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Independent Contractor or Employee? High Court clarifies test

Employment Law

Earlier this month, the High Court handed down two decisions which clarified the test to determine whether a worker was an independent contractor or an employee and revised the approach to determining the relationship. These welcome decisions provide greater certainty for businesses’ relationships with their workers.

Prior to these decisions, and for about the last 30 years, Courts took a so called “multi-factorial” approach to determine whether a worker was an employer or independent contractors, including day to day realities of the relationship. Courts would look at a range of relevant factors such as taxation arrangements, the right to subcontract work, the supply of a uniform or tools, whether leave is permitted and the degree of control the business had over the worker’s hours, place of work and the way in which the work was performed.

In the cases of CFMMEU & Anor v Personnel Contracting Pty Ltd  [2022] HCA 1 and ZG Operations Australia Pty Ltd & Anor v Jamesek & Ors [2022] HCA 2 the Court had to decide whether workers were employees or contractors.

In both decisions, the Court looked at the legal rights and obligations between the parties in the contract itself rather than the conduct of the parties since the contract was formed. The contract will be the primary focus of determining the relationship, even if the contract itself is poorly drafted. The Court held, at [59], that in circumstances where the parties had “comprehensively committed the terms of their relationship to a written contract, any characterisation of the relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract”.Such a characterisation should be considered at the time the contract was formed. In most cases, a wide-ranging review of the history and conduct of the parties’ relationship and dealings since the contract was formed will be unnecessary and inappropriate. Instead, the totality of the relationship, which should be largely focused on questions of control, is to be considered by considering the terms of the contract.

Key Takeaway

Companies should review their current agreements with independent contractors to ensure the relationship is properly documented. In the absence of a such an agreement, businesses expose themselves to a finding that an employment relationship exists. It is now more important than ever to have a written independent contractors agreement.

If you require employment advice or assistance with your employment or contracting arrangements, please contact Victoria Quayle, employment solicitor.

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