Independent Contractors – how will the High Court approach the issue?
There are two cases currently before the High Court involving the distinction between independent contractors and employees.
One of those cases involves a traditional two party relationship and the other involves a labour hire relationship. The question many practitioners are now asking is how will the approach the High Court took in Rossato, which concerned whether an employee was a casual, affect these two cases?
In Rossato, the Court focussed on the terms of the contract in determining whether an employee was a casual (as opposed to how the relationship functioned in practice) and the question is will the approach the High Court took in Rossato affect the distinction between independent contractors and employees?
How the parties label their relationship is not currently irrelevant currently. Often it is used as a “tie breaker” when the traditional indicia are not determinative. More specifically, the issue is whether High Court will “upgrade” the label the parties give the relationship in making it more determinative, applying freedom of contract principles.
We focus here on the first of these two cases (Jamsek).
In Jamsek, the applicants were delivery drivers for nearly 40 years for, essentially, the same business. The relationship between the applicants and the company was subject to contracts entered into at various intervals between partnerships, in which the applicants were members with their spouses, and the company. The contracts were entitled ‘Contract Carriers Arrangement’ and the partnerships were described as the contractors.
The applicants were initially employees but, in 1985, after seeking a pay-rise, the company offered the opportunity for them to become contractors. They were advised ‘If you don’t become contractors we can’t guarantee your job going forward’. The partnerships of the applicants therefore entered into the contractors’ arrangements.
The applicants had to provide the delivery trucks, maintained by them; however, the trucks were adorned with the logo of the company. The applicants also wore uniforms provided by the company.
The applicants did not serve other customers, but the Court at first instance found that there was no reason they could not have served other customers in the hours available to them outside of the hours in which they worked for the company. The company had no real control over the way in which the applicants managed and operated their trucks and the applicants were not directed how to conduct their deliveries.
The appeal Court noted that the ‘multi-factor test’ is applied to determine whether a contracting or employment relationship exists, such as:
- Whether subcontracting is permitted;
- Whether uniforms are worn;
- Whether equipment is supplied;
- The extent of control and the right of control;
- How the party is remunerated.
The appeal Court also noted that, ultimately, distinction is between a person employed under a contract of service, who serves the employer’s business, and a contractor engaged under a contract for services who conducts a trade or business on their own.
The appeal Court found that the fact that the applicants contracted through their respective partnerships did not preclude the existence of an employment relationship. The Court also noted the fact that the applicants had little or no room for negotiation in respect of the original contract lessened the weight that could be attached to the parties’ intention as to the nature of the relationship (as being on of contracting), as expressed in the contract.
The fact that the applicants provided trucks, which would normally indicate a contracting relationship, was tempered by the fact that they were compelled to purchase them as part of entering into the contract. (The appeal Court attached a lot of weight to the circumstances in which contracts came into existence.) The fact that the appeal Court thought no specialist skills were involved in driving the trucks also lessened the weight that could be attached to the provision of the trucks.
In terms of the ability to work for others, the appeal Court found that the fact that the applicants were expected to work 9 hours a day, Monday to Friday, meant that in practice they had little ability to serve third parties.
The Court did acknowledge that parties to a working relationship should broadly be entitled to define the nature of the relationship as they arise. However, the Court noted the parties’ characterisation of their relationship in an employment context may not be given effect according to its terms because the characterisation contradicts the nature of the relationship the parties had actually created. However, that statement is contrary to the High Court’s approach in Rossato.
Ultimately, the Court found the applicants were employees.
In Rossato, the High Court made the following statements:
“A court can determine the character of a legal relationship between the parties only by reference to the legal rights and obligations which constitute the relationship”
“To insist on binding contractual promises as reliable indicators of the true character of the employment relationship is to recognise that it is the function of courts to enforce legal obligations”
These statements are very strong indications the High Court regards the intention of the parties, as expressed in the contract, as having a very high status. It remains to be seen if those views elevate the label the parties give to a contracting relationship so that it is determinative of the issue of whether someone is a contractor (or at least make it more determinative than it is currently.) It is expected the Court will make the label the parties give the relationship more determinative, at the very least.