15 February 2022
Last week, the High Court delivered two decisions which revise the approach that’s been required to establish whether a worker is an independent contractor or an employee.
In Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and ZG Operations & Anor V Jamsek & Ors [2022] HCA 2 (Jamsek) the High Court has made clear that the terms of the written agreement between the parties will have primacy in establishing the legal character of the relationship.
If you’re a keen follower of the law, you’ll recall that application of a multi-factor test was previously the starting point in determining whether a worker was lawfully characterised as a contractor. Instead, the decisions mean that now, where parties have entered a valid, comprehensive written agreement, this contract will establish the ultimate characterisation of the rights and duties of the parties. Where there’s no dispute as to the terms of a comprehensive written contract, there’s no longer a need to delve into the “substance and reality” of the relationship via the multi-factor test.
For employers and principals engaging independent contractors, the practical steps that flow from these decisions are:
- Always confirm the engagement of an independent contractor in a written agreement which:
- clearly defines the nature of the agreement and the relationship intended between the parties;
- sets out the terms and conditions including payment, termination and the services to be provided;
- has involved consideration (at least) of clauses that impose obligations on a contractor with respect to confidential information, intellectual property and restraints of trade.
- Have your contractor templates reviewed by experts (say… us!) to ensure that they provide clarity of the kind the High Court has articulated will give the written contract primacy;
- Ensure your precedents for on-boarding are up to date and accurate; and
- Review each individual current engagement to ensure consistency with the High Court’s decisions.
There’s no doubt that the High Court’s decisions are significant and provide increased clarity and possibility for principals wishing to engage independent contractors, but the shift away from the multi-factor test isn’t absolute. For instance, a contract will not retain primacy if:
- the arrangement is a sham;
- there’s a legal impediment or there are legal impediments to the contractor agreement; or
- the agreement isn’t written and comprehensively clear as to the terms of the relationship.
It’s also worth noting that those who enforce pay roll tax, workers compensation and compulsory superannuation legislation will likely continue to look behind written agreements to the nature of the relationship when they’re tasked with establishing whether the parties fall within the scope of the legislation which it is their role to enforce.
We note that this summary is general in nature and is not designed to address the circumstances of any entity or individual. So, please don’t hesitate to contact us at Lacey & Co if you would like to discuss how these decisions impact your business!
