2022 has seen a major change in the legal landscape relating to gig economy workers.
Two major High Court cases, namely Personnel Contracting and Jamsek have established new principles in differentiating between an ‘employee’ and an ‘independent contractor’.
While the earlier stand was to focus on the actual everyday working arrangements between parties (the multi-factorial test), the present stand attaches greater importance to the wordings of the contract of arrangement between the parties.
The multi-factorial test involved questions of control such as who gave the directions to work, who paid the taxes and superannuation, who provided the tools and machinery for work, whether the worker had an Australian Business Number, whether the worker worked elsewhere or solely for a particular company, and the like.
In the latest judgements, the Courts have taken the focus away from the multi-factorial test to reduce ambiguity and to ensure more uniform outcomes in cases involving questions relating to the nature of a working relationship.
Why Does This Matter?
The question of whether or not a worker is a contractor or an employee is critically important.
An employee works in your business and is part of your business. A contractor may perform work for your business but is running their own business.
It is important that those who work for you are correctly classified as either a contractor or an employee. Unlike contractors, employees have a range of entitlements under the Fair Work Act and other legislation. This includes paid sick leave, paid annual leave, paid long-service leave, paid employer superannuation contributions and protections against unfair dismissal.
Penalties apply where those who are in fact employees are in misclassified as contractors.
It should be noted that a worker is not necessarily a contractor by simple virtue of the agreement stating that they are a contractor or by them having an ABN. Rather, courts look to the substance of the arrangement. If the substance of the arrangement is in fact similar to that which would normally be expected of an employer/employee relationship, then the person will be held to be an employee irrespective of the contract stating otherwise. On the other hand, if the nature of the arrangement is similar to that which would be expected in a genuine independent contracting relationship, the worker will likely be considered to be a contractor.
Recent High Court Cases
The Personnel Contracting case involved an agreement between a British backpacker who was on a Working Holiday Visa in Australia and Personnel Contracting in which he was referred to as a ‘self-employed contractor’. There were some terms which did not match an independent contractor arrangement. These related to the level of control that Personnel Contracting had on the worker (or lack thereof). However, the High Court held that in fact the man was an employee despite being labeled a ‘self-employed contractor’. This was based on the fact that the contract entered into between him and the company required the worker to follow the company’s and the company’s client’s instructions in carrying out work rather than exercising his own judgement. In making this determination, the Court placed emphasis upon what was agreed between the parties in the written contract.
By contrast, in Jamsek, the Court held that two truck drivers were independent contractors rather than employees. The scenario involved two truck drivers who were initially employed by a company. A few years later, both set up their respective partnerships and entered into a different working arrangement with the company as independent contractors. The new contracts set out the rights and obligations of the drivers vis-à-vis the company and required the drivers to purchase and maintain trucks, invoice the company for services rendered and other clauses which pointed towards a working arrangement which enabled the drivers to have more control over the work which they carried out. When the matter came up for hearing, the Court adopted a similar approach taken in Personnel Contracting and placed strong emphasis upon the contractual clauses agreed between the drivers and the company. Accordingly, they concluded that the drivers are independent contractors and not employees of the company.
What is important to note here is that the Court honored the terms of the agreement between the parties in both cases instead of looking at the subsequent conduct of parties in a working arrangement. In line with another significant judgement of the High Court in Rossato where the Court upheld the supremacy of the written terms of the contract between parties, the Court laid down in Personnel Contracting and Jamsek that one has to look beyond the label given to a worker, as a ‘contractor’ or ‘employee’ and place more importance on the contractual terms.
Latest Developments in Australia
The most recent development in this regard was a Full Bench of the Fair Works Commission (FWC) overturning an earlier decision holding a Deliveroo driver to be an employee. On the 17th of August 2022, in Deliveroo Australia Pty Ltd v Diego Franco, the FWC applied the law laid down by the High Court in Personnel Contracting and Jamsek and categorized Diego Franco as an independent contractor. The terms of the contract between Diego and Deliveroo were looked into and the FWC noted that Diego had control over the mode of delivery of service, delegation of the work, maintenance of the vehicle used for rendering the service and other similar terms which pointed to the fact that Diego carried out the work as a contractor.
What Can Companies Do To Prevent Unnecessary Litigation?
For employers, it is important to ensure that workers are correctly classified as employees as mentioned above.
Failure to do this could result in litigation, penalties and the need to repay potentially millions of dollars in overdue entitlements if the court finds that one or more workers who have been classified as contractors are in fact employees at law.
In doing this, the most important thing is to ensure that working arrangements are recorded and documented in written contracts. These must be carefully drafted and must capture the actual relationship between the parties. Contractual terms should be carefully worded and the rights and obligations laid down in the contract must be consistent with the title given to the worker. For example, if a worker is referred to as a ‘contractor’, but he/she follows a roster prepared by the company or works under the direct supervision and as per the directions of the company, the Court would most likely look beyond the title and hold the worker to be an employee of the company.
Companies should also review their existing contracts with independent contractors to check if the contractual terms reflect the intention of the parties with respect to their working arrangements. Any inconsistencies should be rectified through careful drafting. Companies could consider getting a qualified lawyer to draft an independent contractor agreement template which they can use to engage contractors in the future.
Contrasting the UK and Australian Approaches
The United Kingdom Supreme Court ruled in 2021 that some Uber drivers were entitled to employee benefits such as paid holidays, minimum wages and rest breaks. The most crucial aspect of the ruling is that the Court considered the actual arrangements in the workplace to be more important than the written words in the contract of engagement. On 26th July 2022, the UK Government published a new guidance which details the employment status of workers and categorizes employment into employees, workers or self-employed on the basis of the level of control exercised by the company.
The Way Forward for Australia
It would be a great step forward if the Australian Parliament brings forth comprehensive guidance codifying the present legal landscape relating to employment rights with specific regard to the ‘employee’ or ‘independent contractor’ question. Considering the law as it stands after the High Court decisions in Personnel Contracting and Jamsek, there are calls for better protections being afforded to gig economy workers who will, in many instances in the future, be categorized as independent contractors due to prudently drafted contracts.
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