Two significant rulings affecting independent contractors have been handed down by the High Court. The Court found that where the parties’ relationship is governed by a written agreement, the agreement will usually decide whether a person is an employee or an independent contractor. Both cases were heard by the High Court at the same time, and verdicts were issued on the same day. Our Melbourne accounting firm professionals said that businesses that have properly documented their independent contractor connections in written contracts that appropriately reflect the nature of the relationship will benefit from the High Court’s approach.

Tax accountants near me said that the decisions are a significant departure from the approach previously used by Australian courts, which involved a thorough examination of the actual circumstances of the parties’ working relationship in order to determine whether or not an employment relationship exists (rather than just their contract).

The High Court dismissed the argument that the parties’ actual behaviour after signing their consultancy agreement is essential to determining whether they are in an employee or contractor relationship. However, a small business accountant near me thought that rather, just the following actions are relevant:

  • Identifying the contractual terms (in cases where the contract is not entirely or partially in writing)
  • Contesting the contract’s enforceability (in cases where the contract has been altered by the parties’ behaviour or is a “sham”).

The parties’ description of their connection in the contractor agreement (i.e., the parties do not intend to form an employment relationship) will not be determinative of their actual legal relationship, according to the High Court.

What has Changed?

There was substantial confusion before these judgements as to whether businesses and workers could rely on what they had written and agreed upon in their contracts. Accounting firms Melbourne said that the two decisions provide more stability when it comes to hiring workers as contractors, and they may also boost corporate confidence in using contractors rather than hiring employees.

Another important factual element in the first case was whether the truck drivers who launched the lawsuit against the principal business ran their own business, in which case they could not be hired as workers by the principal.

Melbourne accounting firm professionals believe that now it is evident that the question is whether the wording of the written contract indicates that the employees are running their own business or if they are working for the employer.

Why is it Important to Engaging Independent Contractors?

The decisions in these cases represent a major departure from the approach followed by courts in similar matters in the past. Accounting Firms Melbourne believes that the prior method was to look at the working relationship in addition to the contract provisions.

In the Personnel Contracting case, however, the majority of the High Court stated that “It is not a social or psychological concept like friendship.” Limiting the analysis of legal relationships to legal ideas such as rights and duties is not artificial.”

In both cases, tax accountants near me said that the High Court’s seven judges made it clear that the terms of the parties’ contract take precedence. The provisions of the contract define the connection unless there is an indication that it is a sham, unlawful, or entirely inconsistent with the parties’ behaviour. The court did state, however, that if the preparations had been a sham, the conclusion may have been very different.

As a result, the decisions may become an election issue in terms of expanding worker rights in the face of sham or illegal contracting.

For the time being, a small business accountant near me implies that if the parties’ contract specifies the terms of a contractor relationship that is what the relationship is legally. For example, if a contract specifies that a worker is delivering services through their own company or partnership, that they have some choice over when they accept or refuse work, and that they have the flexibility to work for other companies, they are most likely contractors.

How will these Impact Businesses? 

Businesses can now be reassured and more certain that the workers they hire as independent contractors are not entitled to employment-related payments such as minimum hourly rates, leave, or superannuation, with the help of a well-drafted contract between the parties.