Australia’s High Court in two key decisions clarified the approach to determine whether a worker is an employee or an independent contractor. According to an article by attorneys with law firm Russell Kennedy, the decisions reinforce the importance of ensuring contracts used to engage personnel correctly reflect the nature of the engagement from the outset.

In both decisions, the court held that when the parties have committed the engagement to a completed written contract, the subsequent behavior of the parties is not relevant. Rather, whether it is an employer-employee relationship or a principal-independent contractor relationship, it must be assessed by reference to the contractual terms and obligations as written, according to the Russell Kennedy article.

The decisions mark a departure from the “multifactorial test” Australian courts previously used to determine worker classification, the attorneys wrote.

In the first case – Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd — Daniel McCourt entered into a contract with a labor hire agency, Construct, that labeled him a “self-employed contractor,” and he supplied his own workwear when he was sent to work for one of Construct’s clients.

When McCourt’s engagement with Construct came to an end, he initiated a claim against Construct for breaches of the Fair Work Act 2009, arguing that he had been an employee of Construct and therefore owed the extra entitlements of that status.

The court ruled that even though McCourt’s contract called him a “contractor,” the terms of the contract otherwise indicated an employment relationship, making it clear that how parties choose to label their relationship will have little bearing on the determination of the true character of the relationship. “The parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck,”  the ruling stated, quoting from a prior court case.

This court followed the same approach in ZG Operations Australia Pty Ltd v. Jamsek, which involved two truck drivers who had been employees of ZG Operations Australia for several years before ZG requested in 1986 that they become independent contractors or risk redundancy. The drivers established legal partnerships with their wives; ZG entered into contracts with these partnerships, and paid the partnerships all money owing for the delivery services.

When the relationships were terminated in 2017, the drivers, Robert Whitby and Martin Jamsek, claimed that they were improperly categorized as independent contractors and sought the relevant entitlements of employees. The High Court ruled that the drivers were independent contractors based on the contractual terms and the relationship that they established.

Through these decisions, the court has made it clear that whether a worker is considered an employee or an independent contractor is to be determined by reference to the contractual terms if that relationship is wholly committed in writing. However, the Russell Kennedy attorneys advised that employers and principals should still be vigilant about whether the terms of the contract sufficiently reflect the labels used to describe the relationship.