Recent decisions by the High Court have changed the game when deciding employees versus contractors
O*NO! There have already been not one but two decisions by the High Court in 2022 about significant changes to what the Court looks at when deciding if a worker is an employee or a contractor. These decisions have rocked the employment space. What might have been ok before may not be ok now in establishing working relationships. So how will these decisions affect you and your contractors? Will your existing contractor arrangements need to be changed? Quite possibly.
ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (‘Jamsek’)
The respondents were employed drivers for a company. The company said they couldn’t employ them anymore and if they wanted to keep driving for the company they’d have to become contractors. The drivers set up partnerships with their spouses, bought their own trucks, signed contractor agreements and invoiced the company for deliveries. Years later the drivers started proceedings against the company on the basis they had been employees all along despite the contractor agreement they signed.
What did the High Court decide? The drivers were contractors, not employees. Why? The Court looked at the facts based on the rights and duties of the parties as set out in the agreement signed between them. Nothing in the agreement suggested the drivers were employees of the company. The drivers were free to do work for others if they so chose and they took advantage of their business partnership to split income and tax as well as claiming costs.
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (‘Personnel’)
Construct is a labour hire company who supplies labourers to building clients. Construct signed up a contractor agreement with a backpacker, McCourt, for McCourt to be a self-employed contractor. Construct and a builder contracted with each other under a labour hire agreement. McCourt did not contract directly with the builder. McCourt worked under the supervision and direction of the builder and Construct never directed McCourt in the performance of work. Proceedings were brought against Construct for payment of employee entitlements.
What did the High Court decide? McCourt was found to be an employee not a contractor Why? Both parties accepted the contract was wholly in writing, and there was no suggestion that the terms of the contract had been varied or invalidated by conduct. In these circumstances the Court said the nature of the relationship was defined by the legal rights and obligations set out in the written terms. Under the contract McCourt only provided labour, he couldn’t subcontract the work to anyone else and the builder had a significant degree of control over McCourt’s performance, therefore he could not be seen as independent.
Findings from the High Court cases
The importance of contractors being a business structure, not just an individual, for performance and liability purposes
It is an indication of a contractor relationship if the work could have been performed by any worker retained by the contractor (i.e. the work didn’t need to be completed by a specific person)
Contractors aren’t usually restrained from working for other parties
Flexibility in a contract for remuneration to increase with extra work undertaken will decrease the likelihood that provision for standard working days indicates an employment relationship
What have the High Court decisions changed in the employment space?
Previously, the courts held that the relationship as a whole between the parties needed to be looked at regardless of what is in a written contract. Now, the High Court has determined that if there is a written contract in place, and it has the requisite characteristics we’ve explored in our previous articles here and here, then that is enough to show the worker is a contractor. If, however, the written contract doesn’t reflect the actual arrangement the Court will look beyond the written terms.. The recent rulings have determined that the Courts should only consider conduct in cases where the conduct may have varied the terms of the contract after it was made.
So, what does this mean for your real estate?
First, you will need to show that your contractor is running their own real estate business. Secondly, your contractor agreement needs to reflect the following:
The contractor is not an individual. Think company, trust or partnership. Why? A legal entity like this is more likely to be seen as carrying on its own business because they have accepted the benefits from that legal status.
Services aren’t tied to performance by a single person. While a specified person can carry out the services the contract shouldn’t restrict performance to only that person. For example, if that person takes leave or moves on then there needs to be the ability for someone else in the contracting entity to jump in (and the contracting party pays that person to do so). Why? If the contract is just tied to one person, there’s a greater risk of the arrangement appearing more like a contract for the provision of labour and not a contractor arrangement.
Flexibility in the contract as to remuneration for work completed rather than hours worked on certain hours and days. If the contractor is on a commission basis (ie the more they sell the more they earn) then you are on the right track. Why? If the agency asserts lots of control over a person, then that is more indicative of an employment relationship.
No restraints of your contractor working or performing services for third parties. Why? This is the one most agencies have the biggest issue with as they want their agents to only work for them, however a true contractor can offer services to the world at large.
All equipment and services are provided through the contractor. Why? Businesses own or lease their own equipment such as cars, laptops and other items, employees are provided with resources.
The contractor is to carry the commercial risk, eg they are responsible for their own expenses and equipment. Why? Businesses carry commercial risk and have to pay their own bills, not employees.
Requirement for contractors to invoice the agency for its fee or commission. Why? Those operating businesses invoice their clients for payment for their services rendered.
An IP Licence to allow the Contractor to use your brand, logo and other IP. Why? Generally, third parties can’t use your brand, logo and other IP without your permission; a contractor would need your permission in the contract. Otherwise, if your worker uses your agency’s brand without permission it may represent them as being a part of your business, namely as an employee.
Must be in writing. Why? If you need to show the court your contract, it is much easier. Also, where contracts are verbal you get into a ‘he said, she said’ situation that can be hard to defend.
One item that was not yet resolved by the courts - contracts that are mainly for the labour of a person may denote that person as an employee for superannuation purposes, but the particular implications of this part are yet to be determined.
Agencies should avoid engaging ‘low skilled’ or lower paid workers as contractors as they may be subject to an Award (including the real estate award, administrative awards, marketing or accounting awards etc). Low skilled labour are generally harder to prove they are running their own business and don’t need guidance to complete their work.
Key Takeaways:
Avoid hiring low skilled workers as contractors
Review your contractor agreements to make sure they satisfy the Court’s criteria
Make sure your contract reflects actual arrangements
Make sure your contractor runs their own business
Be careful trying to restrain your contractors from taking on work from third parties
If your contractor is to use your brand, make sure you have an IP licence in place
Don’t restrict performance to being completed by a specific worker
Your next steps
For further information or if you want to have your arrangements legally reviewed, contact O*NO Legal at [email protected] or join the REAL Membership where you will have access to our real estate specific Contractor and Employment Agreement templates that are updated to comply with the legislative changes to ensure you remain compliant with employment legislation.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.