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Key Takeaways

The dichotomy between employees and independent contractors is a topic that permeates a number of areas of the law, including tax, workers compensation, and insurance, apart from the obvious connection with employment law. We now examine several recent high profile cases and their impact on the key principles that traditionally underpin this area, as well as the potential spanner in the works thrown up by ‘gig economy’ roles.  

Brief Facts

The difference between employees and independent contractors is often minimal and difficult to identify. However, which category a worker falls into can have significant legal and financial implications. For workers it can impact their benefits, regularity of work, and entitlement to compensation or other insurance. For businesses, it can impact their liabilities, including tax, super, leave payments, insurance risk, and many other factors that go towards their bottom line.

The issue has received greater attention in recent years, mostly due to a rise in ‘gig economy’ roles, but also due to a desire for individuals to have greater flexibility, balance, and control over their working lives. However it is not just ‘gig economy’ workers who are contractors. According to ABS data, 25% of construction workers, 18% of administrative workers, and 13% of postal, transport and warehouse workers are contractors. This doesn’t even take into account roles like substitute teachers, nannies, nurses, and other care-related roles.

Recent cases

The HCA recently decided two cases where the key issues revolved around the distinction between employees and independent contractors.
In the case of CFMMEU v Personnel Contracting, Mr McCourt, the individual performing the work, signed an agreement with Personnel Contracting as a ‘self-employed contractor’. He was assigned to work at various construction sites with Personnel’s client, Hanssen P/L, where he performed laboring tasks under the supervision and direction of Hanssen’s supervisors. He was supplied with all of his equipment, and had recurring start and finish times. The crucial issue in the case was whether McCourt was an employee of Personnel Contracting for the purpose of the Fair Work Act 2009.

The primary judge that held McCourt was an independent contractor, and an appeal to the Federal Court was dismissed. Both courts applied the ‘multifactorial’ test. This involved analysing the terms of McCourt’s contract, the work practices imposed by Personnel and Hanssen, and ‘the totality of the relationship’, and then extrapolating various factors that were indicative of either an employment or contractor arrangement (regular workplace, uniform, who supplied equipment, who controlled the work etc).  

On a further appeal, the HCA observed that the multifactorial test could create considerable uncertainty, and cautioned against using the various factors as a checklist, indicating that some were more important than others. The HCA gave significant weight to the specific issue of whether McCourt was conducting his own independent business in the course of carrying out the relevant work. Based on the fact that McCourt’s work was found to be dependent on and subservient to Personnel’s business, he was held to be their employee.

The HCA again examined the contractor/employee issue very shortly afterwards, in the case of ZG Operations Australia v Jamsek. The facts here concerned two truck drivers, initially engaged as employees, but who were later offered the opportunity to become contractors. They were told that they would no longer be employed by ZG, but that the company would continue to use their services if they bought their own trucks and entered into contracts to carry goods for the company. The drivers both purchased trucks, set up partnerships with their wives, and provided their services to ZG for several decades. They invoiced ZG for the services provided, with part of the revenue used to meet the partnerships’ operating costs, and the remainder declared as income and split with their wives for tax purposes. The agreements with ZG were terminated in 2017, and the drivers sought entitlements allegedly owed to them as employees.

The primary judge found the drivers were independent contractors, but the FCA overturned that decision. On appeal, the HCA noted that the partnerships conducted their affairs as businesses, involving much greater risks than if they were employees. The fact that the drivers maintained their own trucks and that the partnerships (not the drivers) had contracted to do the work was seen as significant. Also important was ZG’s insistence that an ongoing relationship would only be possible as contractors, as well as their refusal to continue to employ the drivers – which the drivers had accepted. So the Court followed a similar reasoning as its decision in the Personnel Contracting case, focusing on whether the workers were conducting independent businesses, but in doing so came to the opposite conclusion, that the drivers were in fact contractors.

In both of the above cases the HCA was keen to emphasise that while a multifactorial analysis was not inappropriate, its role was to enforce the parties’ rights and obligations under contract, and not just form a view based on the various indicators in a given situation. While these cases take the line of authority in a relatively logical direction, the decision in Personnel Contracting in particular may have serious repercussions for industry, as it challenges the business model of many labour hire firms, and raises the prospect that these businesses have been underpaying workers by labelling them as contractors.

Implications

The already murky task of distinguishing between employees and contractors has been further blurred by a recent spate of ‘gig economy’ cases. Historically, workers for app services have been classed as independent contractors, and so were not eligible for benefits like workers compensation. However with these types of arrangements becoming more common, and society’s shifting views regarding the nature of work - accelerated by Covid - the tide seems to be turning, to the point where the various courts are now split over app drivers and their status as contractor or employee.

The landmark 2018 decision of Klooger v Foodora, in which the FCA held that a delivery driver was an employee (based on elements of control and independence), and was unfairly sacked, challenged the status quo and struck a blow for ‘gig economy’ workers. However in April 2020 the full bench of the Fair Work Commission in Gupta v Portier Pacific reiterated its position in prior cases, by failing to recognise Uber Eats drivers as employees because they chose when and where they worked. That finding was appealed to the FCA, however Uber avoided a binding ruling on whether ‘gig economy’ workers are employees or contractors, by settling the matter in December 2020.

The most recent and perhaps high profile of these cases is Wei v Hungry Panda Australia, involving a worker, Mr Chen, who was killed while delivering food on a motorbike for Hungry Panda in September 2020. In June 2022 the NSW Personal Injury Commission granted death benefits to the worker’s family, with Hungry Panda ordered to pay a lump sum of $827,400, as well as weekly compensation to the deceased’s children. Crucially however, Hungry Panda conceded that it employed Mr Chen prior to the Commission making a finding on the issue, once again avoiding a landmark ruling. While on the face of it this case swings the balance in favour of delivery drivers, its wider impact is questionable, as it was made in a compensation setting, relates to a particular piece of state legislation, and resulted from the Defendant’s concession rather than a judgement. Thus it is still open to conjecture that had this dispute been conducted in a different jurisdiction, and subject to the same reasoning adopted in the recent HCA cases, that the outcome may have been different.

Where to from here?

Workplace law in Australia is becoming increasingly transparent, and more highly legislated. As a result, we are seeing both the legislature and government taking a more active role in workplaces, to seek to balance the scales of power. This is illustrated by recent changes to end Non Disclosure Agreements for workplace sexual harassment settlements, as well as the introduction of paid domestic violence leave for casual workers. Federal Employment Minister Tony Burke recently suggested that the government intends to be more interventionist in this respect, and it is not hard to see the ‘gig economy’ being a target for legislative reform, particularly given its exponential growth in the last decade.

Where that sentiment takes us remains to be seen. In terms of what we do know, the recent HCA rulings previously discussed, while not dismissing the multifactorial approach, provide renewed importance to the specific terms of the contractual relationship. At present ‘gig economy’ cases are almost viewed as a separate subset of workplace cases, where the principles that govern the wider area don’t necessarily apply, and the status of workers as either employees or contractors are still yet to be determined. However, rather than seeking to definitively generalise ‘gig economy’ workers, we should accept that they can fall on either side, and decide on a case-by-case basis. As these roles continue to emerge and gain greater traction in the labour market, it will be interesting to observe whether ‘gig economy’ cases become subsumed into the wider body of law governing employee and contractor disputes. If that occurs, we may see more app services exit the Australian market, just as Foodora did in 2018, amid the prospect of rising costs aligned with the need to pay their workers entitlements that they were previously denied as independent contractors.