Roost­ers, Ducks and Trucks: High Court Reasserts Pri­ma­cy of the Contract

In two judg­ments hand­ed down on the same day, the High Court has con­firmed the impor­tance of the writ­ten con­tract, and the rights and duties it cre­ates, in deter­min­ing whether a rela­tion­ship is one of employ­ment or prin­ci­pal and inde­pen­dent contractor.

These deci­sions fol­low from that of the High Court last year in Work­pac Pty Ltd v Rossato [2021] HCA 23 in which the plu­ral­i­ty rein­forced the pri­ma­cy of the employ­ment con­tract as the mech­a­nism for both under­stand­ing and enforc­ing the char­ac­ter of a legal rela­tion­ship between an employ­er and employee. 

Con­struc­tion, Forestry, Mar­itime, Min­ing and Ener­gy Union & Anor v Per­son­nel Con­tract­ing Pty Ltd [2022] HCA 1

Mr McCourt had been hired by Per­son­nel Con­tract­ing Pty Ltd (Per­son­nel Con­tract­ing) to pro­vide labour ser­vices. The engage­ment was pur­suant to an Admin­is­tra­tive Ser­vices Agree­ment (ASA) that described Mr McCourt as a ​“self-employed con­trac­tor”. Mr McCourt dis­put­ed that label, and sought orders for com­pen­sa­tion and penal­ties on the basis he was an employee. 

Before both the pri­ma­ry judge, O’Callaghan J of the Fed­er­al Court, and a Full Court of the Fed­er­al Court (FACFC), Mr McCourt was found to be a con­trac­tor. In reach­ing that con­clu­sion their Hon­ours applied a ​“mul­ti­fac­to­r­i­al approach” which has con­ven­tion­al­ly been used in deter­min­ing the nature of a rela­tion­ship. That approach large­ly involves the con­sid­er­a­tion of var­i­ous indi­cia, depend­ing on the cir­cum­stances, and weigh­ing those to assess the ​“total­i­ty of the rela­tion­ship” (although the FCACF did con­cede ten­sions exist in apply­ing this test to ​“new and nov­el labour arrangements”).

On appeal the major­i­ty of the High Court, Kiefel CJ and Keane and Edel­man JJ, reject­ed any sug­ges­tion that assess­ing the ​“total­i­ty of the rela­tion­ship” involves run­ning down items on a check­list or hav­ing regard to the his­to­ry of deal­ings between the par­ties. Rather, it was said, the focus should shift to more ​“mean­ing­ful” con­sid­er­a­tions includ­ing whether a per­son is serv­ing in the busi­ness of an employ­er or con­duct­ing their own busi­ness, and the exis­tence of a right to control.

To that end, regard should be had to the terms of any writ­ten con­tract and the legal rights and oblig­a­tions it establishes.

In this case it was clear that Mr McCourt did not have his own busi­ness and that, under the terms of the ASA, Per­son­nel Con­tract­ing was enti­tled to deter­mine who Mr McCourt would work for. Indeed, it was found to be a key com­po­nent of its busi­ness model.

The fact Mr McCourt was described as ​“the con­trac­tor” in the ASA did not change the rights and duties as agreed between the par­ties, nor the char­ac­ter of the relationship. 

In their judg­ment Gagel­er and Glee­son JJ placed more of an empha­sis than the major­i­ty on the per­for­mance of the ASA by the par­ties, in par­tic­u­lar the ele­ment of con­trol exer­cised by Per­son­nel Con­tract­ing, in deter­min­ing whether the rela­tion­ship was one of employment. 

Although their Hon­ours acknowl­edged a focus on the writ­ten terms of the con­tract is impor­tant it was not­ed that, as in this case, the legal char­ac­ter­i­sa­tion of the rela­tion­ship can­not be deter­mined sole­ly be ref­er­ence to the terms of the con­tract. Or, as was observed in the case of Re Porter; Re Trans­port Work­ers Union of Aus­tralia [1989] FCA 226 and cit­ed by their Hon­ours, ​“the par­ties can­not cre­ate some­thing which has every fea­ture of a roost­er, but call it a duck and insist that every­body else recog­nise it as a duck”.

While Gor­don J’s find­ing that the ​“total­i­ty of the rela­tion­ship” is to be deter­mined by ref­er­ence to the legal rights pro­vid­ed for by the con­tract, her Hon­our devi­at­ed slight­ly from the major­i­ty in hold­ing the terms of the con­tract should be con­strued in the con­text of the cir­cum­stances that exist­ed at the time it was entered into. Tak­ing this approach, Gor­don J said that it could be rel­e­vant to have regard to mat­ters not con­tained in the con­tract in deter­min­ing whether a per­son is engaged as an employ­ee or inde­pen­dent con­trac­tor such as whether the per­son was a mem­ber of a part­ner­ship, or expect­ed to sup­ply his or her own equipment.

The deci­sion of the major­i­ty in this case also calls into ques­tion the ongo­ing use of ​“Odco-style” tri­an­gu­lar labour-hire arrange­ments. Pur­suant to such arrange­ments, labour-hire com­pa­nies sup­ply work­ers as inde­pen­dent con­trac­tors to sup­port the impres­sion the rela­tion­ship is not one of employ­ment (when the terms of the rel­e­vant con­tract often actu­al­ly place the author­i­ty to exer­cise con­trol with­in the hands of a labour-hire company).

