High Court clarifies the important “Employee or Contractor” question

By 22 February, 2022 No Comments

Employee or Contractor?

The classification of workers as either employee or independent contractor is a critical distinction to get right.

Where a business characterises a worker as a ‘contractor’ and they successfully argue they are in fact an employee, the business can be exposed to costly entitlements claim from the worker, as well as pecuniary penalties for breach of the Fair Work Act 2009 (Cth).

What the High Court said

Two recent decisions of the High Court provide some welcome clarity for businesses, emphasising that the focus should be on how the relationship is defined in the relevant contract between the worker and the business.

The decisions of the High Court in ZG Operations Australia Pty Ltd v Jamsek and Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd, have helped to clarify the distinction, indicating that the written terms of engagement should be determinative.

Previously, Courts would look behind the written agreement in what was referred to as the “multifactorial test” which required examination of what the parties did in practice.

In its essence, the High Court has decided that the “multifactorial test” inevitably gives rise to inconsistency and uncertainty.

In reviewing the classification of a worker, particular consideration will still be given to the extent of control the worker has over their day to day work and duties.

Key Takeaways

  • The written instrument of employment is critical in the characterisation of the worker.
  • This is to be contrasted to the previously favoured interpretation, as provided in Hollis v Vabu Pty Ltd, that looked toward the reality of the working arrangement.
  • The element of control the business has over the worker is particularly persuasive.
  • The High Court has continued its approach of giving increased weight to the terms of the contract in important employment law decisions

What does this mean for business?

  1. Ultimately, the decisions of the High Court mean the wording of the contract is critical in defining your obligations as an employer or when engaging contractors.
  2. While these decisions provide welcome certainty for businesses, it is imperative that contracts are carefully drafted to ensure the relationship of employee or contractor is clearly and adequately defined.
  3. Businesses will still need to ensure that they are not engaging in “sham contracting” arrangements which are unlawful and could result in pecuniary penalties and entitlements claims.
  4. Pragma’s employment lawyers can assist your business in reviewing or preparing contractor and employment agreements to ensure you get the distinction right and minimise your risk.