The High Court decides whether you are an employee or an independent contractor
This week the High Court handed down two important decisions regarding employment contracts which will have big implications for workers.
These decisions clarify a contested area of common law.
So what’s up?
The High Court ruled on two cases this week.
Let’s take a quick look at the two cases, then see what the rulings mean.
The first case: two truck drivers
The first case, ZG Operations Australia Pty Ltd v Jamsekinvolved two truck drivers.
Between 1977 and 2017, the men were hired as truck drivers for the same company.
During these 40 years, the company went through various restructurings and changes of ownership, but its final name was ZG Lighting.
Both men started working for the company as employees in 1977, and became delivery drivers in 1980.
However, around 1985 or 1986, the company said it would no longer employ them and would continue to use their services only if they purchased their trucks from the company and entered into contracts to transport goods for the business.
The two men accepted and they established partnerships with their wives. They used their partnerships to buy the company’s trucks and they signed written agreements with the company for the provision of services.
From then on, the two men make deliveries, at the request of the company, and their partners invoice the company for the delivery of the services provided.
They only delivered goods for this company. They had no other customers.
Over the years, the agreements have been updated from time to time to take into account increased expenses and the cost of living.
But, in 2017, the agreements between the two partnerships and the company were terminated.
The two men then began proceedings before the Federal Court to claim rights that would be due to them as employees of the company.
The court was given more details about the men’s working relationship with the company.
They worked more or less regular hours for the company, arriving at the warehouse between 6 a.m. and 7 a.m. and finishing deliveries around 3 p.m.
On several occasions, the company asked the men to put tarps bearing the company logo on their trucks.
At various times, the men were given uniforms bearing the company logo, although they were not told to wear a uniform.
The men were also sometimes asked to perform tasks beyond their basic delivery duties, such as cleaning behind the warehouse.
So what happened in court this week?
The High Court ruled that, despite these details of an ongoing regular relationship with the company over many decades, the men were engaged as contractors for the company, not as employees.
The court recognized the reality of the difference in bargaining power between business and men.
However, he emphasized the written terms of the contracts the men had signed with the company, rather than the “substance and reality” of their daily work routine.
He noted that the drivers could have performed delivery services for other customers if they wished, as there were no restrictions in the contracts preventing them from serving other customers outside of the hours they were hired to work. for the company.
It was a win for ZG Operations Australia Pty Ltd.
Second case: a construction worker
The second case, Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltdinvolved a 22-year-old British backpacker.
He had traveled to Australia on a working holiday visa.
In 2016, looking for a source of income, and with limited professional experience as a part-time mason and in the hotel industry, he obtained a “carte blanche”, which allowed him to work on construction sites.
He contacted a labor hire company in Perth, calling himself Construct, and told the company in an interview that he had a helmet, steel cap boots and clothing high visibility, which he had bought for less than $100 in hopes of finding work in the construction industry.
He was offered a role and some papers to sign. Among the documents he signed was an administrative services agreement, which described him as an “independent contractor”.
The next day, Construct contacted him and offered to work on a construction site for a major client, Hanssen (a builder of high-rise residential apartments and offices), for the following day.
When he arrived at Hanssen’s site, he was told he would be supervised, primarily by a leader employed by Hanssen.
He worked on the site between three and four months, from July to November.
His basic work duties included emptying trash cans, cleaning workspaces and moving materials. He was paid by the hour and when he was at work he was told what to do and how to do it.
In November 2016, he completed work on the Hanssen site and left Perth.
However, he returned again in March 2017 and that same month resumed work on the Hanssen project.
Then, in June 2017, he started working on another Hanssen project, doing virtually identical work.
However, four days later, he was told that he should not continue working on this second Hanssen project.
Subsequently, he received no more work from Construct.
Eventually, the young man and the Construction, Forestry, Marine, Mining and Energy Union (CFMMEU) filed a lawsuit against Construct, seeking compensation orders and penalties.
Their claims were made on the grounds that Construct had failed to pay the man what he was entitled to, as an employee of Construct, under the General Building and Construction Site Ruling 2010.
The crucial question in the legal proceedings was whether the man was a employee of Construct, rather than a contractor.
This week the High Court ruled that the man was employee by Build.
She pointed to the fact that, under the contract, Construct had the right to control who the man worked for and that once the man was assigned to a client (i.e. Hanssen), he had to do what the client told him to do.
He just wasn’t allowed to do otherwise.
The judge said that the marketability of Construct’s services as a labor leasing agency depended on its ability to provide conforming labor and, without that bid, the labor would be of no use to Construct customers.
This judge concluded that the right of control was a key asset of Construct’s business and that the young man had no right to exercise control over the work he had to do and how that work had to be done. carried out.
And that being the case, the man’s relationship with Construct has been characterized as a contract of service rather than contract for services.
Therefore, the man belonged to Construct employee, not a contractor.
What is the opinion of the experts?
The two judgments of the High Court are significant because they underline the importance of written contracts.
Andrew Stewart, law professor at the University of Adelaide, said that reasoning in both cases was particularly important.
He said the reasoning places a heavy emphasis on the wording of the contracts themselves.
“If you have agreed to perform work based on a complete set of written terms, those terms will be the basis for determining whether or not you are an employee or independent contractor, not the reality of your work arrangements,” he said.
“It’s a big change.”
Why is this a big change? Because the last time the High Court considered this issue was in 2001, in Hollis v Vabu Pty Ltd and since then has developed the practice of courts insisting on the need to look beyond the contract and to examine how a working arrangement actually works.
Professor Stewart said the High Court said that was wrong. If you have a written contract, the contract is what counts.
It had become a contested area of common law and the High Court cleaned it up.
“It’s basically giving companies the green light to source from contractors rather than employees, with a much lower level of risk than there was before. [these rulings],” he said.
“It’s adopting a very formalistic vision. It’s adopting a vision [that] is very pro-business in its general implications.”
What is the business community saying?
The Australian Industry Group welcomed the decisions.
Innes Willox, chief executive of Ai Group, said this means that common law tests which distinguish between an employee and an independent contractor remain appropriate in Australia.
He said the rulings provided more certainty for businesses.
Regarding the case of the two lorry drivers, he said the decision would in particular provide more certainty for companies which have been faced with an increase in arguments that people who have been hired as independent contractors have misclassified and are entitled to employee benefits. as employees.
“The High Court’s decision is sensible, practical and fair,” he said.
“Applying the same principle, the High Court – in a separate decision – determined that a young backpacker hired by a labor hire company to work as a laborer on construction sites was not a genuine contractor independent.
“The Court held that the company exercised a very high degree of control over the worker’s work and therefore the worker was not a true independent contractor.
“The High Court decisions highlight the feasibility and appropriateness of common law tests which distinguish between an employee and an independent contractor,” Mr Willox said.