Two recent employment law cases decided by the High Court have signalled a significant departure in how Australian courts determine whether a person is an employee of a business or merely an independent contractor. These cases signal a dramatic shift in Australian employment law, turning away from an approach that looks at the social reality of a working relationship to a focus on the contract signed between the worker and the putative employer. The stakes of these rulings are very high — independent contractors are not entitled to statutory protections such as paid leave, remedies for unfair dismissal and minimum award pay. These rulings will likely lend credence to the claims of gig economy employers (Uber, Deliveroo etc.) that their workers are in fact contractors and not employees.
The first of the two cases was CFMMEU v Personnel Contracting, a case that came to the High Court of Australia on appeal from the Federal Court. The case concerned a dispute brought by the CFMMEU on behalf of Mr McCourt, a 22-year old British backpacker in Australia against Personnel Contracting, a labour-hire company based in Perth.
The CFMMEU alleged that Personnel Contracting had engaged in what is commonly referred to as “wage theft”, as they had failed to pay McCourt in accordance with the award rate he would be entitled to as an employee of Personnel. Under the labour hire arrangement, Mr McCourt had only earned 75% of what he would have been entitled to under the Building and Construction General On-Site Award 2010.
Critically, the agreement that McCourt signed with Personnel labelled him as a “contractor”, preventing him from accessing the entitlements available to employees under the Fair Work Act. The crucial issue before the Court was therefore whether McCourt could be classed as an employee, entitling him to compensation for Personnel’s failure to pay him according to his award. A majority of the High Court reversed the decision of the Full Bench of the Federal Court in finding that McCourt was in fact an employee, focusing on the substance of the relationship formed under the terms of his contract with Personnel rather than the “contractor” label that was applied to him.
The second case decided was ZG Operations v Jamsek, also on appeal to the High Court of Australia from the Federal Court. In this case, Martin Jamsek and his colleague Mr Whitby had been engaged by ZG Operations as truck drivers for nearly 40 years. Both men had begun as employees, but by the late 1980s, had agreed to purchase their own trucks and become independent contractors who would continue to make deliveries for ZG Operations under a contractual arrangement.
Upon termination of this agreement in 2017, Jamsek and Whitby commenced proceedings against ZG Operations, alleging that they were employees of the company in substance and were owed entitlements such as long service leave and superannuation. A similar approach to Personnel Contracting was adopted by the Court, focusing on the substance of the contractual relationship between the parties. However, a majority of the court found that Jamsek and Whitby were both independent contractors, and therefore not entitled to the benefits that they sought. Jamsek and Whitby had driven exclusively for ZG Operations for almost 40 years, however in 1986 the Company insisted that it would no longer employ the drivers and would only engage them in the future if they purchased their trucks and entered into contracts to carry goods for the company.
The plurality judgements in these cases, composed of Chief Justice Kiefel, Justices Keane and Edelman, simplify the distinction between employers and contractors in Australian law at the cost of discarding the broader-ranging considerations lower courts have taken in recent years. Borrowing from American and English doctrine, judges in the lower federal courts have previously been attentive to the social and economic circumstances of plaintiffs’ employment which are left unsaid by their contracts with employers. For example by recognising in Fair Work Ombudsman v Grancity (GW) Travel & Tour Pty Ltd the vulnerability of migrant workers to exploitation by employers who seek to engage them on terms that circumvent the protections owed to employees.
Similarly, the majority in both cases overturned the long-standing practice of observing how work was carried out after the contract was formed to determine whether or not a relationship was one of employment or not. In the context of the gig economy, where multinational corporations depend on engaging a vast and replaceable workforce of precariously employed workers in arm’s-length legal relationships, the High Court’s judgements in Personnel and Jamsek will come as a relief to companies like Uber in the face of growing opposition by courts and legislators around the world to unaccountable contracting practices which have driven their growth.
These decisions signal the need for urgent legislative reform in gig work and other precarious industries. With the ambiguity in the determination of employment status settled, it is likely that these employers will find it increasingly easier to source their work through contractors — all that is required is a ‘watertight’ contract, regardless of the nature of the work undertaken after the contract has been entered into. Given the inequality of bargaining power between workers and employers, workers may have little option but to accept these agreements.
