Unions win battle, lose war as High Court overhauls employee/contractor divide

WRITTEN BY John Wilson

In its first decision of this new year, the High Court has upended decades of legal precedent and undermined the business models of labour-hire firms that use independent contractors. In doing so, the Court rejected the ‘multi-factor test’ for determining whether someone is an employee or an independent contractor, holding that the sole factor will be the contract between the parties.

The Facts

The case that was the vehicle for running over these precedents was CFMMEU v Personnel Contracting. It concerned 22-year-old British backpacker Daniel McCourt. McCourt had a contract with Perth construction labour-hire company Personnel Contracting. The contract described McCourt as a ‘Contractor’. It gave Personnel the right to dictate to whom McCourt supplied his labour, and mandated that McCourt obey Personnel and the directions of the builder to whom he was supplied.

McCourt was directed by Personnel to work for Hanssen, a builder of high-rise apartments. McCourt brought his own boots, hard-hat, and high-vis to work. On-site, he obeyed Hanssen supervisors. Not being an ‘entrepreneur’ or a ‘skilled artisan’, McCourt did only basic labouring tasks on-site – taking out the bins, cleaning workspaces, moving material. Personnel did not direct McCourt’s day-to-day work.

The Law until Today

Under the previous precedent of Hollis v Vabu, a Court would have considered these physical aspects of McCourt’s work in a multi-factor test to determine whether he was an employee or an independent contractor.

Under the previous precedents of Odco and Bunce, a triangular labour-hire arrangement prevented employment relationships from forming. The labour-hire firm was not an employer because it did not exercise practical control over the individual’s work, and the receiver of labour was not an employer because it held no contract with the individual. After today, the fact that a labour-hire firm does not exercise practical control is not relevant when defining their relationship with the labourer.

The Decision

The High Court looked at the contract between McCourt and Personnel and asked, what kind of relationship was formed by the contract, one of employment, or one between a contractor and the contracted?

Crucially, the High Court did not look at the actual conduct of McCourt’s work – just the contract that was drawn up prior to the commencement of his employment.

Despite some statements to the contrary in the contract, the contracts’ rights and obligations showed that McCourt was not engaged in a business of his own. He was a part of Personnel’s business. This indicated that McCourt’s contract was one of employment.

The contract also gave Personnel the key ingredient of control over McCourt’s work. The right to control is a key aspect of employment. Even though McCourt’s work was directed by Hanssen, the contract gave to Personnel the right to control McCourt’s work, and this right was fundamental to Personnel’s business as a labour-hire firm. Without control over labour, how could Personnel hire out that labour?

It was irrelevant that the contract referred to McCourt as a ‘Contractor’. The Court held that the name given to a legal relationship does not affect its substance – the rights and obligations that make up the relationship. This can be contrasted with the fact that, under the Fair Work Act, casual employees are simply those who have contracts which call them casual employees.

What now?

This decision affects every business that hires independent contractors, but labour-hire firms in particular. The use of a triangular labour-hire arrangement no longer protects labour-hire firms from being employers to their labour. Regard must now be had to the contract between the parties of all independent contractor relationships. If it grants one party control over the work of the other, it may be a contract of employment.

Going forward, the demise of the multi-factor test means that the conduct of the work completed by independent contractors may become more employee-like, even as their contracts look less like those of employees. Factors that previously may have rendered a relationship more ‘employment-like’, like whether the worker wears a uniform or is the ‘public manifestation’ of the company, no longer matter.

They say the three things that matter in real estate are location, location, and location. Now there are three things that matter in the independent contracting relationship: the contract, the contract, and the contract.

For all employment related queries or concerns, please contact our Employment Law & Investigations team at BAL Lawyers.

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