Business structures

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29 Jul 2022

Employees v contractors—where are we at?

READ TIME

3 min

The tide is changing, again.

Last August, I wrote about the Latest clarity on casual v permanent employees, which dealt with the intersection of two issues: Rossato case law and workplace reforms/Fair Work precedents. Since then, the High Court has followed the changing tide, allowing the appeals and overturning the Full Federal Court decisions in: 

Effectively, the High Court said, barring sham contracting, it was only the written contract that determines if a person is an employee or contractor, not post-contractual conduct.

In ZG Operations, truck drivers who were former employees subsequently provided services through a partnership for almost 20 years. The High Court overturned Full Federal Court’s decision that they were employees and confirmed their status as contractors, as per the contract, following the High Court approach in WorkPac Pty Ltd v Rossato [2021] HCA 23 (Rossato). Key factors that led to the High Court decision was the contract stipulated drivers could decide their respective service areas and routes and when and how they worked. The partnership also included the drivers purchasing and maintaining their own trucks.

In Personnel Contracting, the High Court overturned the Full Federal Court’s decision and confirmed that the backpacker engaged as a contractor by the labour hire operator was an employee. Again, the contract was the key focus as it comprehensively dealt with the relationship. The High Court said based on the contract, it was clear that the employer (Construct) had a right of control over the contractor (Mr McCourt), including deciding who he could work for and his hourly rate. The terms indicated a relationship of ‘control’ which was consistent with an employment relationship. The fact that Mr McCourt was described as a contractor did not change the character of that relationship. 

As a result of a changing tide of how Courts are deciding these cases, the Australian Taxation Office (ATO) has been forced to review its advice on who qualifies as an ‘employee’ for superannuation purposes. The ATO anticipates releasing those updated guidelines by October 2022, once its review is complete. I expect their review will change key principles around their current guidance, having profound impacts on employers. Particularly for labour hire companies that recruit workers on independent contractor arrangements (known as “Odco” arrangements) that can potentially create significant liabilities to be incurred!

At Worrells, we deal with a full range of businesses vulnerable to insurmountable debts crystalising from misunderstanding or misapplying worker designations. Your local Worrells principal is here to help. Contact us for a complimentary and confidential discussion.

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