The HcoA held that where parties have entered into a valid and comprehensive written agreement, the ultimate characterisation of the relationship is focused on rights and duties established by the written agreement, and not how the relationship operates in practice.
These two decisions highlight the importance of employers having effectively drafted agreements
for both independent contractors and employees.
In both cases, Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting),
and ZG Operations Australia Pty Ltd vJamsek [2022] HCA 2 (Jamsek), the HCoA had to
determine whether the relevant workers were employees or independent contractors.
The HCoA upheld both appeals, however, with two different outcomes. In Personnel Contracting the HCoA held that the worker was an employee,
whilst in Jamsek, the workers were found to be independent contractors.
In both cases, it was not suggested that the:
• contracts were not observed in practice;
• reality of the work was inconsistent with the contracts;
• contracts were a sham or unlawful; or
• written contracts had been varied by conduct of the parties.
It was in this context that the majority held that the terms of the written contracts should have been the sole focus of the analysis of the relationship.
Applying the new approach, the majority of the HcoA found in Personnel Contracting that despite the agreement labelling the worker as a contractor, the terms of the agreement, such as the labour hire business being able to:
• offer the worker shifts and the workers was able to refuse such work;
• pay the worker by the hour;
• control how the worker performed their work;
• determine if the worker could delegate their work to other parties or was required to perform the work himself; and
• determine if the worker should provide his own tools and equipment;
established an employment relationship.
The majority emphasised that it was the actual rights and obligations established under the agreement which were relevant to the analysis of whether the worker was an employee of a contractor.
In Jamsek, the HcoA held the terms of the written agreement established an independent contracting relationship as it identified that:
• the workers had to provide their own trucks;
• the company had specifically stated they wished to move away from an employment
In both cases, Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting),
and ZG Operations Australia Pty Ltd vJamsek [2022] HCA 2 (Jamsek), the HCoA had to
determine whether the relevant workers were employees or independent contractors.
The HCoA upheld both appeals, however, with two different outcomes. In Personnel Contracting the HCoA held that the worker was an employee,
whilst in Jamsek, the workers were found to be independent contractors.
In both cases, it was not suggested that the:
• contracts were not observed in practice;
• reality of the work was inconsistent with the contracts;
• contracts were a sham or unlawful; or
• written contracts had been varied by conduct of the parties.
It was in this context that the majority held that the terms of the written contracts should have been the sole focus of the analysis of the relationship.
Applying the new approach, the majority of the HcoA found in Personnel Contracting that despite the agreement labelling the worker as a contractor, the terms of the agreement, such as the labour hire business being able to:
• offer the worker shifts and the workers was able to refuse such work;
• pay the worker by the hour;
• control how the worker performed their work;
• determine if the worker could delegate their work to other parties or was required to perform the work himself; and
• determine if the worker should provide his own tools and equipment;
established an employment relationship.
The majority emphasised that it was the actual rights and obligations established under the agreement which were relevant to the analysis of whether the worker was an employee of a contractor.
In Jamsek, the HcoA held the terms of the written agreement established an independent contracting relationship as it identified that:
• the workers had to provide their own trucks;
• the company had specifically stated they wished to move away from an employment model and the offer for the two drivers to
continue a relationship with the company was only extended on the basis that they would be independent contractors;
• the workers were responsible for the maintenance and servicing of their trucks; and
• the company had no control over what was delivered and that the workers had discretion over which routes or areas they would follow
in making deliveries based on personal preference and overall conveniencel and the agreements were with partnerships rather than the individual drivers
The HCoA made clear that the previous ‘multi-factorial’ approach (ie to assess the ‘reality’ of the relationship between the parties) still had a role to play in circumstances where:
1. the agreement between the parties was not entirely in writing;
2. there is a dispute about the validity of the terms of the engagement; or
3. the agreement is ineffective under general law or statute, or is a sham; or
4. the agreement has been varied or otherwise displaced by the conduct of the parties.
In these circumstances, the ‘reality’ of the worker’s engagement and the totality of the relationship between the parties could be used to determine whether the worker was an employee or independent contractor.
In light of these two HcoA decisions, now is the time for businesses wishing to review existing ‘contractor’ engagements to ensure:
• clarity as to who the parties to the agreement are, noting that it is likely to be more difficult for contracts with legal entities (e.g. partnerships, companies) to later be found to be contracts of employment;
• the terms of the agreement properly reflect arrangements for the services/labour to be provided;
• the duties and obligations under the agreement are clearly stated;
• a sufficient level of control is granted to the business regardng the manner in which services are provided, being mindful that the
greater the right to control, the higher the risk of a finding of an employment relationship;
• there is clarity on which party is responsible for the provision of tools and equipment;
• there is clarity regarding the absence of an expectation for the contractor to wear any applicable uniform of the business;
• clarity regarding superannuation obligations;
• that the contractor is responsible for paying their own tax and GST for the services they provided to the business; and
• whether the contractor can delegate their work to other parties.
Businesses that fail to engage workers under comprehensive written contracts will be faced with the risk that the courts will apply the ‘multi-factorial’ approach and will assess the ‘reality’ of the relationship rather than the contract itself to
determine whether a work relationship is an employer/employee or principal/contractor relationship.
If you are concerned about your current contractors in the workplace, or require further information or assistance in the creation of casual or contractor agreements, please contact us today to see how we can assist !
Back in 2020 the Fair Work Ombudsman (FWO) commenced an investigation into casino giant, Crown, after Crown self-reported underpayments to over 200 salaried staff, equating to approximately $2 million of underpayments in wages and superannuation.
