Why it's vital employers make use of a multi-factor test
A recent case in Australia shed some much-needed light on what exactly constitutes an ‘employee’. The case of Jamsek v ZG Operations determined whether a worker is an employee or contractor – leading to potentially huge ramifications for the transport sector. HRD spoke to Luis Izzo, managing director of Australian Business Lawyers & Advisors (ABLA) – who acted for Business New South Wales in the case, to talk about what ruling means for the sector and why it’s so important to Australian employers in 2022.
“The case involved two partnerships - a husband and wife pair - that operated trucks transporting general freight for their clients,” Izzo explained. “The pair transported for a very long time - more than two decades – and they owned the vehicles that they operated. They were responsible for maintaining their truck, the fuel, the repairs, everything essential.”
As Izzo told us, when the employment relationship ended, the pair brought a claim saying that they were employees – notwithstanding that they spent around $70,000 on their vehicles or that workers in a transport company are generally considered contractors.
“What was really surprising is that the Federal Court actually agreed with them,” added Izzo. “The Court ruled that there were in fact employees of the company. The principal then appealed this finding – which is where ABLA came in. We acted for the New South Wales Business Chamber as an amicus curiae, or friend of the court. The crux of the appeal was that in the traditional conventional approach, where you supply a vehicle that size, workers tend to be a contractor, not an employee.”
The Federal Court looked at the entire period of the relationship between the workers and the company too. The Court specifically looked at how the pair had related to their company over the course of two decades – finding they were more of employees.
“However, the High Court quickly ruled that this wasn’t permissible,” Izzo told HRD. “We’re in a relationship is wholly recorded in a written contract, you can't look at the conduct after formation of the contract. Ordinarily, you’re only meant to look at the contract itself, the promises exchanged on forming the contract, to determine its character. The Federal Court was looking at the full life of the relationship to try and assess its character – and the High Court said ‘no, your job is just to construe the contract’.”
A key takeaway for employers in this case is the High Court’s criticism of affording any real substance to the label the parties give to the employment relationship. Essentially, it really doesn’t matter what the parties call their relationship – the courts will always implement a multi-factor test to look at all of the indicators.
“One of the biggest factors they’ll look at is the level of control that a principal might exert over a worker,” added Izzo. “They'll look at the extent to which the worker could be said to be running their own business, or does it appear as if they’re in someone else's business?”
Right now, in Australia, there’s a lot of transport companies that currently engage ‘owner drivers’ to perform some of their transport work. For these organisations, there’s now a good deal of certainty that the owner drivers are, unless there's exceptional circumstances, likely to be contractors and not employees.
“That's now going to be the conventional approach,” Izzo told HRD. “However, in other industries, the uncertainty remains. For those employers operating in other industries, it’s important to look at all the factors applicable to the relationship. That exercise, whilst lawyers are happy to undertake it, is inherently an uncertain one. We're going to continue to have disputes about a worker’s true status because the test remains quite subjective. And that's not a criticism of the High Court – but it is a reality and is a problem with the current state of the law on independent contracting.”
