It’s the Contract!!! High Court states employment relationships are based on contract, not friendship.
On 9 February 2022, the High Court of Australia handed down two landmark decisions which have confirmed the importance of the written contract when ascertaining whether an individual is an employee or a contractor.
Whilst the High Court reached two different outcomes in the matters of CFMEU & Anor v. Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel Contracting”) and ZG Operations Australia Pty Ltd & Anor v. Jamsek & Ors [2022] HCA 2 (“Jamsek”), the reasoning in both decisions was consistent in that it affirmed the primacy of contractual terms in determining worker classification. The Court held that:
“Not only is there no reason why, subject to statutory provisions or awards, established legal rights and obligations in a contract that is entirely in writing should not exclusively determine the relationship between the parties but there is every reason why they should. The “only kinds of rights with which courts of justice are concerned are legal rights”. The employment relationship with which the common law is concerned must be a legal relationship. It is not a social or psychological concept like friendship[1].”
In other words, where the parties have comprehensively committed to the terms of a written contract, which is not challenged on the basis of it being a sham or ineffective, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that written contract[2].
What does this mean?
The decisions confirm that a greater emphasis will be placed on the contractual terms between the parties. The Courts will only review the analysis of work practices to the extent that the contract between the parties is not clear or ineffective, the parties do not act in accordance with the terms of the contract or the contract appears to be a sham.
What should you do?
A failure to correctly identify the individual engaged by your business can result in your business being hit with an underpayment claim as well as penalties.
We recommend that you:
- ensure that all persons engaged by your business are subject to a written contract;
- conduct an audit of your current contracts to ensure that they reflect the true arrangement of your engagement and are not simply a label;
- ensure that any variation to your contracts is clearly documented;
- ensure that your independent contractor contracts are properly drafted in a way that correctly reflects the relationship, legal rights and obligations to ensure the contractor arrangement is upheld.
Please do not hesitate to contact our employment team (Simon Abraham, Amy La Verde) if your business needs further guidance or support in relation to your independent contractor or employment written contracts.
[1] CFMEU v Personnel Contracting Pty Ltd [2022] HCA 1 [45]
[2] CFMEU v Personnel Contracting Pty Ltd [2022] HCA 1 [44]
