing a uniform
- whether income tax is deducted from remuneration paid to the worker
- whether the worker is remunerated by periodic wage or salary or by reference to completion of tasks
- whether the worker is provided with paid holidays or sick leave
- whether the work involves a profession, trade or distinct calling on the part of the person engaged
- whether the worker creates goodwill or saleable assets in the course of his or her work, and
- whether the worker spends a significant portion of his remuneration on business expenses.
The courts took the approach that the parties could not alter the true nature of their relationship by putting a different label on it - that is, the parties could not put a label of independent contracting on a relationship between the parties that, when all the indicia are considered, had the character of an employment relationship.
High Court changes approach
On 9 February 2022, the High Court handed down two significant decisions regarding the tests that apply in determining whether a worker is an employee or an independent contractor.
A majority of the High Court in Personnel and Jamsek held that contractual interpretation which emphasises the rights and obligations under the contract itself is to be preferred over analysis of the true substance and reality of the relationship when considering employee/contractor status.
These decisions will guide future jurisprudence in the Federal Court and the Fair Work Commission and will essentially make it easier for businesses to move workers onto independent contracting arrangements through the use of carefully drafted contracts.
The rulings follow last year’s High Court Rossato decision in which the judges strongly signalled that the primacy of the contract was what mattered in sham contracting claims.
What does this mean for you?
Professionals Australia's advice is that where members are offered contracts in which they are to be engaged as independent contractors, the terms of the contract will be largely determinative of their status as a contractor or not. It is likely that a contract containing a statement that defines the relationship as one of client and contractor will be largely determinative of their status.
In practical terms, even where the reality of the relationship is more one of employee and employer when the totality of the relationship is taken into account, where the contractual provisions provide for a contractor and client relationship, it will be more difficult to argue that an individual is misclassified as an independent contractor and that an individual would be more appropriately classified as an employee with a right to the relevant employment protections and obligations on the employer/client.
What to look out for
A contracting arrangement based on a contract for service (independent contractor arrangement) will generally include a statement making it clear that there is no mutuality of obligation between the client and contractor. This can take various forms but these are some of the more common ones:
"Nothing in this Agreement constitutes a relationship of employer and employee. The Contractor must not act in any way other than as an independent contractor of the company" or
"The parties to this agreement do not intend to constitute or create an employer/employee relationship, agency, joint venture or partnership between the contractor, the agency or the client."
However, a contract does not need to contain such a statement to provide for a contracting relationship. The importance of carefully reviewing the terms of a contract has never been greater.
Are there any exceptions?
The exceptions to this approach may emerge in circumstances where:
a. The contract is not wholly written;
b. The contract is pleaded as a sham; or
c. It is argued that a variation of the contract has taken place.
What you need to do if you're signing a contract
You should always get your terms of engagement in writing and have Professionals Australia's Workplace Advice and Support team check over your terms of engagement before you sign. They have the expertise to flag the implications and consequences if your contract terms state that you are being engaged as an independent contractor. The WAS team will be able to advise if any of the exceptions apply in your case and what your options are taking all the circumstances into account.
Broader implications
These decisions are expected to have a major impact on how businesses structure their businesses and potentially accelerate the shift to contracting arrangements. It is anticipated that gig economy workers are subsequently unlikely to be considered employees under the rule in Personnel. Menulog's plans for applying for an award for on-demand delivery services may also be unable to proceed. It also means that achieving job security for workers who enter into precarious working arrangements is likely to be more difficult and that action from legislators will be needed to address this significant issue.
Contracting and consulting members should always seek personalised advice and assistance when considering their contract/employment status. Contact our Workplace Advice and Support Centre on 1300 273 762.
References
- ZG Operations & Anor v Jamsek & Ors [2022] HCA 2
- Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting)
- WorkPac Pty Ltd v Rossato [2021] HCA 23 in relation to casual employment.