Focus on the written contract says the High Court in a decisive judgment on tripartite labour-hire arrangements

The High Court has allowed an appeal from the Full Court of the Federal Court of Australia, in finding that a labourer engaged by a labour-hire company was an employee.

Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (High Court of Australia)

Mr McCourt was an inexperienced backpacker who sought work on a construction site. Personnel Contracting Pty Ltd (Construct) was a labour hire company which engaged Mr McCourt. Construct and Mr McCourt signed an Administrative Services Agreement (ASA) which named Mr McCourt as a self-employed contractor. Construct had a Labour Hire Agreement with Hanssen Pty Ltd (Hanssen). Construct assigned Mr McCourt to work on the construction sites of Hanssen, where he performed basic tasks. There was no contract between Mr McCourt and Hanssen.

The central issue focused on the determination of the relationship between Mr McCourt and Construct.

The Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) and Mr McCourt commenced proceedings against Construct, seeking compensation and orders for penalties under the Fair Work Act 2009 (Cth) on the basis that Mr McCourt was not paid entitlements as an employee under the Building and Construction General On-Site Award 2010.

At first instance, the primary judge found Mr McCourt was an independent contractor on the basis of a multifactorial analysis, considering the contractual terms of the ASA and the work practices imposed by both Construct and Hanssen. This was upheld in the Full Court of the Federal Court of Australia.

The High Court of Australia allowed the appeal, with the majority finding that Mr McCourt was in fact an employee of Construct, rather than a contractor. The majority held that where the terms of a relationship are committed to a written contract, and that contract is not challenged as invalid or otherwise waived, the relationship will be determined by referring to the rights and obligations created by that contract. These are to be construed in accordance with established principles of contractual interpretation.

The ASA between Mr McCourt and Construct determined the relationship between the parties and created a suite of rights and obligations which mirrored those of an employee/employer. There was no challenge to the efficacy of the ASA or suggestions that it had been varied through conduct. Construct had control of who Mr McCourt worked for and Mr McCourt promised to supply his labour to Hanssen. He was entitled to be paid in accordance with that promise.

The High Court criticised the multifactorial test for producing uncertainty and gave more weight to the question of whether the person is conducting his or her own business, as opposed to serving in the employer’s business in determining the parties’ relationship. This “own business/employer’s business dichotomy” is more useful, it said, in that it focuses on aspects defined by the contract itself, which has more relevance. In this instance, Mr McCourt was found to not be carrying on a business on his own account and was working under the control and direction of Construct.

The decision will have important implications on businesses that utilise tripartite labour hire arrangements and those working in the gig economy. It is clear that the importance given by the High Court to the rights and obligations imposed by written contractual terms will dictate what entitlements and benefits will accrue, based on the nature of engagement set out within that contract.

This decision, together with the High Court’s judgment in ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors [2022] HCA 2 [CC1] is likely a welcome relief to many employers who have comprehensively established the terms of their relationship with their workforce to written contracts.

If you require any assistance in reviewing your employment contracts or contractor arrangements in light of these new developments, please contact our employment team.