High Court decision regarding change of status from employee to independent contractor High Court decision regarding change of status from employee to independent contractor

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High Court decision regarding change of status from employee to independent contractor

28 February 2022 | Employment and Safety

The High Court found that two individuals, who were initially employed by a company and then released to be engaged as independent contractors by the same company, were from the time of the new engagement independent contractors and not employees.

In Issue

  • Whether individuals whose employment was terminated, to be re-engaged as contractors, were in fact at all material times employees that should have been accruing associated benefits throughout their engagement.

The background

Between 1977 and 2017 Mr Jamsek and Mr Whitby (respondents) were engaged as truck drivers by a business run by the second appellant (the company). The respondents were initially engaged as employees of the company, and drove the company's trucks. However, in 1985 or 1986, the company offered the respondents the opportunity to "become contractors" and purchase their own trucks. The respondents agreed to the new arrangement, and set up partnerships with their respective wives. Each partnership executed written contracts with the company for the provision of delivery 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. Income from the work performed for the company was declared as partnership income for the purposes of income tax, and split between each respondent and his wife.

The decision in the Federal Court

The respondents commenced proceedings in the Federal Court of Australia seeking declarations in respect of certain entitlements alleged to be owed to them pursuant to the Fair Work Act 2009 (Cth) (FW Act), the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Long Service Leave Act 1955 (NSW). The respondents claimed to be owed those entitlements on the basis that they were employees of the company. The primary judge concluded that the respondents were not employees, and instead were independent contractors. The Full Court overturned that decision and held that, having regard to the "substance and reality" of the relationship, the respondents were employees.

The decision of the High Court

The High Court unanimously held that the respondents were not employees of the company. The majority affirmed the position they espoused in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel), that where parties have comprehensively committed the terms of their relationship to a written contract, 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 High Court again was critical of the use of the multifactorial approach to determining whether an individual (or individuals) are employees or independent contractors where the terms are set out in writing. It was found that after 1985 or 1986, the contracting parties were the partnerships and the company. The contracts between the partnerships and the company involved the provision by the partnerships of both the use of the trucks owned by the partnerships and the services of a driver to drive those trucks.

Implications for you

This case further highlights the importance the High Court has placed on the clear and unambiguous terms of written contracts in an employment / independent contractor context. A word of caution, however, is that the change in the terms of the engagement in this matter occurred between 1985 and 1986. In the present day, if an employer dismisses an employee to re-engage them as an independent contractor, that employer may be at risk of breaching the general protections provisions of the FW Act. It may also be prudent that all independent contracting arrangements and standard form contracts be reviewed in order to ensure that they properly reflect the terms of the arrangement.


ZG OPERATIONS AUSTRALIA PTY LTD v JAMSEK [2022] HCA 2

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Tinashe Makamure

Tinashe Makamure

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