Last year (2021), the decision in WorkPac Pty Ltd v Rossato (Rossato) provided clarity to business owners about the difference between permanent and casual employees. The decision emphasised the importance of written contracts in assessing whether a casual employee was legally recognised as ‘casual’. This decision was significant, and to some surprising, outlining the High Court’s view as to the primacy of a written contract.
This approach can also be seen in last week’s decisions in Personnel Contracting and Jamsek, where the High Court recognised the importance of a written contract when engaging independent contractors.
HHG Legal Group’s Gemma Wheeler-Carver and Kimberly Jones have put together a summary of both cases and the key takeaways.
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1 (Personnel Contracting)
On 31 August 2021, the High Court heard an appeal from the Full Federal Court of Australia in Personnel Contracting. In brief, the background to this case is:
- Mr McCourt was a British backpacker in Perth looking for work;
- He entered a contractual relationship with Personnel Contracting Pty Ltd (Personnel), signing what was referred to as an Administrative Services Agreement (ASA). The ASA said that Personnel would offer work to Mr McCourt with Personnel’s clients. The ASA described Mr McCourt as a ‘contractor’ (not an employee);
- Mr McCourt was offered, and accepted, work on a building project with Hanssen Pty Ltd (Hanssen);
- There was a written contract, between Personnel and Hanssen, to provide labour to Hassen. This was referred to as the Labour Hire Contract (LHA). There was no written contract between Mr McCourt and Hanssen;
- After the end of the relationship between Mr McCourt and Personnel, Mr McCourt and the Construction, Forestry, Maritime, Mining and Energy Union commenced proceedings against Personnel seeking compensation and penalties against under the Fair Work Act 2009 (Cth) (FWA). This claim relied on showing that Mr McCourt was an employee of Personnel, rather than a contractor.
- As an employee, McCourt’s entitlements under the FWA and relevant modern award would including a minimum wage and leave entitlements.
ZG Operations Australia Pty Ltd v Jamsek  HCA 2 (Jamsek)
On 1 September 2021, the next day, the High Court heard the appeal in Jamsek (also from the Full Federal Court). Although the facts are different to those in Personnel Contracting, Jamsek is also a key case in setting precedent on the independent contractor or employee issue. Briefly, the facts are as follows:
- Until 1985 or 1986 Mr Jamsek and Mr Whitby were employed as truck drivers by the predecessors of ZG Operations Pty Ltd (referred to throughout as ‘ZG Operations’ for ease);
- In 1985 or 1986 Mr Jamsek and Mr Whitby were asked by ZG Operations to become contractors, which included purchasing their own trucks. Mr Jamsek and Mr Whitby agreed to this, set up partnerships with their spouses to facilitate this arrangement, and purchased the trucks;
- The partnerships then entered written contracts with ZG Operations to reflect the agreement to hire both their personal services and the trucks;
- As with Personnel Contracting, after the end of the relationship Mr Jamsek and Mr Whitby brought a claim for unpaid entitlements under the FWA (and also the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Long Service Leave Act 1955 (NSW)). The success of this claim relied on the Court finding that Mr Jamsek and Mr Whitby were employees of ZG Operations, rather than independent contractors.
Personnel Contracting and Jamsek were both heard by a single judge in the Federal Court, appealed to the Full Court of the Federal Court (comprising 3 judges), and then appealed to the High Court.
The primary judge decided the Mr McCourt was a contractor.
On appeal, the Full Federal Court upheld this view. It is important to note that the Court made it clear that it was following judgements in similar cases, including an earlier case involving Personnel. Their Honours noted that, had the Court not been bound by these earlier cases, they would have decided differently.
The High Court, allowing the appeal, found that Mr McCourt was an employee.
The primary judge decided that Mr Jamsek and Mr Whitby were independent contractors.
On appeal, the Full Court allowed the appeal (by Mr Jamsek and Mr Whitby) and decided that Mr Jamsek and Mr Whitby were actually employees.
The High Court’s decision again allowed the appeal (this time by ZG Operations) concluding that Mr Jamsek and Mr Whitby were independent contractors.
There is no definition of an employee in legistation, including in the Fair Work Act 2009 (Cth). The Court therefore must look to the common law to make this assessment.
Until Personnel Contracting and Jamsek, the key cases in this area were Stevens v Brodribb Sawmilling Co Pty Ltd (1986) (Stevens) and Hollis v Vabu Pty Ltd (2001) (Hollis). These cases used what is referred to as the multi-factorial test. This test looks at the whole relationship of the parties when classifying the nature of that relationship. Importantly, in both these cases the relationships were not fully set out in a written agreement. As a result, in many cases after Stevens and Hollis, an extensive written contract was considered as just one of many factors which went to defining the relationship and was not given special consideration.
In Personnel Contracting and Jamsek, the High Court had the opportunity to set out the principles of assessing whether a worker is an employee or contractor in situations where there are comprehensive written contacts.
The High Court found that where there is a comprehensive written contract between the parties and no problem with its validity, the nature of that relationship should be characterised by legal rights and responsibilities under that contract. This view is in line with the general principle of contract law and indicates that no special status should be given to industrial contracts.
Personnel Contracting and Jamsek also align with the Rossato decision, which was referred to throughout these judgements.
So, given the primacy of contract, why was Mr McCourt found to be an employee when his contract labelled him a “contractor”? The Court will not simply accept the label that a relationship in given in a written contract. The Court, instead, must look at the rights and duties of the parties as established by the written contract to assess the nature of the relationship.
Businesses may take comfort that these decisions confirm that the common law principle that parties are free to enter contracts outlining the terms of their relationship, is true in industrial relationships, including that of an independent contractor.
However, it is crucial that these contracts are well-drafted, precisely outline the intentions of the parties, and clearly set out the rights and duties that attach to an independent contractor relationship. It is not enough to label the relationship as such.