The High Court has changed the game on contract work

A decision that Deliveroo drivers were employees has been overturned. Picture: Benjamin Girette/Bloomberg

On the eve of the Jobs Summit, enterprises and individuals wanting to work under a contract relationship are starting to understand that a High Court ruling earlier this year has dramatically changed the rules.

Subject to one simple rule – that there is a detailed contract – enterprises and individuals can decide whether they want tasks undertaken via a contractual relationship or whether they want employment and an award.

The old complex tests as to whether a relationship between an individual and an enterprise is employment or contracting have been thrown out the window by the High Court. Working under a contact or under employment awards becomes a choice for individuals and enterprises. Contracting is set to boom.

But the unions and the new government had planned an attack on the contracting economy – often branded gig economy – so are furious because the High Court ruling will be extremely difficult to change by legislation. The looming Jobs Summit can make union-led pronouncements but the High Court has set clear rules.

For the last four or five decades, to determine whether a person was an independent contractor or an employee courts have used what is known as the multifactorial test – a basket of behavioural indicators only one of which is the written contract.

Those indicators include a consideration of whether a person could work for another company, which party provided the necessary equipment, and the multitude of other tests.

These multifactorial tests have been used by unions and lawyers for decades to run cases to declare that a contractor is an employee. The Australian Taxation Office embraced a similar policy.

The lawyers and unions were able to effectively retrospectively examine behaviour and enterprises were often forced into employment relationships because contracting was too hard.

The High Court has ruled that the lower courts have misunderstood the situation and that it has always had the view that the written contract is supreme. The High Court cited a 1983 Privy Council ruling – an Australian payroll tax dispute – in support of its interpretation.

In the nation changing case, a 22-year-old British backpacker who had travelled to Australia on a working holiday visa obtained a white card, which enabled him to work on construction sites. He contacted with Perth labour hire company Personnel Contracting stating that he was prepared to do any construction work, and was available to start work immediately. He worked under the supervision and direction of builders, Hanssen, who had contracted with the labour hire company. The backpacker signed a very detailed contract with Personnel Contracting setting out his obligations, rights, warranties and entitlements as a contractor. In turn the labour hire company set out its rights and responsibilities.

The CFMEU claimed that Personnel Contracting was paying labourers 25 percent below the required award rate. Personnel Contracting said that it was operating under independent contracting rules. As such, the workers were independent contractors, not employees and therefore the award rates did not apply.

Using the multifactorial test, lower courts led by the Federal Court ruled that the backpacker was an employee and the awards applied.

Personnel Contracting appealed to the High Court which agreed with the lower courts that he was an employee in terms of his on the job actions but said the multifactorial test “is apt to generate considerable uncertainty, both for parties and for the courts”.

“It is the task of the courts to promote certainty with respect to a relationship of such fundamental importance,” the court found.

The High Court therefore declared in this case that the terms of the relationship were “comprehensively committed to a written contract … there is no reason why the legal rights and obligations so established should not be decisive of the character of the relationship”.

Elaborating, the court declared that “where there is a written contract between the parties whose relationship is in issue, a court is confined, in determining the nature of that relationship, to a consideration of the terms, express or implied, of that contract in the light of the circumstances surrounding the making of it; and it is not entitled to consider also the manner in which the parties subsequently acted in pursuance of such contract”.

These simple words are a massive win for individuals, business, and the economy because it brings certainty and clarity to what is a commercial contract.

Enterprises and the self-employed need to make sure they have proper commercial contracts when undertaking work. Sham contracts will not hold up.

Smarter businesses will use the contracting system to gain flexibility rather than to cut payments.

Following the High Court ruling, a worker with Caelli Constructions and drivers at Avert Logistics were declared to be an independent contractors. A decision that Deliveroo drivers were employees has been overturned. The game has changed.