Employee v Contractor – Where are we now?

The difference between employees and contractors has been scrutinised and tested time and time again through the Fair Work Commission and the Courts. The determinative factors have evolved over time as the view once held by the Courts that the relationship was largely based on the conduct of the parties (employer and worker) has changed. The contract is key.

If you have researched the conundrum of “employer or contractor” recently, you may have discovered that the Fair Work Ombudsman and the Australian Taxation Office have published disclaimers on their information pages with respect to independent contractors. These disclaimers relate to a number of decisions handed down by the High Court of Australia on 9 February 2022 which deal with independent contracting relationships (see CFMEU v Personnel Contracting Pty Ltd & Jamsek v ZG Operation Australia Pty Ltd).

In its decision, the High Court said that the written contract alone determines the relationship between the employer and worker and not the parties’ post-contractual conduct. These decisions double-down on the approach the High Court took in its landmark decision in Workpac Pty Ltd v Rossato (Workpac), where the Court allowed the Appeal by ruling that the primary consideration in determining the relationship between employer and worker is by observing the express terms of the written employment contract. These decisions have reset previous case law that suggested the conduct of the parties following a written employment contract took precedence over any express terms. 

In the Workpac decision, the High Court rejected the approach taken by the Full Court noting that:

1. “while mutual undertakings may not always be express, where there are express terms of the contract between the parties, they must be given effect unless they are contrary to statute”;
2. “if the mutual undertakings are said to be implied in what has been agreed, they cannot be inconsistent with the express terms of the contract”; and
3. “if the mutual undertakings are to be inferred from conduct, then they may take effect as contractual variations”.

This was because “contracts, whether as originally agreed or as varied, create binding obligations that they constitute “firm advance commitments”.

In the decisions of Personnel Contracting and ZG Operation, the High Court focussed on the level of control exercised by the employer in respect of the express terms contained in the employment contracts. In effect, where the contract allows for freedom as to how, when and where the services are provided by the worker, the relationship is likely to represent that of an independent contractor. In contrast, an employment contract which provides the employer a right of control over the contractor, including when, where, how and for who the work is to be performed, the relationship is likely to be that of an employer-employee. It remains irrelevant whether the worker is described as a “contractor” and parties should observe the express terms of the written employment contract.

These decisions do not impact the Courts’ views on sham contracting, whereby an employer knowingly misrepresents a worker’s employment relationship as that of an independent contractor.

Whilst the former decision-making tools provided by the ATO and Fair Work Ombudsman may be useful, they should now be used in observance of the written employment contract terms and not the conduct of the parties. Further updates from the ATO and the Fair Work Ombudsman are anticipated before the end of year 2022.

If you are an employer, employee or independent contractor and you have any questions in relation to employment matters, please do not hesitate to contact our team at FC Lawyers.