Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1

9 January 2022 - Kiefel CJ, Gageler, Keane, Gordon, Edelman, Gleeson and Steward JJ

In sum: The issue on appeal was whether a worker, who was contracted to a labour hire company but performed work at the direction of a building company, was an employee or contractor of the labour hire company. The High Court held the working relationship was to be characterised by reference to the terms of the written contract, declining to apply a broader “multifactorial” analysis or to place weight on label “contractor” used by the parties. Ultimately, the High Court held that the worker was an employee.

Facts: Mr McCourt, a backpacker on a working holiday visa, signed a contract as a “self-employed contractor” with the respondent labour hire company (trading as Construct). Construct offered him work with a building company (Hanssen). Construct determined his hours and regularity of work, as well as the terms of pay. Hanssen supervised his work onsite. Mr McCourt completed work on two separate construction sites operated by Hanssen. There was no signed agreement between Mr McCourt and Hanssen. Hanssen had a separate Labour Hire Agreement with Construct. When his duties ceased, Mr McCourt commenced proceedings against Construct in the Federal Court of Australia, seeking compensation and penalties under the Fair Work Act 2009 (Cth).

Held (allowing the appeal):

(i) The central question was whether Mr McCourt was considered an employee or an independent contractor of Construct. The Full Federal Court (compelled by previous authority) incorrectly held that Mr McCourt was an independent contractor by reference to two errors: applying a “multifactorial” approach and ascribing weight to the “contractor” label in the written contract.

(ii) Multifactorial test: The plurality held that reliance on the “impressionistic” multifactorial test (which involved an assessment of the “control” over the worker, whether the worker conducts their own business, and the labels used by the parties) was “problematic” and had never been “adopted or endorsed” by the High Court (at [32], [47]). Instead, where the parties reduced their legal relationship to an entirely written contract, its terms should be decisive (at [43]).

(iii) Gordon J also rejected the use of the multifactorial test as overly broad. Her Honour observed that the indicium which may be relevant was “unconfined” and there were “no consistent rules” determining the weight each indicia should be afforded. She also held that the test was applied “without any central principle to guide it” and expanded the “inquiry beyond the contract” by directing attention to subsequent conduct of the parties (at [186], [187] and [188]).

(iv) By contrast, Gageler and Gleeson JJ endorsed the use of the multifactorial test as it has “shown itself to be sufficiently flexible to adapt to changing social conditions.” In response to the criticism from the plurality and Gordon J, their Honours held that the multifactorial test responds to the “sensitivity to the diversity…of lived experience” and relies on the “deeply rooted” common law principles for guidance (at [120]).

(v) Determining the status as employee or independent contractor: The plurality held that the “ultimate characterisation of a relationship” was wholly concerned with the “rights and duties established by the parties” in a contract, where the parties have comprehensively committed the terms of their relationship to contract, particularly where there was no question of invalidity or sham (at [59] and [61]). The plurality held that any “totality of the relationship” analysis must not “broaden the inquiry beyond the contractual rights and duties of the parties” [57]. Here, Construct was not merely a “finder of labour” but was subject to a “complex suite of rights” in respect of Mr McCourt (at [71]). In the contract, Construct agreed to “reward” Mr McCourt for his work, act as “paymaster” and possessed the power to terminate his employment (at [71]). It also observed that the right of one party to control the work of the other “serves to indicate” there is a relationship of employment (at [74]). It was apparent that “there was no suggestion” that Mr McCourt’s work required “any discretion” on his part, nor did he have the right to exercise control over “what work he was to do or how that work was to be carried out” [75].

(vi) Additionally, the plurality held that whilst parties had a “legitimate freedom” to negotiate rights and duties, this freedom did not extend to attaching a “label” to a relationship which was inconsistent with the established rights in the contract (at [58]). In this contract, it was held there was “no room for ambiguity as to the character of their relationship” as the substance of the contract provided for an “employee” type relationship, despite the label of ‘contractor’ (at [79]). As such, Mr McCourt was considered an employee of Construct.

(vii) Gordon J also considered that the central issue required an examination of the “totality of the relationship…which must be determined by the reference to the legal rights and obligations that constitute that relationship.” Her Honour agreed that the rights and obligations were ascertained from “contractual interpretation” (at [162] and [184]). In undertaking this analysis, it was determined that both Mr McCourt’s “personal performance” and “mode of remuneration” were consistent with that of an employee (at [198]). Additionally, her Honour held that as both parties had accepted the terms of the contract and it was wholly in writing, it was “neither necessary nor appropriate” to look at subsequent conduct of either party or how the contract was performed (at [201]). Gordon J found Mr McCourt to be an employee.

(viii) Gageler and Gleeson JJ differed in their approach, developing a tripartite “pathway of analysis” to determine the central issue. This involved examining the relationship at common law, identifying the scope of the inquiry and examining the relationship in fact (at [103]). They held that “typically, although not universally” an employment relationship is “established and maintained” under contract. The characterisation of that contract is then derived from both the terms of the written agreement and the subsequent conduct (at [105], [106]). This distinguished their approach from the plurality and Gordon J, finding it “critical” to look beyond just the “contractual terms, to the contractual performance.” Additionally, Gageler and Gleeson JJ considered “the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and the provision of holidays, the deduction of income tax and the delegation of work by the putative employee” are all factors indicative of an employee relationship (at [113]). Their Honours took the view that no individual consideration is “complete of itself” but must be assessed to the extent they are relevant to making a factual finding. They held that Mr McCourt was an employee of Construct according to both the terms and performance of the contract.

(ix) Dissent: Steward J would have dismissed the appeal. His Honour took the view that altering the established case law would cause a needless and seismic shift in the practical outworking of similar contractual arrangements, which were based on the decision of Union of Australia v Odco Pty Ltd (1991) 29 FCR 104. His Honour considered that it was open to the Court to decline to reformulate “an established principle of the common law” as it should be “left to the legislature” [220]. Additionally, in overturning the Full Court’s decision, it would “expose the respondent to significant penalties on a retrospective basis” which his Honour deemed was “unfair” [222].

Read the decision on the High Court of Australia website.