Today the High Court rejected the Commissioner’s application for special leave to appeal the Full Federal Court decision in JMC Pty Ltd v Commissioner of Taxation  FCAFC 76 – a significant win for those looking for certainty in how the principally for labour definition of employee operates in the Superannuation Guarantee (Administration) Act 1992 (Act).
The JMC case was centred on the determination of whether a lecturer, Mr Harrison, should be classified as an employee or an independent contractor. Mr Harrison had been engaged under a contract specifying his obligations, fees, and the right to sub-contract his duties with the consent of the employer. The issue in JMC was the common law definition of employee for section 12(1) of the Act and in the alternative, the extended definition in section 12(3) of the Act which provides:
“If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”
The case had a mixed history:
The Full Federal Court found that Mr Harrison was not an employee within the ordinary definition of that term nor was the contract ‘wholly or principally’ for the labour of Mr Harrison. This decision was largely based on the contracted right of Mr Harrison to sub-contract his services. As a result of his right to sub-contract, the Full Federal Court found that the contract could not be wholly or principally for his own labour, as this labour may be sub-contracted to another party, regardless of whether he exercised this right.
The Commissioner sought only to appeal the Full Federal Court’s conclusion concerning the extended definition of ‘employee’ in section 12(3) of the Act.
The Commissioner argued that the Full Federal Court should have held that Mr Harrison was an ‘employee’ under the extended definition as the contract was not for the labour of any sub-contractor, and that even if the contract did provide a right to sub-contract, the principal purpose was still for Mr Harrison’s labour.
The High Court's rejection of the request for special leave solidifies the importance of comprehensive written contracts in determining employment status. This decision reinforces the significance of the legal right to subcontract, whether or not this right has been exercised. If a right to subcontract is in the contract, the contract will not be wholly or principally for the labour of that person.
As a result of the recent decisions in High Court and JMC, which confirms the ability of parties to a contract to determine whether the relationship is one of employee or contractor, the Australian Government has signalled an intent to address the challenges faced by 'employee-like' independent contractors.
The avenue is legislative amendment. The Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Bill) was introduced into Parliament on 4 September 2023 and is currently before the House of Representatives.
Amongst a wide-ranging suite of proposed amendments to workplace laws, the Bill proposes to introduce an interpretative principle for determining the ordinary meaning of employee and employee into the Fair Work Act 2009 . The proposed interpretative principle would require consideration of the real substance and practical reality of the relationship – effectively reversing the test to what had been understood prior to the High Court decisions. It is notable that at this time the proposed amendments do not extend to the definitions used in tax legislation.
The Bill also proposes changes to establish minimum standards for a cohort of independent contractors that perform consistent duties similar to those of employees (for example, cleaning or security) and for the gig economy.
As the instructing solicitors on this case, we understand the nuances relevant to ensuring that you are correctly structuring and managing your employment contracts for a successful outcome.
If you have any questions about this case and what the decision may mean for you as an employer, please get in touch with a member of our team below.
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