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  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  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  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  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.
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.