Employee or Contractor?
While independent contractors are self-employed individuals or entities contracted by a company to perform work, employees are hired by a company to perform work. Put simply, independent contractors run their own business, and employees work in/are part of someone else’s business (for more information on the difference between independent contractors and employees, click here). Although the difference may seem straightforward, distinguishing between the two is complicated, and, as highlighted by some recent decisions in the High Court of Australia, merely labelling someone a ‘contractor’ may not be enough; they might still be entitled to employee benefits.
In this post, we summarise two key High Court decisions and address what these decisions might mean for your business.
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1
Mr McCourt, a 22-year-old British male, was in Australia on a working holiday visa. He sought work from a labour-hire company known as Construct and signed an Administrative Services Agreement in which he was referred to as a ‘self-employed contractor’. Mr McCourt began working for Hanssen, a client of Construct, with whom Mr McCourt had no contract, except for a Labour Hire Agreement between Construct and Hanssen. Mr McCourt was seeking compensation and penalties for not being paid what was owed to him under the Building and Construction General On-site Award, as an employee of Construct. This raised the question as to whether Mr McCourt was an employee of Construct or whether he was an independent contractor.
The High Court of Australia decided that the relationship between Mr McCourt and Construct was that of an employee and employer, despite him being labelled as a ‘contractor’. The main reasons for this decision were that:
- Mr McCourt was not carrying out any business of his own accord, he was serving in the business of Construct
- Construct was in control of Mr McCourt’s work; the Administrative Services Agreement outlined that Construct would determine who Mr McCourt could work for
- Mr McCourt had a right to be paid for the labour which he supplied
ZG Operations Australia Pty Ltd v Jamsek  HCA 2
Mr Jamsek and Mr Whitby were employed as truck drivers in a company, driving trucks supplied to them by the company. In 1985 or 1986, the company offered Mr Jamsek and Mr Whitby the opportunity to instead become independent contractors and purchase their own trucks from the company. They agreed, and each set up partnerships with their wives. Under this new arrangement, Mr Jamsek and Mr Whitby:
- Signed contracts with the company agreeing to provide delivery services
- Purchased trucks from the company
- Paid the maintenance and operational costs of the trucks
- Invoiced the company for delivery services
- Were paid by the company for their services
Mr Jamsek and Mr Whitby then commenced proceedings in the Federal Court of Australia seeking certain entitlements under the Fair Work Act 2009, Superannuation Guarantee Act 1992, and Long Service Leave Act 1955. Their claims were based on them being employed by the company.
On appeal in the High Court of Australia, it was decided that Mr Jamsek and Mr Whitby were not employed by the company, and instead were independent contractors contracted by the company to provide delivery services.
The Implications of These Decisions
Unlike the decision in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd, Mr Jamsek and Mr Whitby signed independent contractors’ agreements, and were not restricted in providing their delivery services to other companies, provided they were still able to fulfil their duties to the company. Additionally, Mr Jamsek and Mr Whitby were performing their duties as part of independent enterprises (the partnerships they established with their respective wives), unlike Mr McCourt, who was serving in the business of Construct.
These decisions highlight that the terms of a contract are more important than what the parties are labelled as within that contract. The High Court of Australia appears to focus on contractual interpretation to determine whether a person is an employee or contractor. For example, in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd, Mr McCourt was labelled as a contractor, however, the nature of the relationship outlined in their agreement was one of an employer and employee, rather than that of a contactor.
At Hazan Hollander, we can review your contracts, put contracts in place, and advise you on the legal implications of your contracts. To get in touch, you can call us in Melbourne on (03) 8538 1676, in Sydney on (02) 9233 4266, or alternatively, submit an online enquiry below