Contract work in Australia: according to multiple news sources, a High Court ruling earlier this year has dramatically changed the guidelines for organisations and individuals looking to work under a contractual relationship.
Here’s the low-down.
Contract Work in Australia: What’s the Background?
For at least the last 40+ years, the rules in Australia around whether a person is a contractor or an employee, were determined by what’s called the ‘Multifactorial Test’.
This test is basically a set of behaviours and indicators to which a subjective analysis is applied. This analysis is to determine if the organisation/worker relationship is contractual, or should be deemed an employment relationship (you still with me? 🙋🏼♀️). This test has typically taken into account, aspects of the relationship including (but not limited to):
- The degree of control in the relationship: who holds the power? 🔌
- The ability of a worker to delegate tasks 👫
- Who owns the tools of trade? 🔧
- The ability of a worker to refuse work 🚫
- Who shoulders the cost of rectifying defective work 👨🏻🔧
- Whether the worker can also work for another company 📆
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.
So historically, unions and lawyers were able to look back, and review the contractor/enterprise relationship, including some of those behaviours and indicators listed above, and force organisations into an employment relationship. So complex has the multifactorial test been, that organisations found it too hard to keep workers as contractors. They were therefore on the hook for more talent overheads.
How Is Contracting Assessed Now?
Thanks to the High Court ruling earlier this year, the multifactorial test is history. Now, as long as there is one simple rule in place, workers and organisations can decide whether a contract relationship or an employment relationship, will be undertaken.
And the simple rule is this: whether there is a detailed contract in place.
So, the decision becomes:
- 📃 Do the organisation and the worker want specific tasks to be completed under an agreed contract? Or….
- 🧑🏻🔬 Do they want to establish an employment relationship, which comes with the relevant statutory awards?
Now, working under a contract or working as an employee (with the relevant awards) becomes a choice between the individual and the organisation.
And what will happen now? Contracting is set to boom.
Contract Work in Australia: A History Lesson
The original case, where the courts determined whether a worker is a contractor or an employee using the multifactorial test, was way back in 1983. The story went like this:
- A 22-year-old British backpacker travelled to Australia on a working holiday visa (then called a ‘white card’). This visa meant he was allowed to work on construction sites in Australia
- He started a labourer’s contract with Perth labour-hire company, Personnel Contracting
- In this contract, he agreed that he was willing to do any construction work that was available and would start straight away. This contract also outlined his obligations, rights, warranties, and entitlements as a contractor. It was very detailed
- Separately in this contract, the labour-hire company set out its rights and responsibilities
- Building company Hanssen had contracted with the labour-hire company, Personnel Contracting, and the backpacker worked under Hanssen’s supervision
💸 The problem arose when the union, the CFMEU, claimed that the labour-hire company, Personnel Contracting, was paying labourers 25% below the award rate.
👷🏼♂️ In response, Personnel Contracting said the award rates didn’t apply as they were operating under independent contract rules, where the workers contracted to them, were independent contractors.
👨🏼⚖️ Now, under the multifactorial test, lower-ranking courts at the time (who are led by the Federal Court) determined that the backpacker was, in fact, an employee. So the award rates applied.
🍿 So then, Personnel Contracting appealed to the High Court, claiming they agreed with the worker, via the detailed contract mentioned above, that he was an independent contractor. But the High Court agreed with the lower courts that he was actually an employee. This was decided based on the worker’s on-the-job activities and various other elements of the multifactorial test.
🧑🏽💼 Having determined that the court also said that 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.
What Was the Upshot of This Case?
The High Court 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”.
Expounding this statement, the court also stated 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”.
Put simply this determination is a huge win. It signifies a game-changer for organisations, individuals, and the economy because it brings certainty and clarity to what is a commercial contract. Contract work in Australia has changed.
And What About the Recent High Court Ruling?
Earlier this year, the High Court ruled that the lower courts misunderstood the situation and that it has always had the view that the written contract is absolute. In doing so, the High Court cited a 1983 Privy Council ruling (which was about an Australian payroll tax dispute) in support of its interpretation.
Enterprises and the self-employed need to make sure they have proper commercial contracts when undertaking work. The days of sham contracts are over. This means that organisations today, who approach contingent talent engagement in a smart, ethical way, can gain massive benefits from their non-permanent labour. Not the least of which is flexibility. Seeking to skirt fair pay, and execute illegal or unfair contracts, will no longer wash. The Fair Work Ombudsman is all over this.
Following this year’s High Court ruling, a worker with Caelli Constructions and drivers at Avert Logistics were declared independent contractors. A decision in August this year, that Deliveroo drivers were employees, has been overturned. These rulings have now cleared the gig economy to engage workers as independent contractors, based on their contract terms, not on the actual nature of the work they’re doing. This is the new era of contract work in Australia.
Check out the latest ruling for contract workers in the gig economy:
From the Sydney Morning Herald.
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If you are interested in discussing the new High Court ruling for contractors and contract jobs in Australia, please contact us.