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1. Substance over form. A “contractor” who worked like an employee but who entered a contractor arrangement should be treated as an employee.
2. the High Court’s new approach is that wording of the contract is the key issue. Where the wording and intent of the contract document is clear there is no need to analyse the subsequent conduct. In the High Court’s words: “where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract“.
3. in ZG Operations v Jamsek the contract was clearly drafted.
   1. Jamsek worked for ZG as an employee truck driver starting in 1977
   2. In ~1985/6 ZG decided they would rather not own trucks or have employees and terminated Jamsek’s employment.
   3. For Jamsek to continue, he had to buy the truck and enter a contract for delivery of goods.
   4. Jamsek’s truck carried ZG corporate branding. The contract did not prohibit work for other companies however under the contract for the carriage of goods Jamsek drove exclusively for ZG until 2017.
   5. Jamsek sued for long service leave and other employee entitlements on the basis that he had effectively been an employee and was successful on that basis in the Federal Court where the substance over form doctrine was applied.
   6. The High Court conclusion was that the contract was clear and Jamsek was to be considered a contractor.
4. in CFMEU v Personnel Contracting the individual, Mr McCourt was found to be an employee.
   1. The contract was stated to be that of a contractor (proving that legal interpretation is never as easy as we would hope), however in other respects the contract as drafted when using the term “contractor” was describing the relationship of an employer and employee. It was the wording of the contract that was assessed by the High Court rather than the subsequent conduct (which was also similar to that of employer and employee). The Court noted that “a wide‑ranging review of the parties’ subsequent conduct is unnecessary and inappropriate“.

The consideration for whether a relationship is that of employee or contractor is a balance of a number of issues including:

1. Basis of payment – mode of remuneration
2. Delegation – delegation of work, right to exercise direction
3. Authority to accept or decline work – obligation to work
4. Tools – provision and maintenance of equipment
5. Responsibility – responsibility for the outcome of a job
6. Control – existence of control
7. Hours of work – the hours of work and provision for holidays

The factors remain the same, however the change in has shifted towards how those factors are addressed in the contract document rather than how those factors evolve in the parties course of conduct. That said, where a contract is a sham and the wording does not reflect the intention of the parties then it is unlikely to be legally effective.

What happens next with the ATO employee vs contractor assessment tool which appears based on previous Court interpretations? We don’t know yet and we we are waiting on guidance from the ATO and from tax industry bodies.

What happens with the WA Office of State Revenue seeking payroll tax to apply on payments to contractors they deem to be employees with analysis based around conduct rather than contract wording? Again we don’t yet know.

What do we know?

• If you are seeking to engage a contractor then ensure that your lawyer is familiar with these cases and discusses with you the issues involved so as to clearly draft a contract that is aligned with the underlying relationship.
• Late or unpaid superannuation on an employment relationship has expensive and complicated consequences. If in doubt, consider negotiating and paying superannuation as part of an engagement between a business and an individual.

9 February 2022

ZG OPERATIONS & ANOR v JAMSEK & ORS

[2022] HCA 2

Today, the High Court allowed an appeal from a judgment of the Full Court of the Federal Court of Australia. The appeal concerned whether two truck drivers were engaged by a company as employees or independent contractors.

Between 1977 and 2017, Mr Jamsek and Mr Whitby (“the respondents”) were engaged as truck drivers by a business run by the second appellant (“the company”). The respondents were initially engaged as employees of the company and drove the company’s trucks. However, in 1985 or 1986, the company offered the respondents the opportunity to “become contractors” and purchase their own trucks. The respondents agreed to the new arrangement and set up partnerships with their respective wives. Each partnership executed written contracts with the company for the provision of delivery services, purchased trucks from the company, paid the maintenance and operational costs of those trucks, invoiced the company for its delivery services, and was paid by the company for those services. Income from the work performed for the company was declared as partnership income for the purposes of income tax and split between each respondent and his wife.

The respondents commenced proceedings in the Federal Court of Australia seeking declarations in respect of certain entitlements alleged to be owed to them pursuant to the Fair Work Act 2009 (Cth), the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Long Service Leave Act 1955 (NSW). The respondents claimed to be owed those entitlements on the basis that they were employees of the company. The primary judge concluded that the respondents were not employees, and instead were independent contractors. The Full Court overturned that decision and held that, having regard to the “substance and reality” of the relationship, the respondents were employees.

The High Court unanimously held that the respondents were not employees of the company. A majority of the Court held that, consistently with the approach adopted in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract. After 1985 or 1986, the contracting parties were the partnerships and the company. The contracts between the partnerships and the company involved the provision by the partnerships of both the use of the trucks owned by the partnerships and the services of a driver to drive those trucks. The context in which the first contract was entered into involved the company’s refusal to continue to employ the drivers and the company’s insistence that the only relationship between the drivers and the company be a contract for the carriage of goods. This relationship was not a relationship of employment.

• This statement is not intended to be a substitute for the reasons of the High Court or to be used in any later consideration of the Court’s reasons.

CONSTRUCTION, FORESTRY, MARITIME, MINING AND ENERGY UNION & ANOR v PERSONNEL CONTRACTING PTY LTD

[2022] HCA 1

Today, the High Court allowed an appeal from a judgment of the Full Court of the Federal Court of Australia. The appeal concerned whether a labourer was engaged by a labour‑hire company as an employee or an independent contractor.

The second appellant (“Mr McCourt”) was a 22‑year‑old British backpacker with limited work experience who had travelled to Australia on a working holiday visa. He sought work from the respondent, a labour‑hire company (trading as “Construct”). He was offered a role and signed an Administrative Services Agreement (“ASA”) with Construct. The ASA described Mr McCourt as a “self‑employed contractor”. Construct assigned Mr McCourt to work on two construction sites run by Construct’s client, Hanssen Pty Ltd (“Hanssen”). Mr McCourt performed basic labouring tasks under the supervision and direction of supervisors employed by Hanssen. The relationship between Construct and Hanssen was governed by a Labour Hire Agreement. There was no contract between Mr McCourt and Hanssen.

The first appellant and Mr McCourt commenced proceedings against Construct in the Federal Court of Australia seeking compensation and penalties pursuant to the Fair Work Act 2009 (Cth) (“the Act”). The crucial issue was whether Mr McCourt was an employee of Construct for the purposes of the Act. The primary judge held that Mr McCourt was an independent contractor, and an appeal to the Full Court was dismissed. Both courts applied a “multifactorial” approach, by reference to the terms of the ASA and the work practices imposed by each of Construct and Hanssen.

The High Court, by majority, held that Mr McCourt was Construct’s employee. The majority held that where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract. These rights and obligations are to be ascertained in accordance with established principles of contractual interpretation. Absent a suggestion that the contract has been varied, or that there has been conduct giving rise to an estoppel or waiver, a wide‑ranging review of the parties’ subsequent conduct is unnecessary and inappropriate.

Under the ASA, Construct had the right to determine for whom Mr McCourt would work, and Mr McCourt promised Construct that he would co-operate in all respects in the supply of his labour to Hanssen. In return, Mr McCourt was entitled to be paid by Construct for the work he performed. This right of control, and the ability to supply a compliant workforce, was the key asset of Construct’s business as a labour‑hire agency. These rights and obligations constituted a relationship between Construct and Mr McCourt of employer and employee. That the parties chose the label “contractor” to describe Mr McCourt did not change the character of that relationship.

• This statement is not intended to be a substitute for the reasons of the High Court or to be used in any later consideration of the Court’s reasons.