Contractor or Employee: The Impact of Two Recent High Court Decisions in correctly classifying workers you engage
11 February 2022
Two recent High Court decisions  have emphasised the importance of entering into written contractual agreements and the difficulty for businesses to correctly classify workers, i.e. whether certain workers should be considered contractors or employees.
The distinction between contractors and employees is crucial in ensuring businesses are meeting their tax obligations and workers seeking greater benefits.
Firstly, in ZG Operations Australia Pty Ltd v Jamsek, the High Court held that two truck drivers who worked exclusively for a lighting business for four decades were independent contractors rather than employees. The men had previously been employees of the company until 1985, when they were asked to become contractors and buy their own trucks, or risk not receiving future work. The drivers then each formed a partnership which operated as a business and invoiced the company. However, they were expected to work 9-hour days for 5 days a week.
The High Court found the written agreement between the drivers as independent contractors to the company trumped any “impression”, as the Federal Court described it, of the working relationship between the parties.
Importantly, the High Court found any expectations that the workers would have limited opportunities to obtain work from other businesses did not alter the contractual rights and obligations that characterised the relationship between the partnerships and the company.
The High Court held:
“…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.”
The question as to whether the individuals were deemed “employees” under the extended definition for superannuation guarantee purposes was referred back to the Federal Court.
In the other High Court decision, CFMEU v Personnel  a worker with limited work experience signed an agreement with a labour hire organisation which would offer this worker an opportunity to provide labour to third-party building companies. The labour hire organisation would oversee the individual's day-to-day work and directly pay the third-party, who in turn remunerated the individual.
In upholding the appeal, the High Court unanimously held that the labour hire company had the right to determine for whom the individual would work in return for payment. This right of control was an asset of the business. As such, the court found that these rights and obligations constituted a relationship between the parties as employer and employee.
It is important to emphasise that parties drafting employment contracts should still be cautious of relying on contractual labels they give to a relationship as determinative of its character. In CFMEU v Personnel, the High Court considered the contractual right of control constituted an employment relationship despite the contract labelling it an independent contractor relationship (i.e. although the parties chose the label “contractor” to describe the labourer, this did not change the character of that relationship).
These High Court decisions will have far-reaching implications for industries that engage workers as independent contractors and the gig economy.
Importantly, those factors that have been historically relied upon in ascertaining the working relationships remain such as the right to exercise control and whether the individual is working in their own business or is embedded in the principal's business.
While the outcomes were different, the High Court’s judgements in these decisions has emphasised that a written contract is crucial in determining the nature of the employment relationship between the parties.
1. ZG Operations Australia Pty Ltd v Jamsek  HCA 2 (9 February 2022).
2. Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1 (9 February 2022).