Employee or Contractor – The Clarified Approach

The approach on how to determine whether a worker is an employee of a business or an independent contractor historically involved the application of a multifactorial test. However, this approach has been recently clarified by the High Court. In the recent decisions of Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd (2022) (Personnel Contracting) and ZG Operations & Anor v Jamsek & Ors (2022) (Jamsek), the High Court ruled that, where the relationship of the parties is entirely in writing (and no evidence that it is a sham or has been varied by subsequent conduct of the parties) the terms of the contract determine whether the relationship is one of employment or independent contractor. It is only where the terms of a contract are verbal or ambiguous, that the court will apply the multifactorial test against the common indicators of employment characterising the relationship.

A number of cases have since applied the reasoning in Personnel Contracting and Jamsek, including a ruling by the Fair Work Commission in an unfair dismissal claim.

In Diego v Deliveroo Australia Pty Ltd (2022) (Deliveroo), the FWC applied the principles established in Personnel Contracting and Jamsek in its ruling to defeat an unfair dismissal claim by the Deliveroo delivery driver, Mr Franco. The following factors in the Deliveroo agreement weighed in favour of a characterisation of an independent contractor relationship.

  1. The lack of control by Deliveroo over the manner of performance of any work Mr Franco agreed to undertake. It was found that Mr Franco exercised a substantial degree of discretion in relation to the performance of the work including what vehicle he would use and route he would take.
  2. The requirement that Mr Franco provide the vehicle at his expense to perform the deliveries.
  3. Mr Franco was not required to provide the services personally, as he could arrange without Deliveroo’s consent for someone else to make his deliveries.
  4. Mr Franco was required to pay an “administrative fee” for Deliveroo’s software and other administrative services.

The FWC noted that had they been permitted to take into account the realities of the relationship, Mr Franco would have been deemed an employee. However, the FWC was required to apply the approach in Personnel Contracting and Jamsek. The FWC acknowledged that the decision left Mr Franco with no remedy despite, in the FWC’s view, “unfair treatment” by Deliveroo.

The combination of the recent High Court and FWC decisions sets the narrative for legislative reform regarding the regulation of workers in the gig economy. Until legislation changes are made, if any, businesses should ensure employment and independent contractor agreements are well-drafted with terms that accurately reflect the intended legal relationship.