In recent years, the question of whether a relationship was one of independent contractor or employment, had been relatively uncertain and, in many cases, litigious even where a written agreement between the parties had described it as an independent contractor relationship. This was because courts would adopt a ‘multi-factorial’ test of many factors to determine its view of the “true relationship”.
On 9 February 2022, the High Court of Australia (HCA) in two landmark decisions rejected the previous authorities for determining the contractor and employee dichotomy, and provided clarity on what constitutes an independent contractor at common law.
The HCA has given primacy to the written terms agreed between the parties.
HCA – contractual interpretation
The HCA rejected the multi-factor approach adopted in each case and instead focused on an interpretation of the relevant contracts in each case, determining that:
“where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract”.
A wide ranging review of the parties subsequent conduct was unnecessary if the comprehensive terms of the written agreement between them establish the nature of the relationship and they adhere to those terms. The mere existence of unequal bargaining power between the parties “[does] not alter the meaning and effect of the contract”.
In the Jamsek case, applying the contractual approach the HCA unanimously found the drivers were contractors, not employees. In Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  HCA 1 while adopting the contractual approach the majority of the HCA found that, in the circumstances, the backpacker was an employee, because his written contract gave the labour hire company, the right to decide who he could work for and he agreed to comply with that right and “this right of control” by the labour hire company constituted a relationship of employer and employee under a proper interpretation of the contract….
See also High Court clarifies test for determining employee or independent contractor in which Dan Williams, Samantha Betzien, Tom Molan and Adam Gleeson Jesse Evans also discuss HCA’s decisions. Dan, Samantha, tom and Adam write:
The High Court of Australia yesterday clarified that generally only the rights and duties provided under a contract must be considered to determine whether a person is an employee or independent contractor. We set out the details and implications of these timely decisions.
* Previously, the Courts applied a ‘multi-factorial’ approach to assessing whether a worker was an employee or a contractor. The terms of the contract were relevant but not decisive. Many issues were considered, including how the relationship played out in practice.
* At least where there is a valid contract which sets out all of the terms of the parties’ relationship, the High Court has now disavowed this approach and focussed exclusively on the rights and obligations in the contract itself, rather than what happened in the working relationship as it unfolded.
* The decisions provide greater certainty to companies who have properly recorded their relationships with employees and independent contractors in well-drafted written contracts that accurately record the nature of the relationship.
Yesterday the High Court delivered two decisions which decisively hold that in order to determine whether a person is an employee or independent contractor it is necessary to look to the legal rights and obligations agreed under the relevant contract. This is at least in circumstances where the parties’ relationship is comprehensively committed to a written contract.
The approach is consistent with that of the High Court in its recent decision in WorkPac Pty Ltd v Rossato  HCA 23 in relation to casual employment.
These decisions move away from the previously accepted ‘multi-factorial’ test adopted in Australian courts over the past 30 years. In doing so, they herald a fresh approach that provides greater certainty for companies who properly record their relationships with employees and independent contractors in written contracts.
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