The nature of an employment contract can have serious consequences on a worker’s superannuation, annual and sick leave payments. Previously, where the lines between employee, causal employee or independent contractor have been blurred, the courts have relied on assessing the entirety of the relationship. This broad scope enabled the courts to observe post-contractual conduct in order construe the type of employment relationship between the parties.

Recently however, the High Court has shown that even though a zebra may appear to change colour when it is running, its core will always remain black and white. Employment contracts have proved to be no different.

As such, the High Court’s decision in Workpac Pty Ltd v Rossato [2021] HCA 23, has narrowed the scope of consideration to purely that of the contractual terms between the two parties. As a result, courts are limited to categorising the nature of employment based on the rights and obligations held by each party under their contract. Subsequent conduct, once the contract has been initiated, cannot be relied upon to prove one’s employment category.

Indeed, while Rossato related to casual employment, the decision catalysed the overturing of numerous Full Federal Court decisions regarding contractors and employees.

Rippling Effects in Courts:

The decision in Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119 was subsequently overturned by the High Court. In this case, two former employees provided a 20-year longstanding service to their company under a contractor agreement. The previous court indicated that their uninterrupted commitment formed an integral part of the Company’s function beyond that expected of those conducting independent business. This conduct thus deemed them employees. However, the High Court examined their original contractual rights including the freedom to choose their routes and manner of conducting business, as well as the purchase and maintenance of their vehicles. In light of these factors, their status as contractors was affirmed as per the contract.

Alternatively, in the case of CFMEU v Personnel Contracting Pty Ltd [2020] FCAFC 122 the contract was also pivotal in classifying one’s employment. Despite the worker being referred to as a contractor, the terms of the contract specified a level of control (regarding where to allocate his labour and time) that was consistent with an employment relationship. The High Court thus characterised it as such despite the given labels.

Potential Effects for Employers

Given these recent and drastic changes in the manner that courts determine these chases, the Australian Tax Office (ATO) has initiated a review of its eligibility criteria regarding those who qualify as ‘employees’ for superannuation purposes. While the results of these changes are expected to emerge by October 2022, anticipation for core changes around the current framework is brewing. These are likely to have a substantial impact on employers and labour-for-hire agencies which operate with independent contractor agreements. Such changes may leave some businesses susceptible to liabilities.

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Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.