A British backpacker who worked for 25 percent less than what a regular employee would have earned by virtue of being employed as a contractor has scored a victory after the High Court ruled that he was in fact an employee and thus entitled to the wages and entitlements which are afforded to employees.

The High Court of Australia has held that Daniel McCourt was an employee of Perth-based building labour hire company Construct rather than an independent contractor whilst performing work on two construction sites operated by commercial and multi-residential builder Hanssen – a client of Construct.

The case is a victory for the Construction, Forestry, Mining, Maritime and Energy Union (CFMMEU), who teamed up with McCourt to take the case to court.

The union has long been concerned about companies engaging workers as contractors rather than employees to avoid paying minimum award wages and entitlements.

A 22-year-old at the time, McCourt was a British backpacker who travelled to Australia on a working-holiday visa.

Over two periods spanning from July 2016 until November of that year and from March to June 2017, he worked on two Hanssen sites -the Concerto project and the Aire project.

He was assigned to manual labour tasks such as taking out bins, cleaning workspace and moving material.

He was paid by the hour and given directions about what to do and how to do it.

The assignments were arranged under a labour hire arrangement which was organised by Construct as the labour hire company.

McCourt was engaged by (and paid by) Construct under an Administrative Services agreement, under which he was described as a ‘self-employed’ contractor.

Since he was not considered to be technically an employee, McCourt would not be entitled to legal protections in terms of minimum wages of construction workers under the Building and Construction General On-site Award 2010.

This was problematic as – according to the union – his pay worked out to be around 25 percent less compared with what he would receive under the Award.

The CFMEU and McCourt took the case to court, arguing that McCourt had in reality worked as an employee of the labour hire firm Construct.

They sought compensation and penalties under the Fair Work Act 2009.

In the Federal Court, the primary judge disagreed and found that on-balance, the arrangement between McCourt and labour hire firm Construct was a genuine contracting arrangement.

With other factors being ‘reasonably evenly balanced’ in determining whether or not McCourt was a contractor or an employee, the judge treated the description of McCourt as a contractor in the agreement as tipping the balance in favour of the former.

This decision was upheld by the full Federal Court on appeal, although the Court stressed that their decision had been given only on the basis of an earlier case which was considered to be materially identical and which had established a precedent to which the court had been bound.

Indeed, the court noted that several factors which would normally indicate that McCourt was an employee.

These included that he worked under the direction of Hanssen employees, performed mostly low-skilled labour, worked around 50 hours per week (and was unable to delegate the work), clocked on and off and filled in a timesheet, needed to inform the site manager if he was ill or running late and needed to put in a request with Hanssen in order to take leave.

However, the High Court overturned this and found that McCourt was in fact an employee.

It said that where parties have comprehensively outlined the terms of their relationship in a written contract, the characterisation of the relationship as either an employee or independent contractor should be determined by the rights and responsibilities of each party under the contract.

It pointed out that the contracted afforded Construct the right to determine who McCourt would work for and had seen McCourt promise Construct that he would co-operate in all respects in the supply of his labour to Hanssen.

Simply labelling him as a ‘contractor’ did not detract from the fact that the character of the relationship was one of employer and employee.

“Under the ASA, Construct had the right to determine for whom Mr McCourt would work, and Mr McCourt promised Construct that he would co-operate in all respects in the supply of his labour to Hanssen,” the court wrote in its summary of the judgement.

“In return, Mr McCourt was entitled to be paid by Construct for the work he performed. This right of control, and the ability to supply a compliant workforce, was the key asset of Construct’s business as a labour-hire agency. These rights and obligations constituted a relationship between Construct and Mr McCourt of employer and employee. That the parties chose the label “contractor” to describe Mr McCourt did not change the character of that relationship.”

The latest judgement represents a victory for the union in its efforts to combat sham contracting in construction.

Unlike genuine contracting arrangements, sham contracting involves the misclassification of workers as independent contractors when they should in fact be employees under the Fair Work Act.

Unions have long held concerns about such arrangements being used to avoid paying minimum wages or entitlements.

Legally speaking, there are no definitive rules which determine whether or not a worker is an employee under the Act or a genuine independent contractor.

However, guidance from the Fair Work Ombudsman lists several factors which may help to determine this. These include the intention of the parties to create either an employment or contracting arrangement, the ability or otherwise to delegate or subcontract work, the degree to which individual workers/their employer controls how their work is performed, the hours of work (set hours/flexible hours etc.), who provides the tools or equipment and the expectation or otherwise of ongoing work.

CFMEU National Secretary Dave Noonan welcomed the ruling.

“The High Court has today reaffirmed that workers have rights and entitlements that cannot be taken away by shady legal devices and dodgy employment contracts,” Noonan said.

“Labour hire companies who attempt to use legal trickery in employment contracts to undermine wages and conditions are on notice now that the High Court has exposed that trickery for what it is.”

“The WA Branch of the CFMEU had to pursue this matter all the way to the High Court of Australia to get the law to reflect the reality that if a worker is told where, when and what to do, then they are exactly what they appear to be – an employee.”

Noonan hit out at the Fair Work Commission, whom he said could have pursued a public prosecution but had left it up to the union to take the case to court.

He stressed the decision does not undermine legitimate subcontracting arrangements.

“Bosses who try to rip their employees off by mislabelling them as independent contractors are not engaged in inadvertent underpayment; they are operating a deliberate strategy across the industry to steal wages from workers,” he said.

“This decision is not a threat to legitimate sub-contractors or workers running their own small business. It is a repudiation of unscrupulous labour hire companies who seek to undercut their competitors through wage theft.”