What's a contract go to do with it?

By Diana Diaz, Special Counsel, Gadens - William Marshall, Senior Associate, Gadens - Carlyna Yap, Lawyer, Gadens

What’s a contract got to do with it? Determining employment versus independent contracting relationships

Earlier this year, the High Court handed down two decisions which stressed the primacy of contractual terms in determining employment versus independent contracting relationships.

Comments made by the High Court when considering 'Odco' style contracting arrangements in one of the cases that we will discuss below casts doubt on whether the popular engagement model can be used without significant risk to labour hire businesses.

The High Court held that where parties have comprehensively committed the terms of their relationship to a written contract, it was ‘unnecessary and inappropriate’ to undertake a detailed review of the work practices of the parties. In doing so, the High Court limited (but did not abolish) the application of the well-known ‘multifactorial’ test.

Personnel Contracting

In Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty [2022] HCA 1 (Personnel Contracting), the High Court found that Mr McCourt, a labourer engaged by a labour hire provider (Construct), was actually an employee.

Mr McCourt had signed an Administrative Services Agreement (ASA) with Construct which characterised him as a ‘self-employed contractor’ . Mr McCourt was assigned to two construction sites run by clients of Construct, including Hanssen and performed labouring tasks under the supervision and direction of Hanssen’s supervisor. A Labour Hire Agreement was in place between Construct and Hanssen pursuant to which Construct commercialised ‘its right to control the work that Mr McCourt would do and how he would do it’ .

The tripartite arrangement – an independent contractor agreement between Construct and Mr McCourt as a contractor, and a labour hire agreement between Construct as the provider and Hanssen as the client – is known as an ‘Odco’ style arrangement.

The High Court confirmed that where a contract is wholly in writing, the question of whether a worker is an employee or a contractor is to be determined based on the terms of that written contract. In applying this principle, the High Court decided that the terms and conditions under Mr McCourt's ASA, specifically Construct's right of control over Mr McCourt, were determinative in finding that Mr McCourt was an employee of Construct.

Jamsek

In ZG Operations & Anor (ZG) v Jamsek & Ors [2022] HCA 2 (Jamsek), the High Court found that two truck drivers (Mr Jamsek and Mr Whitby) were independent contractors despite the drivers having minimal time to undertake work for third parties.

Mr Jamsek and Mr Whitby were originally employed as truck drivers of a business run by ZG but were later offered to continue as contractors to carry goods if they purchased their trucks. Mr Jamsek and Mr Whitby accepted this proposal, established partnership arrangements with their respective wives, executed contracts for service of delivery of goods, purchased, maintained and paid for the operational costs of the trucks and invoiced ZG for the delivery of goods. the partnership nature of the relationship between Jamsek, Whitby and ZG meant that there was no direct relationship for personal services between ZG and either of the would be employees; and the contracts did not distinguish supply of relevant trucks from the supply of labour, meaning it was not a relationship of employment.

Confirmation of principles in Pruessner

The above principles were applied in the Federal Circuit and Family Court of Australia case of Pruessner v Caelli Constructions Pty Ltd (Caelli) [2022] FedCFamC2G 206 (Pruessner). Mr Pruessner, a labourer, argued that he was an employee given that he worked exclusively for Caelli, worked on average 38 hours a week, wore Caelli uniform and used one of its email addresses.

In applying the principles from Personnel Contracting and Jamsek, the Court held that Mr Pruessner was clearly an independent contractor. There was no written contract in place, but the parties' post. In contractual conduct indicated that Mr Pruessner was not an employee. Specifically, Mr Pruessner enjoyed tax advantages from the way he had structured his business –his company charged GST on services, paid director's fees and made trust distributions to Mr Pruessner and his wife and paid superannuation on behalf of Mr Pruessner.

What does this mean for labour hire providers?

In Personnel Contracting, the level of control able to be exercised by the labour hire provider over the worker under the underpinning agreement was a determinative factor in finding that the worker was an employee.

Labour hire businesses that rely on the Odco model should obtain urgent legal advice to understand their potential exposure (including historical exposure) and to discuss alternative engagement models.

Generally speaking however, an analysis of existing arrangements between labour hire providers, workers and host businesses should be undertaken in circumstances where a worker is engaged as an independent contractor. In these circumstances, the agreement between businesses and workers should be cautiously reviewed to ensure that the rights and obligations extending from the agreement and that the underpinning structure reflects the intentions of the arrangement between the parties. Labour hire providers should also carefully consider the corporate structures under which contractors will provide their services, if any.