ZG Operations v Jamsek and CFMMEU

Case heard in the High Court focussed on the issue of identifying whether a person was an employee or an independent contractor to the Company. The High Court clarified the primary factors with which to have regard when determining the nature of an employment relationship.

Background

The rise of the ‘gig economy’ has increasingly seen companies like Uber circumvent many of the obligations owed to employees in traditional employment relationships by utilising more flexible agreements with independent contractors. By using independent contractors to deliver their services, these companies do not have to pay entitlements such as annual leave and sick leave owed to employees.

For decades the Courts have dealt with trying to define the often unclear working relationships between businesses and ‘workers’ (here referring to both independent contractors and employees) common in the construction, administration, transport, and other industries. Generally, the issue of establishing the type of employment relationship, and its subsequent terms, has been treated separately to other commercial transactions due to the nature of working relationships and the perceived power imbalances between the businesses and their workers.

When determining the relationship between parties, the Courts have traditionally looked to the nature of the relationship in its entirety; considering not only the terms of the employment contract, but also the workers leave entitlements, the degree of control an employer has over how the worker performs their tasks, the financial relationship (whether the worker is a separate entity with a separate ABN for instance), even whether the worker is required to wear the business’ uniform, and more.

The consequences of a determination either way can have potentially enormous implications for the parties with regards to taxation, leave entitlements, and wages which should have been paid over the entirety of the relationship. In the case of Jamsek the High Court once again address the issue of how to determine whether a worker is an independent contractor or employee.

Facts

ZG Operations Australia, previously Thorn Lighting (‘the Company’), employed Mr Jamsek as a delivery driver from approximately 1977 to 2017. Until 1986 the Company had employed all their driver as employees; providing the delivery trucks, covering the associated costs and paying them as employees with standard entitlements. In 1986 the Company decided to change their relationship and asked the drivers to become contractors. This new arrangement was reflected in a contractual agreement which clearly stated the drivers were now independent contractors and separate legal entities to Thorn Lighting.

This relationship involved the drivers providing their own trucks, covering the maintenance, insurance and registration costs, setting up the separate legal entities (Jamsek and others formed a partnership with their respective wives), and invoicing the Company for jobs/days completed. As per the new contract, the drivers lost all paid leave and associated entitlements, and were required to take any time off as unpaid.

Over the ensuing years, the drivers continued making deliveries almost exclusively for the Company, though they had almost complete autonomy as to how they organised their deliveries, both individually and as a group. Importantly the contract also allowed them to perform work for other employers, held them liable for any damage to good suffered in the process of delivery, and substitute themselves for other drivers (subsequent to approval of the Company).

Outcome

When this matter was heard by the Federal Court, they held that with regard to the totality of the relationship between the parties, Mr Jamsek had remained an employee of the Company despite the intention of their contract(s) from 1986 onwards. The reasoning, though contentious, followed the well-established principles of assessing the “substance and reality” of the relationship as well as “certain aspects of the contractual obligations”. The Federal Court took into account the relationship between the parties prior to the 1986 changes, and the ‘expectations’ the Company had of their drivers thereafter (including carrying the Company logo while working and working 9 hours per day 5 days per week regularly). Their decision was that the reality of the relationship between the parties did not change after 1986, and the Company therefore owed the drivers additional employee entitlements for this period.

On appeal, the High Court found that Mr Jamsek was an independent contractor to the Company from 1986 onwards. In this decision the High Court gave primary consideration to the contractual terms as negotiated between the parties. The Court importantly considered both parties autonomous and unrestrained from entering into a changed business relationship, absent any undue influence exercised by one party.

To this end, if the contract establishing a business relationship between a worker and business/sole trader is legitimately executed then the terms of that contract regarding that relationship, if clearly stated, will determine the nature of the worker’s rights and entitlements.

Effect

This decision marks a significant departure from the traditional the approach taken by the Courts when addressing this issue. Now, with the contractual terms to be taken as principal indicator of the nature of a business relationship, businesses and workers alike are offered much more certainty of their entitlements when entering into written contracts for employment/services.

This new certainty and predictability of interpretation will likely see the continued rise of ‘gig economy’ companies and independent contractors to deliver services. This decision reaffirms the importance for employers to maintain clear and precise written contracts for their workers as a matter of practice.

Contributor: Alex Gaudie

The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.