The High Court provides clarity for employers to determine whether a person is a contractor or not

Last week the High Court handed down two highly anticipated decisions, the first decision determined that an unskilled construction labourer engaged by a labour hire company was an employee despite a signed Administrative Services Agreement (‘ASA’) describing the worker as a “self-employed contractor”.  The second decision determined that two truck drivers, despite providing exclusive delivery services to one business over many decades, were in fact independent contractors.

Labourer engaged by a labour-hire company

The first case involved the Construction, Forestry, Maritime, Mining and Energy Union (‘CFMMEU’) arguing that a 22-year-old British backpacker working in Australia on a holiday work visa was incorrectly classified by labour hire company, Personnel Contracting Pty Ltd (‘Construct’) as an independent contractor.  The CFMMEU claimed that the labourer was an employee and entitled to payments in accordance with the Building and Construction General On-Site Award 2010.

The High Court allowed the CFMMEU’s appeal, setting aside the order made by the full Federal Court that upheld the primary judge’s decision, that the young labourer was an independent contractor.  Instead, the majority of the High Court declared that between 27 July 2016 and 6 November 2016, and 14 March 2017 and 30 June 2017, that the labourer was an employee of Construct.

High Court Chief Justice Susan Kiefel, and Justices Patrick Keane and James Edelman said that it was “impossible to say that [the labourer] was in business on his own account” and that it was “impossible to conclude other than that [the labourer’s] work was dependent upon, and subservient to, Construct’s business”.

In reaching this conclusion, the court rejected Construct’s argument that it was “simply a finder of labour” as the “rights” and “obligations” established under the ASA demonstrated that Construct was in the business of labour hire, and not in the “business of ‘introducing’ suppliers of labour to builders and leaving those parties to sort their own affairs”.  Instead, the majority of the High Court determined that Construct retained control over the labourer, and that this control “was fundamental to its business as a labour-hire agency”.

Truck drivers engaged by a company to provide delivery services

The second case involved two truck drivers who commenced proceedings in the Federal Court seeking statutory entitlements alleged to be owing under the Fair Work Act 2009 (Cth), Superannuation Guarantee (Administration) Act 1992 (Cth) and the Long Service Leave Act 1955 (NSW).

The Primary Judge determined that the truck drivers were independent contractors.  The truck drivers then successfully appealed this decision, with the Full Federal Court determining that the drivers were employees.  The High Court has now allowed the company’s appeal and reversed the decision of the Full Federal Court by determining that the truck drivers were independent contractors.

The two truck drivers were originally engaged as employees of the company from around 1977, and around mid-1980s the drivers were offered the opportunity to “become contractors” on a “take it or leave it basis”.  In agreement, the truck drivers set up partnerships (with their respective wives), executed written contracts with the company for the provision of “delivery services”.  The truck drivers purchased trucks from the company to provide the services.  The partnerships invoiced the company, and the company paid the partnerships for the delivery services.  The partnership’s income was declared for the purpose of income tax and split between each truck driver and their wife.  The revenue generated by the partnerships was used to pay the maintenance and operations costs for the trucks.

The High Court unanimously found that the truck drivers were not employees of the company but were independent contractors, concluding that the only relationship between the company and truck drivers was the “contract for the carriage of goods”.

In handing down its decision, the High Court considered that previous decisions of the Federal Court suffered “errors of approach”.  Firstly, that the courts had devoted too much attention to how the parties “actually conducted themselves over the course of their relationship”, and that the Full Court had concluded that the “reality” of the relationship was one of employment based on the “disparity in bargaining power between the parties” when entering into the contracts, to which the partnerships were then established.

Both High Court decisions provide clarity for employers around whether a person is an independent contractor or employee.  The High Court has affirmed the importance of comprehensively committing the terms of the relationship to a written contract/agreement that documents the rights and obligations of the parties.  Given the significance of the decisions, Aitken Legal recommends that employers seek advice and assistance when drafting independent contractor agreements and also employment agreements.

Disclaimer: The information contained this article is general and intended as a guide only. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain. Liability limited by a scheme approved under professional standards legislation.