On
The worker in
Contracts are king, but will be scrutinised
Consistent with the line of reasoning established in its earlier decision in Rossato,1 the
Some commentators have bemoaned the decisions as the death knell of secure work. After all, most contractors do not enjoy many of the protections afforded to employees: minimum wages, protection from unfair dismissal, leave benefits and superannuation. Companies save on workers compensation and payroll tax.
So is this a carte blanche for businesses to engage all workers as contractors? Not quite.
Although the lead judgment in
The decisions are anathema to the ALP's promise to increase forms of secure work if it is able to form government following the election. It remains to be seen what legislative reform might be on the agenda.
CFMMEU v
The agreement between
Indicia of employment assessed in the contract
The lead judgment expressed concern over applying the 'multifactorial' test that has previously been applied in various courts, especially where its application extended to consideration of post-contract conduct.
Rather, given that the parties' relationship was comprehensively reduced to a written contract, the rights and obligations set out in the contract would determine the character of the relationship (subject to a challenge to the validity of contract as a sham, or a variation to or waiver of the terms of the contract, or an estoppel).2
This does not mean that a worker will be found to be a contractor merely because the contract designates them as such. Rather, the assessment of the relationship needs to be undertaken based on the terms of the contract between the parties, and without regard to subsequent conduct.
Two factors remain particularly important:
- Control: the greater the degree of control by the principal/employer over the work performed, the greater the likelihood of an employment relationship existing. Key to the Court's decision was the fact that Construct could control
- Own business/employer's business: the greater the degree of integration and subservience of the worker into the principal's enterprise, the greater the likelihood of an employment relationship existing. Conversely, the greater the pursuit by the worker of an independent enterprise, the more likely it is that the worker will be an independent contractor. The lead judgment considered the core of
Mr McCourt's obligation under his contract with Construct was to work as directed by Construct or its client - the benefit of this obligation was the key asset of Construct's labour hire business, and it was 'impossible to say thatMr McCourt was in business on his own account.' - the partnerships earned income from the company, incurred expenses associated with the ownership and operation of the trucks, and took advantage of tax benefits of the structure; and
- the partnerships enjoyed the advantages of splitting the income generated by the business conducted by the partnerships with their fellow partners,
- The terms of the contract will be central to determining the nature of the relationship between a principal/employer and contractor/employee, and the subsequent conduct of the parties is irrelevant. However, simply asserting in a contract that a worker is a contractor won't make it so - an assessment of the relationship still needs to be undertaken based on the terms of the contract. Central to the analysis are the questions of who controls the work (and how it is to be performed) and the extent to which a worker can be said to operate an independent enterprise.
- Flowing from the above, companies should ensure, to the extent practicable, that the contract reflects that the contractor has control over the relevant work and how it is to be performed, and demonstrates that the contractor is running their own business rather than that of their principal. In saying that, there will necessarily be limits commercially on how much freedom a company is willing to provide their contractors.
- There may be value in ensuring that contractor agreements contain some 'boilerplate' clauses which will assist to demonstrate that the agreement of the parties is contained wholly in the written contract. For example, clauses that state that the contract reflects the entire agreement of the parties, that variations to the contract must be in writing and that that any waiver of the rights under the contract must be in writing, will assist to ensure that companies don't fall within one of the exceptions to the principle in the above cases (which may then result in a court looking beyond the terms of the contract itself).
- It will be more difficult for contractors who have engaged with a principal through their own company to assert they are an employee. This is because the relevant contract will be between the principal and the contractor's company rather that the individual person performing the work, and there will not be a direct contractual relationship between the individual contractor and the principal.
- The Opposition will likely seize upon the decisions in support of its reform agenda towards creating secure forms of employment for Australians. Legislative change may be on the horizon. We will keep you up-to-date as these occur.
Although the Court did not consider it appropriate to undertake a fulsome analysis of the other 'indicia' of a contractor/employee relationship that has previously been considered by courts, it may be the case that a number of those indicia will fall within the scope of considering the two points above. Interestingly, the lead judgment gave little regard to both: the non-exclusive nature of
Following
The parties to the relevant contracts
The leading judgment in Jamsek placed significant focus on the parties to the relevant contract, being the partnerships and the company (rather than
Separately, although the Court did not consider it necessary or appropriate to make its decision based on the 'reality of the situation', in circumstances where:
-
the partnerships contracted with the company and invoiced the company for delivery services;
it was the case that the partnerships (and not the individuals) owned and operated the trucks, and the individuals were conducting a business of their own as partners.
Further, the Court determined that the contractual obligation on the truck drivers to undertake work 'as reasonably directed' did not change the characterisation of the relationship. This merely gave the company the power to give directions to make deliveries, rather than to direct how that should be done.
Key Takeaways
Footnotes
1.
2. [2022] HCA 1, 19 [43] (Kiefel CJ, Keane and Edelman JJ).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Ms
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