Determining whether a working arrangement is an employment relationship, or a contracting relationship has been a contentious and shifting area of law in recent years. Previously, the true character of a working relationship would be assessed with reference to the actual substance of the relationship (rather than the contract) having regard to a matrix of factors such as the level of control the principal exercises over the worker, and the mode of remuneration. However, the High Court decision in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] redirected the focus of this assessment to the terms of a written contract (rather than how the relationship operated in practice).

Background

A recent appeal decision handed down by the Fair Work Commission, found that a personal care worker who signed two contracts describing her as an independent contractor was actually an employee capable of making a section 365 general protections claim.

The care worker had entered a working arrangement with Aspire 2 Life, a home care and safety service provider, pursuant to two documents which clearly described the relationship as a contracting relationship. The first document entitled the “HRO03 Contractors Work Opportunity” (the “Work Opportunity”) set out the services to be provided to clients, and the second document was a “Contracted Service Provider Agreement” (the “Service Agreement”) signed by both parties.

Decision

Central to the Bench’s decision was the level of control the employer exercised over the worker under the terms of the agreements. In making this assessment, the Bench considered the level of control the agreements gave the employer over the timing of services (that is, when the services could be provided), and the way in which the personal care work was to be undertaken. Relevantly, the capacity of the care worker to refuse work was “severely constrained by other terms of the agreement…notably the requirement to be available to work at the times agreed for 6 months from the date of agreement and to provide 2 weeks’ notice of any change thereafter.” Further, the employer’s right to give instructions to the care worker to meet client’s needs meant that they “…had the right to control the way in which the care services were to be performed by [her]”. The Bench considered the degree of control exercisable by the employer was consistent with the level of control in an employment relationship

Another relevant consideration was the care worker’s lack of capacity to provide services to, or be employed by, a competing business. The Bench held that the aspects of the contract “… constrained [the worker’s] capacity to provide services to, or be employed by, a competing business” and that the “contractual arrangements taken as a whole leave little if any scope for entrepreneurship”.

Further to this, the care worker did not have the right to subcontract work to third parties, even though a provision in the Work Opportunity document indicated that she could. Instead, the Bench held that the subcontracting provisions imposed an obligation on the worker, so that if she needed time away, she was responsible for organising and arranging other contractors to undertake the work. Importantly, when a subcontractor was engaged to replace the care worker, they were paid directly by the employer for undertaking that work. Therefore, the Bench posited that “there is certainly no unilateral right under the contract … to subcontract the “care work” she is contracted to provide to any other person”.

After a close study of the terms of both the Agreement and the Work Opportunity document, the Bench determined that “the aspects of the contract that point towards the existence of an employment relationship outweigh those that weigh in favour of an independent contracting arrangement.”

The decision highlights how the level of control exercised by a principal over a worker will be of central importance to determining the substance of the working relationship. It demonstrates that the terms of a contract will be considered with respect to its operative effect, as opposed to any nominal meaning.

The decision also precedes the imminent changes to the definition of “employee” under the Fair Work Act 2009 (Cth).

Change to the definition of “employee”

From 26 August 2024, the new section 15AA will define the ordinary meanings of “employee” and “employer” by reference to the “real substance, practical reality and true nature of the relationship between the parties”.

Ascertaining the true nature of the relationship between the parties will therefore require:

• consideration of the totality of the relationship between the worker and the principal; and
• reference not only to the terms of the contract governing the relationship, but also other factors, including how the contract is performed in practice.

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