Rules of Engagement – the High Court on independent contractors
As a result of the High Court’s recent decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1 and ZG Operations Australia Pty Ltd v Jamsek  HCA 2, Courts and Commissions called upon to decide whether an individual is an employee or an independent contractor will now have to focus their attention upon the terms of the contract agreed between the parties, whether written or oral, as opposed to the conduct of the parties after entering into the contract.
Up until now, the Courts have usually applied the ‘multifactorial’ test in determining the status of an individual worker. That involved not just looking at the contract, but also the conduct of the parties during the working relationship. The Court in Personnel Contracting criticised this test as being ‘amorphous’ in its application and ‘necessarily impressionistic’, creating uncertainty for both the parties and the Courts.
The Court stated the ‘own business/employer’s business’ test usefully focuses its attention upon those aspects of the relationship generally defined by the contract and bear more directly upon the ultimate question posed by this test, that is, whether the employee’s work was so subordinate to the employer’s business that it can be seen to have performed as an employee of that business, rather than as part of an independent enterprise.
It’s all about the contract
In terms of the importance of focusing on the terms of the contract rather the subsequent conduct of the parties, the Court relied on the decision of Narich Pty Ltd v Commissioner of Payroll Tax  2 NSWLR 597 at 600‑601, where it was said:
‘Where there is a written contract between the parties whose relationship is in issue, a Court is confined, in determining the nature of that relationship, to a consideration of the terms, express or implied, of that contract in light of the circumstances surrounding the making of it; and it is not entitled to consider also the manner in which the parties subsequently acted in pursuance of such contract’
Reformulated these principles, the Court stated:
‘In cases such as the present, where the terms of the parties’ relationship are comprehensively committed to a written contract, the validity of which is not challenged as a sham nor the terms of which otherwise varied, waived or the subject of an estoppel, there is no reason why the legal rights and obligations so established should not be decisive of the character of the relationship.’
Importantly, however, the label that the parties attach to the relationship in the contract is not of assistance in determining the nature of the relationship as that is the Court’s task.
Generally, the task of Courts and Commissions in the future in this context will therefore be to consider the various indicators of employment identified by previous authorities with regard to the rights and duties established by the parties’ contract, and not instead as to how the relationship played out on a day to day basis in other respects. Those indicators have extended to matters such as mode of remuneration, the provision of equipment, the delegation of work and the right to exercise direction and control. A wide-ranging review of history of the parties dealings will no longer be required, where no party seeks to challenge the validity of the contract.
In Personnel Contracting, the Court found that a construction worker engaged by a labour hire company granted significant control to the labour hire company in his contract of his engagement, which resulted in a finding the worker was an employee .
In Jamsek, the Court applied the principles of Personnel Contracting to hold that truck drivers who supplied their own trucks were not employees because the drivers contracted through partnerships set up with their wives. The services provided by the partnerships involved the truck driving skills of the drivers and the use of the trucks owned by the partnerships. The provision of such services was held to be consistent with the characteristics of independent contractors and not employees.
The drafting of independent contractor agreements is now more important than ever in ensuring that the relationship is characterised as one of principal and independent contractor, rather than employment. The terms of those contracts should reflect the intention of the parties, contain indicators of independent contractor arrangements and be in writing. The cases are a welcome development for employers because they will provide more certainty for businesses seeking to engage independent contractors.