Two cases concerning whether a worker is an employee or an independent contractor were recently decided by the High Court. These decisions are of particular significance to employers and business owners who wish to legitimately engage independent contractors without fearing that they may wind up in an employment dispute later down the track.

What’s the difference between an employee and an independent contractor?

An independent contractor can be a person, partnership or company, which provides services to others on a contract basis. Those who engage independent contractors do not have to comply with employment laws, rather, the parties are free to bargain with each other and set the terms of their relationship.

An independent contractor is usually paid upon the completion of a job or task, rather than on an hourly or salary basis as an employee would be. Independent contractors do not work exclusively for one person or business, and exercise a degree of control over their own business and the work they perform which is not available to employees. Independent contractors can often choose when and how they perform a job and are not subject to the same level of oversight as employees.

On the other hand, employees are engaged in a personal capacity to perform work, often on an exclusive basis. Employers must comply with Australia’s various employment laws, such as those relating to minimum wage, unfair dismissal and modern awards (if applicable). Employers have a far greater degree of control over their employees and the work they perform and pay employees a wage or salary.

Depending on your type of business, you may prefer to engage someone as an independent contractor rather than as an employee. In either case, it is important to have an agreement in place which accurately describes the parties’ relationship, their rights and obligations.

The High Court Decisions

- ZG Operations & Anor v Jamsek & Ors [2022] HCA 2

Mr Jamesek and Mr Whitby were employed as truck drivers by ZG Operations from 1977 until 1985, when they were told that their employer could no longer guarantee their jobs unless they agreed to become contractors.

As part of this agreement, Mr Jamesek and Mr Whitby purchased and maintained their own trucks. They each set up partnerships with their respective wives and ZG Operations entered into an agreement with these partnerships. Mr Jamesek and Mr Whitby continued driving their trucks for ZG Operations for about 40 years. During this time, they wore company uniforms and installed tarpaulins on their trucks with the company’s branding.

ZG Operations terminated its agreement with the partnerships of Mr Jamesek and Mr Whitby in 2017. The two truck drivers then brought a claim against ZG Operations seeking payment of various employment entitlements, including overtime, leave, superannuation and redundancy payments.

The case eventually reached the High Court, which unanimously held that Mr Jamesek and Mr Whitby were engaged as independent contractors, not as employees.

The Court found that the partnerships were validly contracted by ZG Operations. The agreement in place comprehensively set out each party’s rights and obligations with respect to the work performed and was reflective of an independent contractor relationship. Though Mr Jamesek and Mr Whitby drove their trucks exclusively for ZG Operations for about 40 years, there was nothing in the agreement which limited their ability to drive for others. Mr Jamesek and Mr Whitby enjoyed the advantages which came with operating under partnerships, such as tax benefits and the ability to split their income with their wives.

- Contracting Pty Ltd [2022] HCA 1

This decision concerned a 22 year-old British backpacker referred to as Mr McCourt. Mr McCourt was in Australia on a working holiday visa and was engaged by a labour hire company, Personnel Contracting Pty Ltd (‘Personnel Contracting’), as an independent contractor under an agreement. Mr McCourt was assigned to work for one of Personnel Contracting’s clients, Hanssen Pty Ltd (‘Hanssen’). There was a labour hire agreement between Personnel Contracting and Hanssen, but no agreement between Mr McCourt and Hanssen.

Mr McCourt was paid an hourly rate and performed basic labouring tasks under the supervision and direction of Hanssen whilst working on site. The Construction, Forestry, Maritime, Mining and Energy Union (‘CFMEU’) brought an action against Personnel Contracting, arguing that Mr McCourt was a casual worker and therefore should be paid under the applicable modern employment award.

The High Court held that Mr McCourt was in fact an employee of Personnel Contracting by a majority of 5-2. The majority found that the rights and obligations of Mr McCourt and Personnel Contracting under the agreement reflected a relationship of employer and employee. Personnel Contracting had the right to control Mr McCourt’s work and could direct who he was to work for. The work Mr McCourt received was completely dependent upon Personnel Contracting’s business. Though Mr McCourt was described as a contractor under the agreement between the parties, the terms of the agreement did not reflect this status.

Conclusion

The approach of the High Court in each of the above cases represents a departure from the previous manner in which questions as to who was an employee and who was an independent contractor were decided, as in each case, the Court placed more weight on the terms of the contract between the parties, rather than looking at the parties’ working relationship as a whole.

The decisions provide assurance to those who engage genuine independent contractors through comprehensive agreements that these will not be set aside by a court. However, businesses must be wary that they cannot simply attach a label of ‘independent contractor’ to an agreement where this would be inconsistent with the rights and obligations of the parties.  

To help you understand your rights, please feel free to call one of the experienced Commercial Solicitors at Longton Legal for an obligation free discussion.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*