On 9 February 2022, the High Court again confirmed the primacy of contractual terms when it handed down its decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1 and ZG Operations Australia Pty Ltd v Jamsek  HCA 2.
CFMMEU v Personnel Contracting
Mr McCourt, a 22 year old British backpacker on a working holiday visa, entered into an Administrative Services Agreement (‘ASA’) with Personnel Contracting Pty Ltd (‘Personnel Contracting’), a Perth-based labour hire company. The ASA entered into between the parties provided for Mr McCourt as a “self-employed contractor”.
Following the execution of the ASA, Personnel Contracting assigned Mr McCourt to multiple construction sites run by a client of Personnel Contraction, Hanssen Pty Ltd (‘Hanssen’).
There was no contract between Mr McCourt and Hanssen.
Mr McCourt worked on Hanssen projects during July 2016 – November 2016 and March 2017 – June 2017. However, on 30 June 2017, Personnel Contracting instructed Mr McCourt to cease work on the Hanssen projects.
No further work was provided by Personnel Contracting to Mr McCourt.
Lower Court Proceedings
Mr McCourt (and the CFMMEU) commenced Federal Court proceedings against Personnel Contracting seeking compensation and penalties pursuant to the Fair Work Act 2009 (Cth) (‘the Act’).
Mr McCourt contested that he was an employee of Personnel Contracting for the purposes of the Act, however, the primary Federal Court judge, Justice O’Callaghan, held that Mr McCourt was an independent contractor.
Justice O’Callaghan’s decision was upheld on appeal in the Full Federal Court.
It was noted that the Full Federal Court’s decision was made on the basis that it was bound by the decision of the Western Australian Industrial Appeal Court in a nearly identical dispute 16 years earlier.
High Court Proceedings
The CFMMEU appealed the decision of the Full Federal Court to the High Court, where the decision was unanimously overturned and it was held that Mr McCourt was an employee of Personnel Contracting.
The High Court noted that the multifactorial test utilised by both the Federal Court and Full Federal Court to determine the character of the relationship was problematic, as it created considerable uncertainty for parties and for the courts, often resulting in inconsistent outcomes.
The High Court stated:
“Where parties have comprehensively committed the terms of their relationship to a written contract, which is not unchallenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the legal rights and obligations under that contract should be decisive of the character of the relationship.
In other words, the characterisation of a relationship will be determined by reference to the rights and obligations of the parties under that contract.
This does not extend to attaching a “label” to describe the relationship which is inconsistent with the rights and duties otherwise in the written agreement.
If there is no suggestion that the contract has been varied, or that there has been conduct giving rise to an estoppel or waiver, a wide-ranging review of the parties’ subsequent conduct is unnecessary and inappropriate.”
The High Court highlighted, that under the ASA:
- Mr McCourt was not carrying on a business on his own account
- Personnel Contracting retained a right of control over Mr McCourt
- Personnel Contracting was entitled to determine for whom Mr McCourt would work
- Mr McCourt was required to cooperate in the supply of his labour to any assigned client
- Mr McCourt was subject to the control of Personnel Contracting (and had no right to exercise any control over what work he was to perform and how to perform it)
- Mr McCourt was entitled to be paid by Personnel Contracting for the work performed
The High Court further explained that although the ASA labelled Mr McCourt as a “self-employed contractor”, it was not a determinative factor and did not change the character of the relationship established by the express terms of the ASA.
As such, the High Court overturned the decision of the Full Federal Court, concluding that Mr McCourt was an employee of Personnel Contracting.
ZG Operations Australia v Jamsek
Two truck drivers, Mr Jamsek and Mr Whitby (‘the Drivers’) were initially employed by ZG Operations Australia Pty Ltd (and its former entities) (‘ZG Operations’) to drive its trucks.
However, in or around 1985 or 1986, ZG Operations advised the Drivers that ZG Operations would only utilise their services if the Drivers purchased their own trucks and entered into contracts to transport goods for ZG Operations.
The Drivers were accepting of this proposal, purchasing their own trucks and setting up partnerships with their wives to enable the arrangement to proceed.
The Drivers (via the associated partnerships) subsequently entered into written agreements with ZG Operations for the provision of delivery services.
These agreements remained in place through to 20 January 2017, when the contracts were terminated by ZG Operations.
Lower Court Proceedings
The Drivers initiated proceedings in the Federal Court for statutory entitlements they claimed to be owed as employees under the Fair Work Act 2009 (Cth), the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Long Service Leave Act 1955 (NSW).
However, the primary Federal Court judge, Justice Thawley, concluded that, having regard to the totality of the parties’ relationship, the Drivers were not employees of ZG Operations.
The decision of Justice Thawley was subsequently overturned by the Full Federal Court, which held that the Drivers were in fact employees of ZG Operations.
In reaching its decision, the Full Federal Court paid particular attention to the conduct of the parties from 1986 onward, as well as the ‘totality of the relationship’ beyond the terms of the written agreements.
High Court Proceedings
The decision of the Full Federal Court was appealed in the High Court, where the matter was heard concurrently with CFMMEU v Personnel Contracting.
The High Court considered that, as the terms of the relationship had been set out in a contract and the validity of the contract had not been contested, the legal character of the relationship would be determined by reference to the contract into on or around 1985 or 1986.
In arriving at its decision, the High Court paid close attention to provisions set out in the contract, which noted that the Drivers would:
- Provide delivery services to ZG Operations using their own trucks;
- Pay the maintenance and operational costs of their trucks;
- Obtain and maintain the relevant insurance; and
- Invoice ZG Operations for their services.
By utilising the principles established in CFMMEU v Personnel Contracting (in conjunction with the findings set out above), the High Court overturned the Full Court’s decision, unanimously finding that the Drivers were, in actuality, independent contractors (via their respective partnerships).
What does this mean for businesses and organisations?
These two recent decisions of the High Court highlight the importance of written contracts which clearly set out the nature of a relationship, including the rights and obligations of each party.
Simply, stating that a contract is an ‘Employment Agreement’ or an ‘Independent Contractor Agreement’ does not automatically make it so. The rights and obligations specified within a contract must accurately reflect the nature of the desired relationship, be it employee or independent contractor.
Failure to appropriately classify a relationship within a contract may cause unforeseen liabilities, such as:
- Payroll Tax Liabilities;
- Compulsory Superannuation Liabilities; and
- Workers Compensation Insurance Claims.
Should you or your client have any specific queries in relation to the determination of an employee or independent contractor relationship, please feel free to contact our office for assistance.
About the author
Benjamin Mitchell is a Senior Insolvency Accountant at HLB Mann Judd Insolvency WA. Benjamin assists the Partners with the many Corporate and Personal insolvency appointments managed by the HLB Insolvency team.
If you have any queries about insolvency matters, please feel free to contact the team on 08 9215 7900.