For over the past 20 years, companies have struggled with the question of who will be an employee and who will be an independent contractor. Previously, the courts would apply a ‘multifactorial test’ which would examine a range of indicia to examine the ‘totality’ of the employment relationship to decide whether the worker is an employee or an independent contractor.
Two very recent High Court decisions have clarified that the primary means by which the courts will use to decide whether a worker is a contractor or employee is the contract itself and its terms (the Landmark Decisions). We will now discuss a recent case in the Federal Circuit and Family Court of Australia (FCCA) which applies the Landmark Decisions.
Pruessner v Caelli Constructions Pty Ltd  FCCA
The Applicant claimed that he was employed by a construction company, Caelli Constructions Pty Ltd (the Company), in 2012 under an oral contract. As such, he claimed various employee entitlements such as leave, superannuation and redundancy payments. The Applicant provided factors of his engagement that supported an employment relationship such as: he worked on a full time and exclusive basis, he took directions from the Company, he was represented as part of the Company’s business, and he bore no commercial risk for the work he undertook.
The Company denied that the applicant was an employee, claiming that it engaged Pruessner Holdings Pty Ltd (Pruessner Holdings), a company that involved the Applicant, his wife and other family members, to supply services from time to time under a contractor agreement. These services were provided by the applicant on behalf of Pruessner Holdings.
With no written contract in place in the matter, the judge said he was free to ascertain its terms by looking at the parties’ oral agreement and “post-contractual conduct”.
FCCA Judge Alister McNab observed that he was “fundamentally. . . bound to follow the approach taken by the High Court” in those judgments. The decisions emphasise the primacy of the contract between the parties in determining the true relationship between them.
Judge McNab made reference to Personnel Contracting, which relevantly provides:
“The resolution of the central question requires consideration of the totality of the relationship between Construct and Mr McCourt, which must be determined by reference to the legal rights and obligations that constitute that relationship. Where the parties have entered a wholly written employment contract, as in this case, the totality of the relationship which must be considered is the totality of the legal rights and obligations provided for in the contract, construed according to the established principles of contractual interpretation. In such a case, the central question neither permits nor requires consideration of subsequent conduct and is not assisted by seeing the question as involving a binary choice between employment and own business.”
Judge McNab found that there was no initial agreement that the Applicant would be employed by the Company.
In these unique circumstances of a lack of written agreement, post contractual conduct may be interpreted to determine the “whether a contract was formed, who the parties to the contract are and whether a particular term should be inferred” as well as the subject matter of oral contracts. Judge McNab found that the “subsequent conduct of the parties in relation to [Pruessner Holdings Pty Ltd] rendering invoices and supplying labour other than the [worker]. . . indicates that the arrangement agreed was that PH would supply labour to [the Company]”.
Judge McNab acknowledged that some factors – the exclusive nature of the relationship, the “substantial” hours involved, the worker’s authority to engage labour – pointed to the possibility of an employment relationship. However, given the Landmark Decisions the FCCA gave primacy to an agreement between Pruessner Holdings and the Company, rejecting arguments from the Applicant that he was in fact an employee.
Despite the unique instance of an oral contract, this decision supports that the Court will look to the contract/agreement between the worker and the company when determining whether a relationship with a worker is one of an independent contractor, or employee. McNab acknowledged in this case that the court is bound by the rulings of the Landmark Decisions and offers insight that in the instance of a written contract, the court will apply these accordingly in the future.
However, this decision also demonstrates that in the instance there is no written agreement in place between the parties, the court will still investigate the post-contractual conduct to ascertain the true nature of the relationship.
If you have any further questions about how the Landmark Decisions, and the newfound primacy of contractual terms, please do not hesitate to contact Nick Stevens, Daphne Klianis or Josh Hoggett.