INDUSTRIAL RELATIONS

Contracts are the key to engaging contractors

James Kenyon-Smith

Earlier this year, two landmark cases by the High Court of Australia emphasised the importance of having a written contract when engaging a worker as an independent contractor (often referred to as a contractor, subcontractor or subbie). The cases in question were CFMEU v Personnel Contracting Pty Ltd (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek (Jamsek). The decisions of the High Court are significant as they: 1. Are a departure from how the courts have previously assessed whether a relationship between a worker and a company is an employment or contractor relationship; and 2. Have significant practical implications that can help businesses better manage their risk when engaging independent contractors. What was the issue?

Both matters concerned the same issue – was a worker engaged by a company as an employee or an independent contractor?

Background facts Despite the workers in both matters signing written independent contractor/ service agreements, the workers contended that they were employees and should be entitled to certain employment payments that were not made to them (such as wages and leave entitlements owing under the Fair Work Act 2009 and the Building and Construction General On-Site Award

2010, long service leave entitlements and superannuation contributions). In Jamsek, the workers were truck drivers who had established partnerships with their wives, which they operated under. They also owned their trucks and equipment and invoiced for their work. In Personnel Contracting, the company was a labour-hire company, and the worker was a labourer, performing basic labouring duties at different sites.

What did the High Court rule?

Key principle: Where a company and a worker’s relationship is subject to a written contract, determining whether the worker is an employee or an independent contractor must be done with reference to that contract.

Using this principle, the High Court determined that the written contract established in Jamsek was consistent with how a genuine contractor relationship would be established. Accordingly, the High Court determined that the relationship between the worker and the company was an independent contractor relationship. Contrastingly, the High Court was not satisfied that the contract in Personnel Contracting was drafted to reflect a true independent contractor relationship. The High Court found that the worker’s obligations under this contract limited their control over how they performed their work. The worker was therefore deemed an employee by the High Court.

Why does this matter, and what does this mean for you?

These decisions emphasised the importance of having a written contract of service with your independent contractors.

Without a written contract, the issue of whether a worker is an employee or an independent contractor will be assessed by reviewing the totality of the relationship – this is historically how the relationship had been assessed. This allows the potential for unintended factors to be considered in making such a determination.

Key take away: When engaging an independent contractor, ensure the relationship is governed by a written contract.

Having a written contract of service with your independent contractors will allow for greater clarity and certainty in the relationship. Where the terms and conditions of the contract are consistent with a genuine independent contractor relationship, it will greatly help in reducing the risk of the relationship being interpreted as an employment relationship. Please note that different tests may be adopted in determining whether an independent contractor is an employee/ worker for CoINVEST, superannuation, WorkCover and tax purposes. If you want further information or wish to discuss your circumstances, please contact the MBV EIR Team at (03) 9411 4555.