Did You Know…

Contracts rise to higher footing in employee v contractor considerations?

It is over twenty years since the High Court of Australia (HCA) turned its focus to the employee / independent contractor dichotomy. The case of the early 2000s, Hollis v Vabu, resulted in a decision that emphasised an exploration of the totality of the relationship between parties: a factual examination of the nature of the relations and whether they were consistent with either form of relationship. In that analysis, the descriptions given in labour contracts to a person’s role were just one consideration amongst many others.

Now the HCA has taken a different turn. In overturning the decision of the Full Court of the Federal Court of Australia (FCFCA) in Jamsek the HCA has placed renewed emphasis on the terms of the contract governing the relations between parties, stating the previous approach was ‘an unjustified departure from orthodox contractual analysis.’

For participants in labour relations this means that having contractual terms in place that govern the relationship between participants in a contractor / principal engagement will provide greater protection against incurring liabilities that characterise an employer / employee relationship. Those liabilities can accrue to significant sums over the life of labour relations as unpaid superannuation and leave entitlements accrue. It is worth noting that sham contracts (i.e. schemes merely to avoid liability) will not enjoy this same protection and the former approach will remain relevant where there is no written agreement.

So then, how do contracting principals safely and lawfully set up their arrangements with contractors to protect and govern the relationship? These decisions made the answer plain: clear documentation. In particular, avoiding mixed, partially oral and partially written forms of contracting to ensure focus remains on the contract itself. Arguably that translates to a requirement for comprehensive documentation processes alongside the capacity to demonstrate the embodiment of contractual terms.

These decisions provide a timely reminder to bring contractual relations to the fore in commercial labour settings.