As the Dust Begins to Settle on the Employee/ Independent Contractor Dichotomy

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Six months on from the High Court’s decisions in Personnel Contracting[i] and Jamsek,[ii] the dust is beginning to settle and we’re getting a clearer look at how those decisions may be affecting the labour hire landscape. In that time, I’ve seen many things written about the High Court’s new approach to determining whether a work relationship is one of employment or independent contracting. But one of the clearest and most helpful explanations of the new approach that I’ve seen so far, comes from the recent Federal Court decision in JMC Pty Limited v Commissioner of Taxation.[iii]

Background

The case concerned JMC’s liability as an employer to pay superannuation to a worker whom it engaged to provide it with “teaching services”. Those teaching services comprised delivering lectures to JMC’s students at its Melbourne campus and marking student examinations or assignments.[iv] JMC contended that the worker was an independent contractor and that it was therefore  not required to make superannuation contributions on his behalf.  The Commissioner for Taxation disagreed.

Six Key Principles

In the course of holding that the worker was an employee, Wigney J outlined six key principles that can be extracted from Personnel Contracting; Jamsek and related cases. I’ve set them out in “digest” form below, without their references and additional elaboration.

The decision from paragraphs [16] to [27] is worth reading in full. It should only take you about five to ten minutes. But if you’re pressed for time, here are the six key principles in digest form:

  1. Where the rights and duties of the parties are comprehensively committed to a written contract, the legal rights and obligations established by the contract are decisive of the character of the relationship provided that the validity of the contract has not been challenged as a sham, or that the terms of the contract have not been varied, waived or are subject to an estoppel.
  2. In order to ascertain the relevant legal rights and obligations, the contract of employment must be construed in accordance with the established principles of contractual interpretation. …regard may be had to the circumstances surrounding the making of the contract, as well as to events and circumstances external to the contract which are objective, known to the parties at the time of contracting and which assist in identifying the purpose or object of the contract. 
  3. …the characterisation of the relationship between the parties is not affected by circumstances, facts or occurrences arising between the parties that have no bearing on their legal rights.
  4. The contractual provisions that may be relevant in determining the nature of the relationship include, but are not limited to, those that deal with the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax, the delegation of work and the right to exercise direction and control.
  5. Characterisation of the relationship …, often hinges on two considerations. The first consideration is the extent to which the putative employer has the right to control how, where and when the putative employee performs the work. The second is the extent to which the putative employee can be seen to work in his or her own business, as distinct from the business of the putative employer. Neither of those considerations are determinative and both involve questions of degree
  6. A “label” which the parties may have chosen to describe their relationship is not determinative of the nature of the relationship and will rarely assist the court in characterising the relationship by reference to the contractual rights and duties of the parties. The characterisation of a relationship…, is ultimately an evaluative judgment that takes into account the totality of the parties’ contractual rights and obligations.
My emphasis

A common mistake

One common mistake that I’ve observed, both in commentary about the High Court’s new approach and in attempts to apply it in drafting contracts, is that there is often a failure to distinguish between what the contract says, on the one hand; and the legal rights and obligations that it creates, on the other.

So, you get the situation where employers are still going to great lengths to include and rely on acknowledgements that the relationship is one of independent contract.

Then they say something like: “Well, the High Court decided that you can only look at what the contract says. And look, see, it says right here that our relationship is one of independent contract. So, it can’t be anything else.”

They’re entirely wrong, of course. What they’ve missed is that the High Court was really saying that you look to contract to find “the totality of the parties’ rights and obligations”, and proceed from there.  Look, again, at points 1, 2, 4, 5 and 6 of the principles summarised so comprehensively by Wigney J in JMC.

Don’t confuse mere acknowledgments with legal rights or obligations. You can acknowledge, in your contract if you want to, that the world is flat, or that a duck is a rooster; but it doesn’t make it so. Neither does it give you the legal right to make it so; or to oblige someone else to make it so for you.

Some emerging issues

There are also several emerging issues that it may be important to note in labour hire arrangements that do not conform to the traditional tripartite model.

Loose and uncertain arrangements

Personnel Contracting and Jamsek apply in cases where the parties’ rights and obligations are “comprehensively committed to a written contract”.  But in cases where there is some uncertainty or looseness in the arrangement, the courts may still undertake a more wide-ranging examination of the totality of the relationship.

