Changes to Independent Contractors – Jamsek and Personnel Demystified
The following should not be considered legal advice and is for general use only.
In February, two High Court cases were published that have significant implications for the engagement of independent contractors.
Now that the dust has settled, here’s what employers need to know about these two cases: ZG Operations Australia Pty Ltd v Jamsek  HCA 2 (Jamsek) and Construction, Forestry, Maritime and Energy v Union & Anor v Personnel Contracting Pty Ltd  HCA 1 (Personnel).
Key takeaways from Jamsek and Personnel
- Where there is a written contract, the terms of the written contract will determine whether an individual is an employee or an independent contractor.
- When assessing the terms of any contract, the Court will consider the ‘rights and obligations’ of the parties in the written contract, not what ‘labels’ the parties have been assigned. For example, simply labelling a party as an ‘independent contractor’ in a written contract will not mean that the Court will consider them to be an independent contractor if everything else in that agreement points to a relationship of employment.
- The traditional ‘multifactor test’ is still important in determining whether someone is an independent contractor or an employee. But where there is a written contract, the multifactor test should be considered in relation to the terms of the contract, not the entirety of the relationship between the parties.
- It is unclear how the Jamsek and Personnel decisions will be applied in circumstances where there is no written or express contract between the parties.
Jamsek: the facts
Jamsek involved two truck drivers that were engaged as independent contractors for over 30 years via several contracts with ZG Operations Australia Pty Ltd (ZG Operations). The drivers were initially employees of ZG Operations, but later agreed to become independent contractors. At this point, the drivers set up partnerships with their spouses, purchased their own trucks, and were responsible for the costs of the vehicles. The drivers also decorated their vehicles with the ZG Operations’ brand, wore uniforms at times, and worked only for ZG Operations.
Jamsek: the decision
In Jamsek, the High Court unanimously held that the drivers were independent contractors, not employees of ZG Operations.
In making their finding, the three separate judgements of the High Court:
- Held that the express terms of the written contract between the parties should be given weight, not the parties’ conduct over the 30-year relationship.
- Stipulated that, in this case, the rights and responsibilities allocated in the contracts were clearly that of a contractor arrangement.
- Emphasised the fact that the drivers’ contracting entities were partnerships and that the drivers provided and maintained their own trucks, which were significant tools of their trade.
Personnel: the facts
In Personnel, a British backpacker was hired by a labour-hire agency, Personnel Contracting Pty Ltd, trading as Construct (Construct) as an independent contractor. Construct would then hire out the backpacker to third parties to complete construction work. There was a written contractor agreement between the backpacker and Construct which placed significant restrictions on the ability of the backpacker to decide how to complete their work, instead giving the third-party control of the working conditions of the backpacker.
Personnel: the decision
In Personnel, six of the seven High Court justices held that the backpacker was an employee of Construct.
While this was the opposite finding to that in Jamsek, it was made for the same key reasons. The High Court found that:
- The backpacker was not conducting their own business but was serving Construct and its business.
- While the written contract used the label of ‘independent contractor’, the actual rights and obligations of the parties created a relationship of employment between the parties.
- Under the contract, Construct had significant control over the work the backpacker performed and for whom, and this level of control is an important factor in determining whether someone is an independent contractor or an employee.
Why are these decisions important for employers?
These cases highlight key considerations for businesses using independent contractors:
- Where there is a written agreement, the terms of the agreement will be heavily relied on to understand whether the underlying relationship is one of employment or independent contractor.
- When considering a written agreement, the rights and obligations of the parties are important, not the labels given to the parties.
- Parties must ensure the terms of any independent contractor agreement reflect the actual arrangements between the parties. Otherwise, the contracts may be considered sham arrangements under the Fair Work Act 2009 (Cth).
Okay – so what should I do to protect myself and my business?
- If you already have written contractor agreements, it’s time to have them reviewed by your legal adviser to ensure that they are up to date, reflect the recent changes, and are not missing key details or information.
- If you don’t already have written contractor agreements and engage contractors, you should seek advice as soon as possible. Running a commercial relationship on just a handshake agreement does not offer you much protection in court years down the line.
- If you’re considering engaging contractors, seek advice on whether or not the arrangement is a genuine contractor arrangement and get your written contracts drawn up by a legal adviser.
We know that undertaking these audits can be challenging, but doing the work now will save you a lot of stress later. Get your HR or legal experts to assist, especially if you find irregularities or have any concerns that something might not be correct. Independent contractors can be incredibly useful for everyone involved – as long as the documentation and processes are up to date and legally compliant.
If you have any questions regarding these changes or how to implement them, please contact us.
The above should not be considered legal advice and is for general use only.