The High Court has recently handed down two decisions which confirm that the written contract between parties is the primary means of determining their rights and obligations. This principle is particularly relevant when assessing whether the relationship between two parties constitutes one of employment, as examined in the cases below:
Construction, Forestry, Maritime, Mining And Energy Union & Anor v Personnel Contracting Pty Ltd  HCA 1
Mr McCourt was a British backpacker travelling to Australia on a working holiday visa. He sought work from Personnel Contracting, a labour-hire company trading as ‘Construct’. He was offered a role and signed an Administrative Services Agreement (‘ASA’) with Construct, in which he was described as a ‘self-employed contractor’. He was assigned to work on two construction sites run by Construct’s client, Hanssen, where he performed basic labouring tasks.
Lower Court Proceedings:
Mr McCourt commenced proceedings against Construct seeking compensation and penalties pursuant to the Fair Work Act 2009 (Cth). The primary judge held that Mr McCourt was an independent contractor and not an employee for the purposes of the Act. A subsequent appeal to the Full Court was also dismissed.
High Court Decision:
Mr McCourt then appealed the decision to the High Court, who held that he was in fact an employee of Construct. It confirmed that when characterising the relationship between the parties, the contractual terms of their agreement are key, and that the parties’ subsequent conduct is generally not relevant.
In applying this principle, the Court determined that the ASA established an employment relationship due to the following factors:
- Construct had the right to determine for whom Mr McCourt would work;
- Mr McCourt promised Construct that he would co-operate in all respects in the supply of his labour to Hannsen; and
- Mr McCourt was entitled to be paid by Construct for the work he performed.
These rights and obligations constituted an employment relationship between Construct and Mr McCourt of employer and employee, despite the fact that the parties chose the label ‘contractor’ to describe Mr McCourt.
ZG Operations & Anor V Jamsek & Ors  HCA 2
In this case, Mr Jamsek and Mr Whitby (‘the respondents’) were engaged as truck drivers by a business run by the second appellant (‘the company’). They were initially engaged as employees of the company and drove the company’s trucks. However, in 1985 or 1986, the company offered the respondents the opportunity to ‘become contractors’ and purchase their own trucks. The respondents agreed to the new arrangement and set up partnerships with their respective wives. Each partnership executed written contracts with the company for the provision of delivery services.
Lower Court Proceedings:
The respondents commenced proceedings in the Federal Court of Australia seeking declarations in respect of certain entitlements alleged to be owed to them as employees of the company, pursuant to the Fair Work Act 2009 (Cth), the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Long Service Leave Act 1955 (NSW). The primary judge concluded that the respondents were not employees, and instead were independent contractors. The Full Court overturned that decision and held that, having regard to the ‘substance and reality’ of the relationship, the respondents were employees.
High Court Decision:
ZG Operations appealed the decision to the High Court, who found that the respondents were not employees under the contracts. It applied the principle established in Personnel Contracting, and determined that the contracts did not establish an employment relationship due to the following factors:
- ZG Operations contracted with the partnerships, not the individual respondents;
- The partnerships invoiced the company for its delivery services on an hourly rate and was paid by the company for those services;
- The partnerships were to pay their own legal costs in relation to the vehicle;
- The partnerships were to obtain and maintain public liability and motor insurance policies over the vehicle; and
- The partnerships were free to work with other parties.
These two decisions reaffirm the importance of the written contract in determining the nature of the relationship between the parties. As such, they provide a timely reminder for businesses to review current arrangements with independent contractors, and ensure that any written agreements explicitly set out the nature of the relationship between the parties and their respective rights and obligations. A failure to do so may result in a business potentially owing various unintended entitlements to contractors, regardless of the fact that they are not employees.
Keystone Lawyers can assist with advising companies, contractors and employees with understanding their rights and obligations under contracts.