This is an employee versus contractor High Court case - CFMMEU v Personnel Contracting.

Learn why the written contract is king and why the multifactorial approach no longer applies.

This is part of March 2022 - Monthly Tax Updates series by John Jeffreys.

Date published: 20 April 2022

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TRANSCRIPT

Introduction

Determining whether an individual is an employee or contractor can have significant implications for those who engage labour.

Among other things the determination of whether an individual is an employee or not affects the Pay As You Go withholding system, whether superannuation contributions are required under the superannuation guarantee legislation, payroll tax implications in the various states and entitlements under the Fair Work Act 2009.

Getting the decision wrong about this issue can expose a business to very significant financial costs and penalties. In some circumstances, this can be enough to wipe the business out.

CFMMEU v Personnel Contracting

There have been two cases recently that address the perennial problem of whether an individual is an employee or contractor.

One is Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd, where the High Court overturned decisions of the Full Federal Court.

I'll start by giving you the facts of the case.

Mr McCourt arrived in Perth from the UK in 2016. He was a 22-year-old backpacker who came to Australia on a working holiday visa. He had some limited prior work experience as a part-time bricklayer.

McCourt was engaged by Personnel Contracting to provide services to Hanssen. Mr McCourt was required to sign a document and was described as a “self-employed contractor”. He was not treated as an employee and was therefore not entitled to a range of employee benefits.

The CFMMEU acting for Mr McCourt felt that, in fact, he was an employee and not a contractor.

What McCourt Did

Mr McCourt engaged in basic labouring tasks. He took out the bins, cleaned workspaces and moved materials. He was paid by the hour and when he was at work was supervised and directed by employees of Hansen.

The critical question in the litigation was whether Mr McCourt was an employee of Personnel Contracting.

The Federal Court

This case made its way to the High Court following two levels of analysis by the Federal Court. The Federal Court had held that Mr McCourt was a contractor and not an employee.

The Full Federal Court said plainly that they were of the view that Mr McCourt was an employee of Personnel Contracting. Nevertheless, due to a prior decision involving both of these parties the Full Federal Court felt bound by that prior decision and consequently held that Mr McCourt was not an employee.

The CFMMEU appealed against this decision to the High Court.

The High Court

The High Court, in a 6 – 1 majority decision, overturned the decision of the Full Federal Court and held in favour of the CFMMEU. The High Court concluded that Mr McCourt was an employee of Personnel Contracting.

Reason for the decision

Under the contract, Personnel Contracting:

Was entitled to determine for whom Mr McCourt would work;
Had the right of control over Mr McCourt with regard to where he worked;
Paid Mr McCourt; and
Could terminate the supply of Mr McCourt’s labour.

Implications

The decision of the High Court is important because it has clarified the prevalent method of determining whether an individual is an employee or a contractor.

Courts, for a period of about 30 years, have used what is referred to as a “multifactorial approach”.

This is a process of examining all of the factors that surround an arrangement to engage the services of an individual and weighing up the factors to determine whether the individual is an employee or otherwise.

If there is a written contract that covers the relationship, this is one factor that is taken into account. Other factors such as the way the parties conduct themselves is also taken into account.

Importantly, the High Court has rejected the multifactorial approach where there is a written contract that comprehensively covers the engagement of the individual.

Put plainly, the High Court said that the written contract is the prime source of determining the contractual terms of the relationship where an individual’s services are engaged.

Experts in employment law are saying that these represent a clear shift with regard to the factors that should be considered when deciding if an individual is an employee or a contractor.

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