Lavan Alert: If the contract says it should quack like a duck, it is a duck

On 9 February 2022, the High Court of Australia handed down two decisions concerning whether certain workers were correctly classified as employees or independent contractors in the matters of Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.

Both decisions concerned workers who had been engaged by their respective employers as contractors, but who claimed that they had been misclassified and were in fact, employees.  As a result, the workers sought payment for unpaid employment entitlements.

In Personnel Contracting, a worker had been engaged as a “self-employed contractor” but was contractually obliged to work as directed, with Personnel Contracting responsible for fixing the worker’s reward for his work, act as paymaster and terminate the engagement should he fail to comply with directions. 

The High Court said that “where the terms of the parties' relationship are comprehensively committed to a written contract, the validity of which is not challenged as a sham nor the terms of which otherwise varied, waived or the subject of an estoppel, there is no reason why the legal rights and obligations so established should not be decisive of the character of the relationship”.[1]

Based on the written contract, the High Court determined that the worker was in fact an employee.

In Jamsek, two workers had performed services for ZG Operations through partnership arrangements for over 31 years, purchasing and maintaining their own trucks in order to provide delivery services.

Based on the written contract between the partnerships and ZG Operations, the High Court decided that the workers’ relationship was that of an independent contractor.

Implications and practical tips

Despite the different outcomes, which arose as a result of the decisions turning on the particular facts, the High Court in both decisions based the outcome on the written contracts between the parties.  The Court has therefore determined that the written contracts are a decisive consideration in determining the legal character of the working relationship. 

This is a different approach from many past decisions where the emphasis has been on the various operational factors outside the written document.  In those decisions, the written contract has been only one of many factors taken into consideration.

Moving forward, the terms and conditions that are written into contracts setting out the nature of the arrangement and the intentions of the parties will be critical to determining whether a worker is being engaged as a contractor or as an employee. 

We recommend reviewing the written contracts for your independent contractors to ensure that your business’ intentions for the contracting relationship are clearly and correctly expressed in the contract.  Furthermore, you should ensure that your independent contractors’ actions in practice have not diverted significantly from the terms of the written contract, in order to avoid an argument that a variation to the written contract has been agreed by conduct and practice.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.

[1] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, 43.