Employee or Contractor?: the High Court decides

The High Court of Australia (HCA) handed down two major decisions that highlight the importance of getting contractual terms correct and how those terms can determine the nature of the relationship.

In the two decisions, the HCA makes clear that where the terms of the parties’ relationship are comprehensively committed to a written contract, (and the contract is not a sham or otherwise varied), there is no reason why the contract should not determine the character of the relationship.

The first decision involved the determination of whether a labourer engaged by a labour-hire company was an employee or an independent contractor. The HCA held by majority that the labourer was an employee of the labour hire company, despite being described as a “self-employed contractor” under the services agreement he signed.

This agreement provided that the labour hire company had the right to determine for whom the labourer would work, and that he would be paid for the work performed. The HCA stated that these rights and obligations constituted a relationship between the labour hire company and the labourer of employer and employee. The fact that the parties chose to label the labourer as a “contractor” did not change the character of that relationship created by the agreement.

The second decision involved two truck drivers who alleged they were owed certain employee entitlements.

The truck drivers were originally engaged by the company as employees, however the company offered the truck drivers the opportunity to “become contractors” and purchase their own trucks. The truck drivers agreed to the new arrangement. Each truck driver executed a written contract with the company for the provision of services, purchased trucks from the company, paid the maintenance and operational costs of those trucks, invoiced the company for its delivery services and was paid by the company for those services.

The HCA unanimously held that the truck drivers were not employees of the company but independent contractors, which was clear from the written contracts the parties had entered.

Key takeaways

  1. Review your template independent contractor agreements to make sure it reflects the relationship of principal and independent contractor.
  2. Review your current written agreement/s with independent contractors to ensure they do not have terms characteristic of an employment relationship. As seen in the above case, a label does not change the true character of the relationship.
  3. The traditional multifactorial test will still be relevant in determining the character of the relationship where there is no written contract, or the contract is only partially in writing.

If you would like to discuss this further and the implications for your business, please contact our Employment + Workplace Relations Partner, Erin Lynch or Lawyer, Rocío Jamardo Paradela.

The contents of this publication do not constitute legal advice and are for general information purposes only. You should seek legal advice regarding your particular circumstances.