Employee or Contractor? What is the difference?

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In both cases, the ultimate question was whether the workers in question were engaged as employees or independent contractors.

The High Court declared that in the matter of Personnel Contracting, the worker was engaged as an employee and not an independent contractor. The High Court concluded in Jamsek that the workers were both independent contractors and not employees of ZG Operations Australia.

Key takeaways

The High Court made clear that:

1. The emphasis is on the primacy of contracts (as in WorkPac v Rossato).
2. The ultimate question of whether the workers were employees is to be determined by reference to the totality of the relationship between the parties.
3. However, if there is a written contract, the courts should not go beyond the contract or review the history of all parties’ dealings.
4. Subsequent conduct of the parties should only be taken into account if it effectively variates the original contractual terms.
5. The court should simply enforce the parties’ rights and obligations and not consider what a fair adjustment should be.
6. The decisions in Chaplin and Narich were never superseded by the adoption of a multifactorial test.
7. The parties are free to agree upon their rights and duties. However, the label they choose to describe the relationship is in no way determinative of their legal relationship.
8. Personnel No. 1 (which originally established that ‘Odco’ style triangular labour-hire arrangements do not create relationships of employment) no longer applies.

Case background in Jamsek

Mr Jamsek and Mr Whitby were employed on a full-time basis by ZG Operations as truck drivers since 1977. In 1985, they were offered to become contractors and were paid out their accrued employment entitlements, including annual leave.

To maximise tax benefits, each of them established a partnership with their wives and provided delivery services to ZG Operations via the partnerships’ business structures under a series of contracts. These contracts were each designated as ‘Contract Carriers Arrangement’ and the partnerships were described as ‘Contractors’. After the contracts with ZG Operations were terminated in 2017, both Mr Jamsek and Mr Whitby commenced court proceedings seeking employee entitlements (including annual leave, superannuation and long service leave).

The first Judge dismissed their claims whilst finding that Mr Jamsek and Mr Whitby were not employees of ZG Operations. Following Hollis v Vabu, the Judge applied a multi-factorial test to determine the totality of the relationship between the parties.

Mr Jamsek and Mr Whitby appealed to the Federal Court. The Federal Court agreed with the Primary Judge that Mr Jamsek and Mr Whitby were running businesses on their own. However, a proper characterisation of the totality of the relationship required a consideration of how the parties played out the contract in practice over many decades. Based on the multi-factorial test, the Federal Court declared on 16 July 2020 that Mr Jamsek and Mr Whitby were employees of ZG Operations.

Case background in Personnel Contracting

Personnel Contracting is a classic trilateral relationship case. Construct, a labour-hire company, engaged Mr McCourt to work on construction sites for Hanssen. The relationship between Construct and Mr McCourt was set down in a written agreement called an ‘Administrative Services Agreement’, whereby Mr McCourt was described as a self-employed contractor. At that time, Mr McCourt was a 22-year old backpacker who came to Australia on a working holiday visa. He had very limited experience in construction and hospitality. However, he purchased a hard hat, working boots and hi-vis clothing on his own.

In 2016, Mr McCourt started to work at Hanssen’s Concerto project site. Although there was no contract between Mr McCourt and Hanssen, he was under supervision and direction of Hanssen’s employees the whole time. Construct never directed Mr McCourt in relation to the work performed, being take out the bins, clean workspaces and move material. Since June 2017, Mr McCourt did not receive any jobs from Construct. Later on, he commenced proceedings against Construct seeking employee entitlements pursuant to the Fair Work Act, and Building and Construction Award.  

The first Judge dismissed the proceedings on the basis of a multifactorial analysis. The Judge concluded that in circumstances where the factors are evenly balanced, it is necessary to follow the way in which the parties characterised their relationship. Mr McCourt was described as a self-employed contractor and was not to represent himself as Construct’s employee. Therefore, Mr McCourt was not an employee.

The Federal Court upheld the Primary Judge’s decision while following Personnel No. 1 (involving essentially the same dispute). The Federal Court, however, explained that if it was not for the decision in Personnel No. 1, Mr McCourt would have been declared an employee of Construct. Mr McCourt appealed to the High Court.

High Court

The High Court commented on the multifactorial test, its application, and various decisions (including Stevens v Brodribb Sawmilling, Hollis v Vabu, and Personnel No.1). The High Court agreed that the ultimate question of whether the workers were employees is to be determined by reference to the totality of the relationship between the parties (as confirmed in Stevens and Hollis). However, the High Court noted that neither Stevens or Hollis ever suggested to run down a checklist of items to make such a determination or that the relevant factors are of equal weight for these purposes.

The High Court referred back to the long-standing approach confirmed in Chaplin and Narich and made it clear that:

1. The emphasis is on the primacy of contracts.
2. The ultimate question of whether the workers were employees is to be determined by reference to the totality of the relationship between the parties.
3. However, if there is a written contract, the courts should not go beyond the contract or review the history of all parties’ dealings.
4. Subsequent conduct of the parties should only be taken into account if it effectively variates the original contractual terms.
5. The court should simply enforce the parties’ rights and obligations and not to consider what a fair adjustment of the rights should be.
6. The decisions in Chaplin and Narich were never superseded by the adoption of a multifactorial test.
7. The parties are free to agree upon their rights and duties. However, the label they have chosen to describe relationship is in no way determinative of their legal relationship.
8. Personnel No. 1 (which originally established that ‘Odco’ style triangular labour-hire arrangements do not create relationships of employment)no longer applies.

In Jamsek, the High Court concluded that it was the partnerships who contracted with the company and invoiced ZG Operations for delivery services. Based on the contracts, the partnerships earned income, owned the trucks, and incurred expenses associated with the trucks. The partnerships were to undertake the services as reasonably directed by ZG Operations; however, they had only been told what to deliver. The workers were to make their own decision in relation to choosing delivery areas, delivery routes and whether to return home after completing deliveries. In addition, the partnerships took advantage of tax benefits for many years. Therefore, Mr Jamsek and Mr Whitby were not employees of ZG Operations.

Elringtons employment law services

It is best to get things right from the start and this is where we excel in helping businesses with choosing the appropriate type of contract, drafting or reviewing the contractual terms and providing vital information on your rights and obligations. We will make sure that you comply with all legal requirements and that there is no question over your workers’ employment status.

Our team consists of Tom Maling, Matthew Bridger and Gabby Bridger, who have the knowledge and experience to provide you with expert legal support to ensure your rights and interests are protected.