Independent contractor or employee? Why it’s a bit of a legal circus

28th Jul 2022

Laws and their interpretation evolve over time, but few more quickly than the area of law dealing with the terms and conditions under which a person is engaged to undertake work for another person or company.

Whether a person is an ‘employee’ or an ‘independent contractor’ can be a very vexed question. The answer can have far-reaching consequences for payouts, job security and entitlements.

In January 2022, the High Court made two decisions in cases that were effectively run side-by-side. The cases both involved terminations and appeared similar, but the High Court came to opposite conclusions.

High Court rules drivers were independent contractors, not employees

In ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, two plaintiffs had been employed as truck drivers by ZG Operations since the late 1970s. In 1985 they accepted an offer to become contractors.

The drivers had written contracts to provide delivery services for ZG Operations and had some control over their vehicles, times and routes.

When their contracts were terminated in 2017, the drivers argued in court that they were in reality employees of ZG Operations rather than contractors, meaning they were entitled to the benefits they would have received as employees. Their first approach failed, but they won on appeal.

However, the High Court overturned that result, finding the drivers were independent contractors, because both parties had entered into the contractor arrangement with a full understanding of what that entailed.

High court rules contractor was an employee

Conversely, in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, a young British backpacker was offered a role by a labour hire company, and signed an Administrative Service Agreement which described him as a ‘self-employed contractor’. He was allocated to a construction firm.

There was a written contract between the construction firm and the labour hire company, but not with the backpacker. When the construction firm refused to pay him benefits as an employee, saying he was a contractor, the backpacker’s union went to court.

The backpacker lost in the Federal Court, but the High Court reversed that decision, ruling that he was indeed an employee, as he had not signed a contract with the construction firm and was paid to work under the construction firm’s direction.

These two outcomes may appear to be in conflict, but the origin of the decisions lies in what was once the ‘control test’ used by the High Court in 1955 to decide whether an acrobat was a circus employee or a contractor – Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73.

‘Control test’ used to decide if worker is an employee or independent contractor

In the Zuijs case the Court held that, while the acrobat’s work involved special skills personal to him, the circus had the right to determine when and where he performed, so that the acrobat was an employee. This right to control what the acrobat did for the circus, even if it chose not to exercise that right in some respects, was the distinguishing feature of an employer-employee relationship; a test which became known as the ’control test’.

The ‘control test’ changed over time to become a so-called ‘multifactorial test’ involving the use of a number of other indicators. These included whether the worker supplied their own tools, wore a uniform, and was told when and where to work.

Thus, the focus had shifted away from the wording of the contract to greater scrutiny of what actually happened in the relationship between the parties once the contract was formed.

Now, in these two 2022 decisions, the High Court has made clear that the employee/contractor question should be answered by looking at what the parties intended at the point of formation of the contract, rather than what they did afterward.

This does not mean that there are no longer complexities that need to be understood when entering contracts of this kind. It is always wise for a business to get sound legal advice in these areas.

This is an edited version of an article first published by Stacks Law Firm.

The ALA would like to thank Geoff Baldwin for this contribution.

Geoff Baldwin has worked at senior management levels in the public and tertiary education sectors, as an independent consultant providing management advice, and in the legal profession. His experience includes industrial relations litigation, property and leasing, commercial and administrative law advice, and workplace law. Originally trained as a scientist before being admitted to legal practice in 1977, Geoff has appeared in a range of employment tribunals and has instructed in matters before the Supreme Court.

The views and opinions expressed in this article are the author's and do not necessarily represent the views and opinions of the Australian Lawyers Alliance (ALA).

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Tags: Employee Rights Geoff Baldwin independent contractor