High Court changes direction on independent contractors

   Posted by Admin

The High Court has delivered two important decisions concerning independent contractors. The Court held that where a written agreement governs the relationship between the parties, generally that agreement will determine whether a person is an employee or independent contractor. 

Two cases were heard together by the High Court and judgments handed down on the same day.  The High Court’s approach provides greater certainty for businesses who have properly recorded their independent contractor relationships in written contracts that accurately reflect the nature of the relationship.

The decisions are a significant departure from the approach previously applied by Australian courts which involved an extensive assessment of the actual circumstances of the working relationship between the parties to determine (not just their contract) whether or not an employment relationship exists.

What should employers do next?

The High Court decisions in Jamsek and Personnel Contracting mean that in general, the existence of an employment or contractor relationship depends on an assessment of the totality of the parties’ relationship based on their contractual terms and conditions.  The previous approach of considering the subsequent conduct of the parties as well as their contract when making this assessment is no longer correct.

The key messages for principals when engaging contractors are: 

  1. The terms of engagement should be comprehensively set out in a written agreement between the parties.  If key aspects of the relationship are not regulated by the agreement, this could  allow a contractor to challenge the contract and a court to examine the conduct of the parties.
  2. Agreements should prescribe the sole methods by which they are varied (i.e., by written agreement of the parties, not their conduct) and provide that the written agreement constitutes their entire agreement.
  3. Documents relating to the recruitment of contractors (such as advertisements and description of proposed services) could be examined to ascertain the intention of the parties when entering into the contract and should be consistent with a contractor relationship; and
  4. Review and update their contractor agreements to ensure the legal rights, duties and obligations created between the parties are consistent with the relationship of an independent contractor and principal.

To find out more about the cases visit Jamsek and Personnel Contracting