Independent contractor or employee? The High Court of Australia in two landmark decisions says the answer is in the writing

In recent years, the question of whether a relationship was one of independent contractor or employment, had been relatively uncertain and, in many cases, litigious even where a written agreement between the parties had described it as an independent contractor relationship. This was because courts would adopt a ‘multi-factorial’ test of many factors to determine its view of the “true relationship”.

On 9 February 2022, the High Court of Australia (HCA) in two landmark decisions rejected the previous authorities for determining the contractor and employee dichotomy, and provided clarity on what constitutes an independent contractor at common law.

The HCA has given primacy to the written terms agreed between the parties.

Full Federal Court – a multifactorial approach

Previously, the Full Court of the Federal Court in Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119 (Jamsek) had held that truck drivers, Mr Jamsek and Mr Whitby – each with nearly 40 years of service and who owned their own trucks, were permanent employees, not independent contractors as had been stated in their written contracts.

The Full Court considered “the totality of the relationship”, finding that despite the terms of their written contracts describing it as an independent contractor relationship, and that the drivers invoiced for their services and bore the maintenance and operational costs for their trucks, they were outweighed by other factors demonstrating employment including that they were expected to work exclusively for the principal and wore the principal’s logo on their clothing and trucks.

 

In Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] FCAFC 122 (Personnel Contracting), the Full Court, also applied the multi-factorial test but in doing so found that a backpacker engaged as a contractor through a labour hire company (Personnel Contracting) to provide his labouring services to a third party, was in fact an independent contractor.

HCA – contractual interpretation

The HCA rejected the multi-factor approach adopted in each case and instead focused on an interpretation of the relevant contracts in each case, determining that:

“where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract”.

A wide ranging review of the parties subsequent conduct was unnecessary if the comprehensive terms of the written agreement between them establish the nature of the relationship and they adhere to those terms. The mere existence of unequal bargaining power between the parties “[does] not alter the meaning and effect of the contract”.

In the Jamsek case, applying the contractual approach the HCA unanimously found the drivers were contractors, not employees. In Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 while adopting the contractual approach the majority of the HCA found that, in the circumstances, the backpacker was an employee, because his written contract gave the labour hire company, the right to decide who he could work for and he agreed to comply with that right and “this right of control” by the labour hire company constituted a relationship of employer and employee under a proper interpretation of the contract.

Moving forward

The HCA’s recent decisions are consistent with its approach taken last year in Workpac v Rossato, in which the HCA similarly found that where a written contract is adhered to, it will be evidence of the parties’ relationship.

Employers need to continue to enter into, and very clearly draft, independent contractor agreements, including ensuring that there are no express terms in the agreement which may not be consistent with a contractor relationship.