Stew­ard J, in his dis­sent­ing judg­ment, dis­agreed that Mr McCourt was an employ­ee based on the fact ​“Odco-style” arrange­ments have had a long­stand­ing and effec­tive use by busi­ness­es, and have been endorsed in leg­is­la­tion and at com­mon law. To over­turn the Odco mod­el would, accord­ing to his Hon­our, have unfair and poten­tial­ly dam­ag­ing reper­cus­sions for busi­ness­es reliant on it. 

ZG Oper­a­tions Aus­tralia Pty Ltd and Anor v Jam­sek and Anor [2022] HCA 2

Mr Jam­sek and Mr Whit­by drove trucks for ZG Oper­a­tions and its pre­de­ces­sors (the Com­pa­ny) between 1977 and 2017, ini­tial­ly as employ­ees. How­ev­er from around 1986, when the Com­pa­ny refused to offer them ongo­ing employ­ment, the par­ties entered into a new arrange­ment where­by Mr Jam­sek and Mr Whit­by (in part­ner­ship with their wives) pur­chased trucks from the Com­pa­ny and invoiced it for the deliv­ery of services.

After the agree­ment was ter­mi­nat­ed, Mr Jam­sek and Mr Whit­by sought dec­la­ra­tions in respect of statu­to­ry enti­tle­ments they claimed the Com­pa­ny owed them as employees. 

Both the pri­ma­ry judge, Thaw­ley J, and the FCAFC con­sid­ered the ​“total­i­ty of the rela­tion­ship” between the par­ties based on how the con­tract between them oper­at­ed in prac­tice. How­ev­er, while the pri­ma­ry judge found Mr Jam­sek and Mr Whit­by were inde­pen­dent con­trac­tors (as part­ner­ships run­ning their own busi­ness) the FCAFC did not. In find­ing the truck dri­vers were employ­ees, regard was had to how the par­ties con­duct­ed them­selves dur­ing the course of their deal­ings over the decades which was informed, in part, by a per­ceived dis­par­i­ty in bar­gain­ing power.

The High Court unan­i­mous­ly over­turned the deci­sion of the FCAFC.

Kiefel CJ, and Keane and Edel­man JJ, were not pre­pared to enter­tain the approach adopt­ed by the pri­ma­ry judge and the FCAFC of dis­sect­ing the his­to­ry of the deal­ings between the par­ties in order to deter­mine the nature of their relationship.

Instead, their Hon­ours had regard to the terms of the writ­ten con­tract that gov­erned the rela­tion­ship between the par­ties, and in par­tic­u­lar the rights and duties it cre­at­ed. It was evi­dent, accord­ing to the major­i­ty, that the writ­ten con­tract between the par­ties reflect­ed their inten­tion in 1986 to no longer be in an employ­ment rela­tion­ship and that both Mr Jam­sek and Mr Whit­by ben­e­fit­ed finan­cial­ly from that arrangement.

Fur­ther­more the terms of the con­tract did not sup­port a con­clu­sion that there was a dis­tinc­tion between the pro­vi­sion of labour (through Mr Jam­sek and Mr Whit­by) and trucks to the Com­pa­ny. Both ser­vices were ​“bound up” and deployed by the part­ner­ships in exchange for fees. In a sim­i­lar vein it was crit­i­cal to the find­ings of Gagel­er and Glee­son JJ that Mr Jam­sek, in part­ner­ship, main­tained and used his own truck and was liable for the per­for­mance of the con­tract. The oblig­a­tions imposed on the part­ner­ship under the terms of the con­tract was not able to be decon­struct­ed so as to be imposed on Mr Jam­sek personally.

Gor­don and Stew­ard JJ, draw­ing on the judg­ment of Gor­don J in Per­son­nel Con­tract­ing, had regard to the terms and oblig­a­tions cre­at­ed by the con­tracts at the time they were entered into in sup­port of a con­clu­sion that the rela­tion­ship was not one of employ­ment. That includ­ed the require­ment to sup­ply and main­tain a truck, and the abil­i­ty to work for oth­er parties. 

Com­ment

The above deci­sions empha­sise the impor­tance, when engag­ing con­trac­tors, of hav­ing an agree­ment that clear­ly sets out the legal rights and oblig­a­tions imposed on the par­ties. That will be crit­i­cal in the event any ques­tions arise as to the nature of the relationship.

That is not to say, of course, that an analy­sis of work prac­tices have no rel­e­vance. As not­ed by the major­i­ty in Per­son­nel Con­tract­ing, they will still have work to do if, for exam­ple, the writ­ten con­tract does not reflect the real­i­ty of the sit­u­a­tion or the terms of the con­tract have been var­ied by performance.

It is very impor­tant to keep in mind that in nei­ther of the above cas­es was there any sug­ges­tion that the writ­ten con­tracts had been var­ied, or were a ​“sham” arrange­ment. It is very like­ly the out­come would have been dif­fer­ent had that been the case.

The Per­son­nel Contracting case in par­tic­u­lar is an impor­tant reminder that labelling a work­er as an inde­pen­dent con­trac­tor, when the rights and oblig­a­tions estab­lished by the writ­ten con­tract sug­gests oth­er­wise, will not be deter­mi­na­tive. It may even expose a busi­ness to alle­ga­tions of sham con­tract­ing and the risk of penal­ties and compensation. 

A roost­er will still be a roost­er, if that was the gen­uine inten­tion of the parties.