Contract is King but the Practical Reality Still Matters in Worker Classification

Some commentators are claiming that the High Court’s recent decisions relating to worker classification have placed primacy on the terms of a contract, to the exclusion of the practical realities of the work.

While it is true that the Court’s new approach places far more emphasis on the words of a contract than ever, these terms will still need to marry up with the actual rights and obligations in practice, and their corresponding classification.

The courts will not accept that an employee is a contractor, simply because the contract says so.

The High Court’s Decisions

The two recent decisions demonstrate that the Court’s approach does look beyond the terms of a contract.

Both cases involved contracts which specified a principal and contractor relationship. However, the circumstances were entirely different, particularly in how the parties were allowed to perform their duties. In Personnel Contracting, despite being engaged as a contractor:

1.  the worker’s lack of independence; and

2.  an accompanying threat of termination for refusing to comply with directions 

led to a proper characterisation of the relationship as employment.

Contrastingly, in ZG Operations two truck drivers had their classification as contractors upheld by the Court, where they owned and maintained their own vehicles and had the capacity to increase their earnings through taking on additional deliveries.

Although the facts in these two cases are at opposites to one another, their differences demonstrate that the Court will continue to look to the actual rights, obligations and conditions which accompany a contract.

Assessment of Labour

The terms of a contract are now critically important in determining a worker’s classification as a contractor or employee. However, rights, obligations and conditions still matter.

With the new approach to worker classification established by the High Court, there will likely be an increase in claims from contractors who are seeking access to employee entitlements. As there may be significant risk to companies, especially where a large proportion of labour is supplied through contractor agreements, it is important to assess both the contract terms and practical conditions of work.

If you are unsure that the overall classification of a contractor relationship matches the reality of the work arrangement in practice you need to urgently update your contractual documentation or change the arrangements.  A final word of caution – most disputes of this nature occur after an unrelated breakdown in the relationship.  Take action to ensure your documentation protects your business to the best it can.

Edge Legal

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