Woolworths has not been as fortunate as Crown, and is now not only dealing with a previous underpayment claim in 2019 for proximately
5,700 salaried managers, but also a class action brought by Adero Law on behalf of salaried managers. The FWO has now commenced proceedings against the retail conglomerate in the Federal Court.
Woolworths isn’t alone, with the FWO having commenced proceedings against Coles, alleging the supermarket giant short-changed housands
of salaried employees by more than $100 million. The FWO clearly has in its sights on claims relating to underpayments of salaried employees, which result in employees not being ‘better off overall’, as salaries fail to adequately cover overtime and penalty rates.
Back in 2020 the Fair Work Ombudsman (FWO) commenced an investigation into casino giant, Crown, after Crown self-reported underpayments to over 200 salaried staff, equating to approximately $2 million of underpayments in wages and superannuation.
Woolworths has not been as fortunate as Crown, and is now not only dealing with a previous underpayment claim in 2019 for proximately
5,700 salaried managers, but also a class action brought by Adero Law on behalf of salaried managers. The FWO has now commenced proceedings against the retail conglomerate in the Federal Court.
Woolworths isn’t alone, with the FWO having commenced proceedings against Coles, alleging the supermarket giant short-changed housands
of salaried employees by more than $100 million. The FWO clearly has in its sights on claims relating to underpayments of salaried employees, which result in employees not being ‘better off overall’, as salaries fail to adequately cover overtime and penalty rates.
In cases like these, not only do employers such as Star, Crown, Woolworths and Coles face expensive back pay liabilities, they also face the potential of the FWO seeking penalties for alleged non-compliance with:
• salaried arrangements passing the Better Off Overall Test (BOOT) under the applicable modern award; and/or
• for failing to maintain adequate records of salaried employee’s actual working hours for the required seven year period relating to
overtime, loadings, penalty rates and allowances.
The maximum civil penalties applicable to breaches of civil penalty provisions of the Fair Work Act 2009 (Cth) are currently are up to
$13,320 per contravention for an individual, and $66,600 per contravention for the employing entity.
If you are thinking you’re only a small or medium sized business so this won’t affect us, think again! Despite many employers voluntarily coming forward to reveal underpayments, and committing to repay any money owed, the FWO is increasingly seeking penalties against these employers, with the FWO, Sandra Parker, stating in response to Woolworths’ admissions:
‘we will hold them to account for breaching workplace laws… [companies] must understand that admission is not absolution.
Companies should expect that breaking workplace laws will end in a public court enforcement outcome’.
The strictest salaried arrangement requirements appear in the Clerks – Private Sector Award 2020 [MA000002] (Cth) (Clerks Award).
Under the Clerks Award, the General Retail Industry Award, and the Manufacturing and Associated Industries and Occupations Award,
employers are required to:
• have written documentation recording which provisions of the award are intended to be included within the annual salary;
• specify the ‘outer limits’ of the number of overtime or penalty rate hours that are included in the salary in each pay period/roster cycle;
• pay an employee for any hours worked in a pay period/roster cycle that exceed the ‘outer limits’;
• keep records of the start times, finish times and unpaid break times for each employee and have the employee sign, or acknowledge their pay period records as being accurate;
• perform an annual ‘reconciliation’ to calculate the amount the employee would have been paid if they were paid on an hourly basis in accordance with the applicable award; and
• compare this reconciliation with the salary being paid, and if any shortfall, pay this within 14 days
If your employees are not covered by one of the modern awards that contain salaried provisions, others like the Social, Community, Home Care and Disability Services Industry Award 2010 (Cth) [MA000100], state that the terms and conditions of salaried arrangements, ‘must not, when viewed objectively, be less favourable than the entitlements otherwise available under this award’.
Accordingly, unless employers are keeping accurate pay records of employee’s ordinary hours, overtime hours, penalty rates, breaks and
applicable allowances, there is no accurate way of being able to demonstrate that an employee’s salary results in them passing the BOOT. As the FWO declared:
‘If companies do not prioritise workplace compliance from the outset, it can take significant resources and time to fix, particularly where companies do not have accurate records of times worked and wages paid.’
There is no positive obligation on employers to self report to the FWO and even where employers self-report their conduct, the FWO’s default position is not always one of general acceptance. Instead some employers may face demands from the FWO that they enter into an enforceable undertakings, complete training and audits, and make contrition payments.
Contrition can bolster employee and public trust in the business and reduce negative media scrutiny, and can also mitigate the risk of
prosecution and any action taken by the FWO, or if proceedings are commenced, can reduce the quantum of penalty ordered.
By comparison, where an employer is found to have been aware of contravening conduct and failed to report or take other corrective action, the FWO may pursue prosecution and press for greater penalties.
The greatest means of avoiding FWO involvement and reducing the liability for backpay is by:
• undertaking annual audits, including self-auditing improving payroll and compliance systems, and engaging external experts;
• seeking advice early to ensure employees are classified correctly under any applicable modern award;
• complying with time keeping practices;
• reconciling annualised salary arrangements against actual hours worked to ensure they meet the minimum pay obligations in the
underlying industrial instrument;
• ensuring employment agreements set ‘outer limits’ and state the assumptions relied upon when calculating the salary (ie: overtime, penalty rates and allowances etc);
• ensuring employment agreements contain appropriate ‘set off’ clauses;
• appointing internal compliance officers where appropriate; and
• ensuring all human resource and payroll staff are adequately trained.
If you require any further information or assistance in relation to salaried arrangements and what your specific obligations may be, contact us today to see how we can assist!