At least, that was the view of the Fair Work Commission in Waring v Hage Retail,[v] where the specific terms under which the work was to be performed were found not to be the subject of any express agreement, oral or written arrangements between the parties;[vi] and their arrangements, whatever they were, were described as “vague, opaque and amorphous”.[vii]

The issue should not arise where carefully drafted contracts that are used in traditional labour hire tri-partite settings. However, it may crop up in non-standard arrangements involving additional parties as supply or payment intermediaries, including where payroll services providers are appointed as employer-of-record, or where “pyramid” or tiered supply arrangements are used – especially if the written contracts used to support those arrangements are misaligned.

Where arrangement not contractual; or alternatives not limited to employment and independent contracting  

Personnel Contracting and Jamsek both “start from the position that there is a contract between the worker and the organisation”.[viii] However that may not be so in all cases.

For example, various unpaid work trial, work experience, internship and volunteer arrangements might not be underpinned by an identifiable “work contract”. In those cases, it may be difficult to identify what the terms of the arrangement were, and a court or commission might still embark on a wider inquiry.  

That is what happened in the Victorian Supreme Court case of O’Connor v Comensoli, where a question arose concerning the vicarious liability of the Catholic Archdiocese of Melbourne for alleged conduct of one of its priests.

After observing that the relationship between the Archdiocese and its priests is not contractual and that the employee/ independent contractor dichotomy, which permits only two alternatives neither of which applied in the circumstances of the case, Keogh J held that High Court’s decision in Personnel Contracting did not authoritatively dispose of the vicarious liability issue.[ix]

The case highlights that there may still be situations that were not addressed by the High Court’s new approach and that parties will need to be on their guard to identify situations in which that approach will not apply.

In a labour hire setting, the issue could arise between a labour hire provider and its temps, noting that a person can still be a “worker” for a labour hire provider even in the absence of a contractual arrangement between them[x]  – especially where non-standard arrangements that involve additional parties as supply or payment intermediaries are used.

Parties to such arrangements will need to exercise special care to identify where the legal rights and obligations fall, how they control the provision of the worker’s labour, and who is responsible for them.

Employer identity question

Whilst Rossato,[xi]  Personnel Contracting, and Jamsek clarified the approach to determining employment status questions, they did not deal with the separate employer identity question – that is to say: who, amongst more than one contender, is the true employer.

In Spitfire Corporation[xii], the NSW Supreme Court carefully distinguished the High Court decisions, saying that they did not apply to a determination of the employer identity question, in the circumstances of that case.

Conclusion

Whilst the High Court’s decisions in Personnel Contracting and Jamsek have clarified the approach that the courts will adopt in classifying a work relationship as either employment or independent contracting, a number of issues regularly encountered in the labour hire setting were not addressed. Moreover, the approach can be difficult to apply for anyone who is not familiar with the categorisation of legal rights and obligations. Those difficulties can be exacerbated in cases where the parties’ arrangements are loose and uncertain, or where they are misaligned.

Labour hire providers and their intermediaries (as well as their advisors) will therefore need to exercise considerable care in applying the approach adopted by the High Court in Personnel Contracting and Jamsek and remain alert to identify those situations in which it might not apply at all.

Andrew C. Wood


[i] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 96 ALJR 89[2022] HCA 1.

[ii] ZG Operations Australia Pty Ltd v Jamsek (2022) 96 ALJR 144[2022] HCA 2.

[iii] JMC Pty Limited v Commissioner of Taxation [2022] FCA 750.

[iv] JMC v Commissioner for Taxation at para [1].

[v] Nicholas James Waring v Hage Retail Pty Ltd [2022] FWC 540 (23 March 2022).

[vi] Per Deputy President Anderson at para [76].

[vii] Per Deputy President Anderson at para [58].

[viii] As explained by Keogh J in O’Connor v Comensoli [2022] VSC 313 (10 June 2022) at para [327].

[ix] Per Keogh J at para [327].

[x] See for example, Labour Hire Licensing Act 2017 (Qld) s. 7(2)(b); Labour Hire Licensing Act 2018 (Vic) s. 9(3)(b), Labour Hire Licensing Act 2020 (ACT) s. 7(3)(b).

[xi] WorkPac Pty Ltd v Rossato (2021) 95 ALJR 681; [2021] HCA 23.

[xii] In the matter of Spitfire Corporation Limited (in liq.) and Aspirio Pty Ltd (in liq) [2022] NSWSC 340.

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