It’s all in what’s written: High Court lays down the law for the contractor/employee dichotomy
Following a detailed examination of the terms of the contract between the parties, which was wholly in writing, and a clarification of how Courts should approach these questions, the majority of the High Court of Australia found that the character of the contract between the parties was one of an employer and employee rather than one of a contractor and principal.
- Whether an individual engaged by a labour hire company ostensibly as an independent contractor, to work for third party companies, was in fact an employee of the labour hire company.
Mr McCourt arrived in Australia on a working holiday visa from the UK, where he had previously worked in hospitality and as a part-time bricklayer. He obtained a “white card” in Western Australia that enabled him to work on construction sites. He then contacted Personnel Contracting Pty Ltd t/as Construct (Construct), which described itself as a labour hire company, to express interest in obtaining work. During an interview Mr McCourt indicated that he was prepared to do any construction labouring that he was capable of and to work on weekends; that he had his own means of transport to get to jobs; that he was available to start work immediately; and that he had a hard hat, steel-capped boots and hi-vis clothing. Mr McCourt was then offered the position, where he was informed of the rate of pay and provided with documents to sign which included an Administrative Services Agreement (ASA) (which described Mr McCourt as a "self-employed contractor") and a "Contractor Safety Induction Manual" (Manual).
The ASA set out the main terms of agreement, supplemented by the Manual, which was found by the Full Court of the Federal Court of Australia (FCFCA) to be "contractual in nature". The ASA made separate provision for the rights and obligations of each party. Mr McCourt was then sent to work on two sites run by a company called Hanssen, on three separate occasions. Construct's relationship with Hanssen was governed by a "Labour Hire Agreement" (LHA). The LHA described Construct as "an administrative services agency, liaising between the client [ie, Hanssen] and self-employed contractors for the provision of labour by self-employed contractors to the client".
The decision at first instance and before the FCFCA
The CFMMEU and Mr McCourt commenced proceedings against Construct in the Federal Court of Australia (FCA), seeking compensation and penalties pursuant to the Fair Work Act 2009 (Cth). The claims were made on the basis that Construct had not paid Mr McCourt according to his entitlement, as an employee of Construct, to payment in accordance with the Building and Construction General On-site Award 2010.
The primary judge held that Mr McCourt was an independent contractor. An appeal to the FCFCA was dismissed. In deciding the application, both courts applied a "multifactorial" approach, by reference to the terms of the ASA and the work practices imposed by each of Construct and Hanssen, in order to ascertain the nature of Mr McCourt’s engagement. Tellingly, the FCFCA stated that it had reluctantly found that Mr McCourt was an independent contractor because it considered itself bound by an earlier decision of the Western Australian Industrial Appeals Court concerning a similar contract in the matter of Personnel Contracting Pty Ltd v Construction, Forestry, Mining and Energy Union of Workers (Personnel (No 1)) (2004) 141 IR 31. CFMMEU and Mr McCourt appealed to the High Court.
The decision of the High Court
The High Court, in a 6-1 majority, allowed the appeal.
The majority found that the reasoning in Personnel (No 1) was wrong, and that the multi-factorial test was not appropriate to determine whether a person is engaged as an independent contractor or an employee in circumstances where the contract is wholly in writing. In so doing the majority distinguished this case from the cases of Hollis v Vabu Pty Ltd (2001) 207 CLR 21 and Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 (which involved agreements that were either entirely verbal or partially in writing and partially verbal), while affirming the primacy of unambiguous terms of a contract and conventional rules of contractual interpretation in the employment law sphere.
In finding that Mr McCourt was an employee of Construct the majority stated that labels used in contracts (including the AMA) are not indicative of their true nature, and that it is for the Courts to determine the true character of a contract by reference to its particular terms. Under the ASA Construct had the right to determine who Mr McCourt would work for, and Mr McCourt promised Construct that he would co-operate in all respects in the supply of his labour to Hanssen. Mr McCourt was also entitled to be paid by Construct (and not Hanssen or some other third party) for the work he performed, at an hourly rate set by Construct. This right of control, and the ability to supply a compliant workforce, was a key asset of Construct's business as a labour‑hire agency; which led to the conclusion that their engagement with Mr McCourt was one of an employer and an employee rather than one of a contractor and principal.
Implications for you
This decision marks a further shift in jurisprudence in this area where the written terms of a contract, regardless of the surrounding circumstances or how the relationship changes over time, will be the primary determinant of how an employment or contracting relationship will be characterised. We also note the following take-aways:
- if independent contractors are engaged, it is important that there is a written contract that sets out the entirety of the agreement between the parties as unambiguously as possible
- if a written agreement setting out the terms of an independent contracting arrangement does not provide sufficient flexibility to the independent contractor to demonstrate that they are engaging in their own commercial enterprise, but rather are engaged at the exclusive direction and control of the principal, it may be found that the individual is in fact an employee
- consider reviewing all independent contracting arrangements currently in place in order to ensure that the true nature and character of the agreement is accurately reflected in the contract