Employee or independent contractor? Just because it’s labelled such doesn’t mean it is

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By Michael Down, Partner and Casey Thomas, Lawyer

The High Court decision in Con­struc­tion, Forestry, Mar­itime, Min­ing and Ener­gy Union & Anor v Per­son­nel Con­tract­ing Pty Ltd [2022] HCA 1 found that, when determining whether someone is a contractor or employee, the rights and obligations of the parties to the contract will be determinative, regardless of how the parties conducted themselves and regardless of whether the contract described them as an employee or contractor.

Earlier this year the High Court of Australia handed down its decision in Con­struc­tion, Forestry, Mar­itime, Min­ing and Ener­gy Union & Anor v Per­son­nel Con­tract­ing Pty Ltd [2022] HCA 1. The case concerned Mr McCourt, a 22 year old English backpacker with limited work experience who arrived in Australia and presented to the Respondent, Personnel Contracting Pty Ltd trading as “Construct”, a labour-hire company who worked within the construction industry.

The CFMEU brought proceedings against Construct under the Fair Work Act 2009 (Cth) for not having paid the correct penalties and entitlements under the relevant Award, and the CFMEU instructed Mr McCourt to not return to work. Mr McCourt had been working at various projects run by a construction company, Hanssen Pty Ltd, the employees of which would give Mr McCourt directions as to specific tasks and oversee his work. It was necessary for the proceedings brought by the CFMEU to establish whether Mr McCourt was an employee of Construct or a “self-employed contractor”, which was the term used in the Administrative Services Agreement (ASA) entered into between himself and Construct.

The ASA described Construct as merely an administrative services agency which undertook to keep informed of opportunities in the building industry so contractors could supply labour to builders identified by Construct. In determining the crucial question of whether Mr McCourt was an employee of Construct, the Full Court of the Federal Court had previously had close regard to how those parties had characterised their relationship, because the multifactorial approach had resulted in conflicting conclusions. The High Court held that considering the validity of the ASA was not questioned and it had not been varied by conduct, a detailed examination of the parties’ behaviour and how they went about discharging their obligations after the execution of the ASA was unwarranted.

The High Court found where parties have comprehensively committed their relationship to a written contract, the validity of which is not questioned, no doubt the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations outlined in the contract. Therefore, there is no reason to determine the nature of their relationship with reference to a broad review of their dealings.

Importantly, while the Court is to look to the wording of the contract (in this instance, the ASA), this does not restrict the Court to accepting the “label” which the parties used to describe their relationship. Naturally it is for the Court to determine the character of the relationship after examining the rights and obligations which arise from the contract. It was therefore of little consequence the ASA described Mr McCourt as a contractor. It was abundantly clear the effect of the ASA was that Mr McCourt was engaged by Construct to serve in its business. The Court held Mr McCourt was an employee of Construct, and the matter was remitted to the primary judge for determination.

This reasoning has already been drawn on by the High Court in another matter, namely Zg Operations & Anor v Jamsek & Ors [2022] HCA 2. In these proceedings the Court unanimously found two truck drivers were not employees, as the characterisation of their relationship must proceed by reference to the rights and obligations of the parties to the contract. In this case, the contracting parties to the contract were the company and two partnerships, not the individual truck drivers. The broader context in which the contract was entered into (i.e. the company’s refusal to employ the truck drivers as it had done previously) was found to be largely irrelevant, and the relationship was not one of employment.

Accurately characterising the nature of a contractual relationship is crucial in the insurance space as it has flow-on effects for liability, as an employer will be vicariously liable for one’s conduct if they are found to be an employee rather than a contractor. Even if an insured’s relationship with the employee/contractor is clear cut, the apportionment of liability will necessitate an examination of the other parties’ relationships.

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