New High Court Cases

In the recent High Court cases Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel Contracting case”) and ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 (“ZG Operations case”), the High Court has clarified the means of distinguishing between an employee and an independent contractor.

In the Personnel Contracting case, a 22 year old labourer performed work for the company Personnel Contracting Pty Ltd, a labour hire company. The company entered into a contract with the labourer designating him the role of an independent contractor and assigned him to work on two construction sites run by its client. After carefully considering the terms of the contract between the labourer and the company, the High Court found that the labourer’s role had been falsely identified and he was in fact was an employee.

In the ZG Operationscase, two truck drivers were hired as employees in 1977 by ZG Operations. In 1986 the truck drivers set up their own partnerships (each with their wife) and those partnerships bought the company’s trucks and entered into an agreement to provide delivery services to ZG Operations as independent contractors. In 2017, the delivery services agreement between the partnerships and ZG Operations was terminated.  The two truck drivers then initiated proceedings in the Federal Court claiming entitlements were owed to them as employees of ZG Operations. The High Court found that both truck drivers were members of partnerships providing services as independent contractors and were not entitled to employee benefits.   

Changes to the Law

Though the circumstances and outcomes of both cases are very different, they both highlight the new approach the Court is taking to determine whether someone is an employee or a contractor. The Court will now give primary regard to the rights and duties created by the terms of the agreement between the parties to determine the character of the relationship between the parties.

Following these two cases, the Fair Work Commission has updated their checklist to include indicators to help determine whether or not a person is an employee or an independent contractor at law. The key indicators to consider in a person’s agreement include:

• the amount of control the person has over how work is performed;
• what financial responsibility and risk each party bears;
• who supplies the tools and equipment to perform the work;
• whether the person has the ability to delegate or subcontract work;
• whether there are standard/set hours of work; and
• whether the person has an ongoing expectation of continuing work.

More information as well as examples for each indicator can be found on the Fair Work Commission website: https://www.fairwork.gov.au/find-help-for/independent-contractors

The Significance of These Changes

What the parties call themselves in a contract and the title of a contract are not important – it is the rights and responsibilities of each party set out in the terms of the contract that will determine whether a worker is an employee or a contractor.

The maximum penalty for sham contracting (i.e. recklessly or intentionally disguising an employment relationship as a principal/contractor arrangement) is $13,320 for individuals and $66,600 for corporations per contravention.  Accordingly it is very important for businesses (whether companies or sole traders) to ensure that the terms in the contracts they offer their workers  accurately reflect the legal relationship they wish to create between the parties.

If you have any queries or concerns please do not hesitate to contact our office on (03) 9039 2142.