For a long time now, businesses have had to grapple with the complexities of correctly characterising workers as either employees or independent contractors to avoid falling foul of employment, taxation, workers’ compensation and superannuation laws.

In the past, this has required a consideration of the relationship as a whole, taking into account various indicators of each type of relationship (often referred to as the ‘multi-factorial test’ or ‘common law test’), with the terms of the contract being somewhat influential, but not conclusive, in making that determination.

However, in the wake of the successful High Court appeal in WorkPac v Rossato[1] where the High Court relied on the terms of the written contract when determining that Mr Rossato was a casual employee, the High Court has reconfirmed the primacy of the terms and conditions of the contract in determining the rights and obligations between the parties

In 2 cases, CFMMEU V Personnel Contracting[2] and ZG Operations Australia v Jamsek[3], decided on 9 February 2022, the High Court held that where the parties have comprehensively committed the terms of their relationship to a written contract, and there is no suggestion that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise is to be determined by reference to the rights and obligations of the parties under that contract.

Importantly, the Court held that absent a 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. This is a significant departure from the previously existing approach which required an expansive enquiry into the ‘substance and reality’ of the relationship.

In the Personnel Contracting case, the terms of the contract provided for a significant amount of control to be exercised by the putative employer and so the Court determined that the worker was an employee and not a contractor, despite being described as such in the contract.

In the Jamsek case, the terms of the contract clearly indicated an independent contracting relationship. In both cases, the Court determined that there was no need to delve into the day-to-day workings of the relationship.

But this doesn’t mean we can abandon the well-established ‘multi-factorial’ test. It means that now, even more than ever, it is crucial that the parties reduce their agreement to writing.  It also means that the terms of the written contract must address the various ‘contractor indicators’ to ensure that there is clarity between the parties as to their rights and obligations and that the terms of the contract do not inadvertently indicate an employment relationship instead (as occurred in the Personnel Contracting case).

It’s also important to note that there are statutory definitions of “worker” (including in the Work Health and Safety Act 2011 (WHS Act) and the Workers’ Compensation and Rehabilitation Act 2003) as well as an expanded definition of “employee” in the Superannuation Guarantee (Administration) Act 1992 which may well (and in the case of the WHS Act, definitely will) still cover contractors, regardless of what is in the terms of the contract. Therefore, it’s crucial that employers/principals seek advice before entering into such arrangements and that any existing arrangements be reviewed to ensure that they are not only documented, but documented correctly.

[1] [2021] HCA 23 (4 August 2021)

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

[3] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2

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