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Contracts are critical

by | Mar 2, 2022 | C3: Competency, Fair Work, Human Resources

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There have been a number of developments in the past year that make it imperative that businesses:

  • Have written contracts for all employees and contractors and
  • Ensure that the content of the contract does not contradict the intended relationship with the other party as an employee or a contractor and
  • Also make sure that the contracts reflect current standards as per the Fair Work Act and any relevant modern award

Recently, there have been two significant High Court decisions on the question of whether a worker is an employee or a contractor.

While these cases had quite different outcomes, what they had in common was that the Court found that it is primarily the contract entered into and the terms contained in it that determines the nature of the relationship.

ZG Operations v James

This case was about two truck drivers who had worked as independent contractors for over twenty years for ZG Operations. They were originally employed by the company but switched to become independent contractors when the company told them that their jobs would not be secure if they didn’t make the switch.

After the company discontinued their engagements in 2017, the workers then made claims for pay, leave and superannuation entitlements on the basis that they should have been characterised as employees.

The court found that the contracts clearly defined the relationships as independent contracting plus the workers formed partnerships with their wives and they bought trucks which were significant investments. The court concluded that these workers were genuine independent contractors as characterised in the contracts.

Key takeaways: for genuine independent contracting relationships, make sure that: 

  • you have a proper written contract for service which clearly identifies the relationship as an independent contractor and
  • the terms in the contract are consistent with an independent contractor relationship. 

CFMMEU v Personnel Contracting

This case was about a labourer (Mr McCourt) engaged by a labour hire company, Personnel Contracting, to work for Hanssen Pty Ltd. Mr McCourt was an unskilled British backpacker on a working holiday and he didn’t have his own business. The CFMMEU and Mr McCourt made a claim that he was actually an employee and should have been paid under the Building and Construction General On-site Award 2020.

The court found that the “Administrative Services Agreement” under which Mr McCourt was engaged provided Personnel Contracting with rights of control and direction over Mr McCourt eg in relation to who he worked for and Mr McCourt was contractually obliged to cooperate. As a result, the court deemed this relationship to be more characteristic of an employee than an independent contractor and ruled accordingly.

Key takeaway: you should ensure that: 

  • If you are wanting the relationship to be that of an independent contractor, the terms in the contract are consistent with that or
  • if the relationship is, in reality, characteristically that of an employee, you contract the worker accordingly and don’t try to disguise it as that of an independent contractor.

Changes to casual employment

On 27 March 2021, The Fair Work Act was varied to provide a new definition of casual employment. Here is the relevant excerpt from the Fair Work Ombudsman’s website:

“A person is a casual employee if they accept an offer for a job from an employer knowing that there is no firm advance commitment to ongoing work with an agreed pattern of work.

For example, if an employee is employed as casual, their roster changes each week to suit their employer’s needs, and they can refuse or swap shifts, that could mean they are casual. 

Specifically, under the Fair Work Act, a person is a casual employee if:

  • they are offered a job
  • the offer does not include a firm advance commitment that the work will continue indefinitely with an agreed pattern of work
  • they accept the offer knowing that there is no firm advance commitment and become an employee.” 

If there is in fact, a commitment to an ongoing pattern of work in the contract, that could well mean that the employee would not be deemed to be a casual and could create exposures as a result.

Modern Award Reviews

There have been substantial changes made to modern awards over the past two years though the Modern Award Review process that has been going on since 2013.

It is important that employers pick up on any variations that have been made to minimum terms of employment in modern awards and ensure that contracts are not inconsistent with current award provisions.

There have also been changes to National Employment Standards with respect to the requirement for issue of Casual Employee Information Statements and variations to Parental Leave provisions in relation to stillborn babies and those who die within the first 24 months of life.

The Bottom Line

If you do not have written contracts for employees and contractors, get them.

If you do have them but you haven’t reviewed them for a while, get them professionally reviewed.

Finally, make sure that they are truly reflective of the nature of the relationship – for example, if there is an ongoing commitment to an agreed pattern of work, it isn’t casual so you should contract the person as a full-time or part-time employee.

At Ridgeline HR, we can assist with preparation and review of employment contracts. Give us a call on 0438 533 311.

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Ridgeline Human Resources Pty Ltd
ABN : 24 091 644 094

enquiries@ridgelinehr.com.au

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1300 108 488

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