Ongoing structural shifts within the workforce have exacerbated the importance of a clear distinction between employees and independent contractors. Flexible working-from-home arrangements and the rise of the gig economy have attracted the global workforce to a non-traditional means of employment. Greater autonomy and a more sustainable work-life balance are factors which are likely to catalyse the growth of independent contractors, a sector which already accounts for 7.8% of Australia’s total employment (as of August 2021).
Although this broadens opportunities for employers, there have been frequent legal disputes in distinguishing between employees and independent contractors. Fortunately, in February 2022, the High Court handed down a decision which aided in clarifying the nature of independent contracting relationships; ZG Operations Australia Pty Ltd v Jamsek  HCA 2 (Jamsek).
Who is an independent contractor?
An independent contractor provides agreed services under a contract for those services. Contractors, or subcontractors, usually negotiate their own fees and working arrangements because they represent their own work, not the work that is executed by the business they are contracting for. Although there are many professions which are capable of being performed by independent contractors, the most common examples include freelance writers, graphic designers and auctioneers.
Who is an employee?
Employees on the other hand, are workers who represent the business they are working for. An employee works in the service of the employer under a contract, which establishes work duties and employee entitlements, which must be in accordance with the National Employment Standards.
How does the court differentiate between contractors and employees?
Previously, courts considered the manner in which parties conducted their relationship after the contract was signed. Courts applied a multifactorial approach in determining whether a worker was an employee or an independent contractor. The terms of the contract were relevant but not decisive.
However, in Jamsek, the High Court found that the key differentiation between contractors and employees is to be found within the terms of the contract (whether written, oral or a combination thereof). In Jamsek, the court had significant regard to the nature of legal rights and obligations held within the contracts. Specifically, the court noted that each partnership (provision of delivery services) paid for running costs and expenses of their trucks, and would invoice ‘ZG Lighting’ (the company) for the delivery services provided. By examining these features within the contract, the High Court concluded that these “partnerships” were operating as a business of their own.
How relevant are contracts in determining the relationship between contractors and employees?
The majority decision in Jamsek concluded that the way in which ‘contracts are played out in practice’ is, in most cases, no longer relevant in determining the nature of the relationship. Rather, post-contract conduct is only relevant when identifying relevant contractual terms (where the contract is not wholly in writing), or challenging the enforceability of the contract under the provisions of the Fair Work Act 2009.
It should not be assumed, however, that post-contract performance is entirely irrelevant to the categorisation of work relationships. In particular, it is crucial that parties avoid the following:
- Waiving their rights under the contract
- Varying their contracts by way of conduct; or
- Making representations which may be used to compromise their interests.
Why is it important to distinguish between independent contractors and employees?
The choice between employees or contractors will affect an employer’s tax, super and other obligations. For instance, an independent contractor is not entitled to paid leave and for the majority, pay their own superannuation. On the other hand, employees are entitled to paid leave, are covered under the National Employment Standards and are entitled to a compulsory superannuation provision by their employer. Hence, an ambiguous distinction is likely to create disputes, resulting in severe penalties for employers.
How Etheringtons Solicitors can help?
A solicitor at Etheringtons Solicitors can provide clarification of the relevant law and its relation to your individual circumstances. If you need further advice or assistance with any employment law matters, please contact one of our experienced solicitors on (02) 9963 9800 or via our contact form.