By Bianca Lopez, Solicitor |
25 May 2022
As is standard operating procedure for many businesses, including in the creative industry, independent contractors are frequently engaged to assist a business in delivering services. This can either be on a short-term basis, such as to bolt-on extra resources for a specific short-term project (freelancers that are brought in by a creative agency are a good example of this), or a longer-term basis. Occasionally we may be asked by our client to draft a new employment agreement for an independent contractor – this, however, is a contradiction and raises concerns as to how clearly the relevant client understands the distinction between employees and contractors.
As you may be aware, the difference at law between employees and contractors is stark, and employers have very different obligations to their employees (such as relating to compulsory superannuation payments, accrual of annual leave, etc).
In February 2022, the High Court handed down two key decisions that placed a spotlight on the issues with accurately categorising employees vs independent contractors:
- CFMMEU v Personnel Contracting Pty Ltd  HCA 1 (“Personnel Contracting”) – where the High Court held that an individual hired for work by a labour-hire company was an employee and not a contractor; and
- ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors  HCA 2 (“Jamsek”) – where the High Court held that two employees who provided exclusive services to the same company for over four decades were contractors and not employees.
In a nutshell, both cases saw the High Court majority conclude that the written terms for the engagement of services are the key indicators when categorizing the relationship between the company and those providing such services. It was stated in both decisions that it is not necessary to undertake a broad analysis when trying to set a label, but rather that the rights and obligations set out in the written contract is enough to determine the legal status of the workplace relationship.
This is a departure from the previous legal position, so it is important to understand what has changed as a result of these cases.
Personnel Contracting – the employee
In Personnel Contracting, the High Court considered the workplace relationship status of UK backpacker, Mr. McCourt. While visiting on a working holiday visa, Mr. McCourt entered into an Administrative Service Agreement (“ASA”) with Personnel Contracting trading as Construct (“Construct”). Under that ASA, Mr. McCourt was labelled as a ‘self-employed contractor’ and was sent to work on construction sites run by Construct’s client, Hanssen Pty Ltd, under a labour-hire agreement in place between Construct and Hanssen.
As far as Construct was concerned, Mr. McCourt was providing his services as a contractor. In the decision however, the High Court highlighted that any work that Mr. McCourt completed was entirely dependent upon Construct. Mr. McCourt had no control over the details of the services he was to provide, including the dates, times and locations of the jobs he was to attend. All these elements were controlled and instructed by Construct.
It was this level of Construct’s control over the individual that was significant to the High Court’s analysis of the workplace relationship between Construct and Mr. McCourt. Given that Mr. McCourt had minimal say over when and where he provided his services, the High Court found that he was operating as Construct’s employee. This meant that Construct was now responsible for things like annual leave, superannuation and other employee benefits owed to Mr. McCourt and which generally do not form part of the engagement of a contractor.
Importantly, the High Court noted that it did not factor that the parties had agreed to label the workplace relationship as a contract for services, or that it was Construct’s intention for Mr. McCourt to be providing services as an independent contractor. The rights and obligations of each party set out in the ASA were enough to establish an employee relationship and these other factors that sat outside the contract were largely discounted.
Jamsek – the independent contractors
In the Jamsek decision, the High Court considered the status of a workplace relationship between a company and two truck drivers. The drivers had been employees of the company, however were moved onto a new arrangement (with their consent) that saw the drivers purchase their own trucks, enter a partnership agreement with their wives, and then agree to provide services to the company. In effect, these drivers became their own bosses, and became contractors to the original employer.
Despite the changes to the written terms that governed the drivers’ and company’s relationship, the way the services were being carried out looked very similar to when the drivers were employees – they provided their services exclusively to the company, wore company-branded clothing, and had company logos on their trucks. While it could be assumed these would be general indications of a long-term employment relationship, this was not how it played out following the company terminating their services.
Upon termination, the drivers made claims against the company for certain employee entitlements they alleged to be owed, such as long service leave and superannuation. In its analysis, the High Court again placed importance on the rights and obligations set out under the written contracts that governed the workplace relationship.
Reviewing the structure of the arrangement between the company and the drivers, and the details set out in the written agreements that were in place, the High Court held that the drivers could not be established as employees of the company. Even though they provided exclusive services and wore the company logo, the drivers were, in fact, members of a partnership that provided services to the company in its general course of business. As such, the High Court held that the drivers were not owed any employee entitlements by the company following the termination of services.
Why is this important?
The key takeaway from these decisions is that brands and agencies need to be mindful of the terms they put in place with any third party they are engaging for services. Given the weight placed on the written terms of any agreement that governs a workplace relationship, there is significant risk with quickly throwing together any sort of contract.
As seen here, even if the differences are subtle, if the wrong language or form of agreement is used or if the rights and obligations are not fully and accurately set out within the agreement, you may find yourself in a position where the intended workplace relationship is not realised. For example, a contractor engaged for a campaign may be found to actually be an employee, and therefore be eligible for unpaid employee entitlements.
Most importantly, it has been made clear that the label attached to the written contract is not a determinative factor on its own. The label becomes irrelevant if the rights, duties and obligations are at odds with the name given to the document, and little consideration is given to any intention you may have had when engaging the contractor for services. If the terms allude to an employment agreement, but you are calling it an independent contractor agreement, you are almost certain to have an employment agreement.
To that end, while it may be tempting to use any standard employment agreement or a shortform contract for services, it is essential that you carefully consider the type of workplace relationship you are looking to create. The rights and duties should be full and complete, and the terms of engagement should clearly and accurately reflect whether a third party is being engaged as an employee or as an independent contractor.
If you would like further information on these recent decisions and how they impact you or your business, please contact one of our experts below. We can provide tailored legal and practical advice to assist you with drafting or reviewing your current employee and independent contractor terms of engagement.