On 9 February 2022, the High Court handed down two important decisions regarding the distinction between employees and contractors which represent a significant shift in the law.
The cases were ZG Operations Australia Pty Ltd v Jamsek and Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) v Personnel Contracting Pty Ltd.
In the case of ZG Operations, the Court held that two truck drivers who had worked for ZG Operations for 40 years were independent contractors and not employees.
The men were originally employees when they commenced working in 1977 before becoming delivery drivers in 1980. Then, in about 1985, ZG Operations told the men that they would only continue to engage their services if they purchased their own trucks and executed written agreements to transport goods exclusively for ZG – which they did. The men set up partnerships and largely conducted themselves as contractors. For example, when they made deliveries, they would invoice ZG for those services.
But in 2017 the agreements were terminated and the men commenced proceedings in the Federal Court claiming they were actually employees and accordingly were owed entitlements such as long service leave and annual leave.
The Federal Court last year held the “substance and reality” of the relationship between the drivers and ZG made the men employees. In other words, the Federal Court’s focus was on the “totality of the relationship”, rather than the terms of the written agreements, in deciding that the men were employees rather than contractors.
In allowing the appeal, the High Court rejected the Federal Court’s characterisation and instead placed an emphasis on the written words of the contract. It held that, notwithstanding their long period of exclusive service, their contracts clearly stated they were engaged as contractors, not employees.
In CFMMEU, the Court held that a young construction worker who had a contract with a labour hire company should have been characterised as an employee of the labour hire company rather than a contractor.
The Court found that the degree of control the labour hire company exerted over the worker was key. The company controlled who the man worked for and he had no scope to exercise any control over the work he did. Hence, his agreement was construed as a contract of service not a contract for services.
Both of the above cases emphasise the primacy of written contracts and the interpretation of contractual terms. Hitherto, the leading High Court authority was the 2001 case of Hollis v Vabu Pty Ltd. In that case, the Court held that it was the “totality of the relationship” between the parties beyond the terms of the written contract which must be considered.
In CFMMEU, the High Court observed that it was not inappropriate to consider the totality of the relationship, but that “the ultimate characterisation of a relationship…must be concerned with the rights and duties established by the parties’ contract.”
It is now clear that the High Court is saying that it is the contract which is most important, not the substance or totality of the relationship.
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