Mark Branagan

That Old Chestnut? Contractor Disputes Off to the High Court

Mark Branagan

9 April 2021

Employment Disputes

2021 is likely to bring a comprehensive review of some critical workplace legal issues as the High Court deliberates on a range of employment-related appeals.

In February, the High Court granted leave to appeal in three significant legal cases including a contractor/employee dispute (Jamszek v ZG Operations), a labour hire/employee dispute (CFMMEU v Personnel Contracting) and a challenging contest between freedom of speech and workplace discipline (Ridd v James Cook University). The Court is already dealing with the status of long-term casuals in the Rossato v Workpac case.

The Full Federal Court of the Federal Court decision in ZG Operations deals with the age-old question of when a worker is a contractor or employee. Despite multiple disputes, the fundamental legal test in characterising whether work is ’employment’ or ‘contracting’ requires an assessment of the ‘totality of the relationship’ between the parties. This principle has remained firm over the past 30 years, first with the decision in Brodribb Sawmills and then Hollis v Vabu Pty Ltd.

An emerging trend in applying this principle is the greater prominence now given to the question of whether workers are engaging in ‘entrepreneurial’ activities to support the claim that they are contractors engaging in business activity.

In ZG Operations, the Full Federal Court found in favour of two truck drivers who claimed employee benefits (notice, redundancy, annual and long service leave) after more than 40 years’ service with ZG. After an initial 10 years of service as employees and under threat of a cost-cutting exercise, the truck drivers signed a contract in 1986 that called them contractors and they purchased trucks from the company which they then operated under their own business names.

The drivers worked for ZG from 1977 to 2016, essentially the entirety of their working lives. The company was their only source of income, they worked regular hours (Monday to Friday 6am to 3pm), they did the same work throughout the period, they even completed the required paperwork to apply for leave. After termination, they sought payment of entitlements on the basis that they were ’employees’.

Despite the work history, ZG successfully defended the claims at first instance in the Federal Court. In finding that the drivers were contractors from 1986 onwards. Thawley J gave great weight to the contract and that, by owning their trucks, the drivers could generate goodwill. This was a characteristic more aligned with a business or contracting relationship, reflecting ‘entrepreneurship’ rather than employment.

On appeal, the Full Court (Perram, Wigney, Anderson JJ) rejected the trial judge’s reliance on the contract and the labels used by the parties, finding that any reference to goodwill was illusory and not realistic in assessing the totality of the relationship between the drivers and the company.

The leading judgment of Anderson J assessed whether the drivers engaged in any entrepreneurial activities. After analysing the detail of the working arrangements, Anderson J found that:

  • while it was true that the drivers had their own trucks, there was no likelihood of them conducting any other business, as there was simply insufficient time during the course of the week given their commitment to ZG
  • there was no goodwill in that there was no business to on-sell as the drivers had no customers of their own; and
  • there was no sense of ‘entrepreneurship’ at all in the drivers’ activities.

ZG has now obtained leave to appeal the Full Court decision which will go ahead later this year. The appeal provides an opportunity for the High Court to decide whether there is any necessity to update the well-established principles of Brodribb and Hollis.

It will be interesting to see whether the High Court further promotes the significance of entrepreneurship as a primary feature of workers’ activities when considering whether they are employee or contractor. If the High Court embraces Anderson J’s greater emphasis on whether a worker is engaging in ‘entrepreneurship’ and similar indicia, then this is more than likely to result in most working relationships being classified as employment, rather than contracting.

Such an approach may also invite legislative activity, perhaps based on the Canadian concept of dependent contracting, to create a hybrid model of contracting that is underpinned by some basic entitlements more commonly associated with employment. Much will depend on what the High Court finds and how the Government and cross-benchers respond to such a development.

For further information, please contact our national Employment, Workplace Relations and Safety team.