The Jamsek case – together with the Personnel Contracting Case – changed everything.
The Jamsek Case
Together with the Personnel Contracting Case (CFMEU v Construct), the Jamsek case changed how we determine whether somebody is a contractor or employee. In this episode, Sam Harvery of Laxon Lex Lawyers in Sydney will tell you what actually happened.
Here is what we learned but please listen in as Sam explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
The Jamsek Case
The High Court had not one but two cases to decide on the old employee v contractor question. The Jamsek case as well as the CMFEU v Constuct case.
The Jamsek Case
Two truck drivers – Mr Jamsek and Mr Whitby – provided services to a trucking company – “ZG” – first as employees and then from 1993 onwards as contractors.
Under these 1993 contracts, both men were contractors providing services to the company in partnership with their wives, although the wives had no involvement. The later might interest the ATO as well, but that is a different topic.
Mr Jamsek and Mr Witby drove and delivered for three long decades and then the contracts with both drivers were terminated and received no severance pay. Nothing. So they went to court. And lost.
CFMEU V Construct ( The Personnel Contracting Case )
In the Construct case – most commonly known as the Personnel Contracting case – labour hire company Construct hired Mr McCourt, a backpacker from overseas and unskilled worker. Construct hired Mr McCourt to provide services to a third party – construction company Hanssen. The contract refers to Mr McCourt as a contractor running his own business, but also relevantly provides for him to comply with directions issued by the labour hire company.
Mr McCourt signed a document titled an ‘Administrative Services Agreement’ (ASA) with Construct and then was paid less than award wages. As an employee he would have received award ages – wages the CFMEU negotiated. But as a contractor he got less.
Mr McCourt was not the only one. There were hundreds just like him. But for some reason unknown to us, the CFMEU picked Mr McCourt. And so the CFMEU went to court to fight this long-established practice of circumventing award wages through labour hiring services. They fought and won.
Contract is King
So you have two High Court cases. One where the employer won. And one where the union won. Although both cases have a different outcome – one lost, one won – they both set the same rules, present the same arguments. And that is:
Contract is King.
Ignore whether the contract labels the worker an employee or contractor. That is irrelevant. But look at how the contract describes the relationship. Look at who has what control over how the work is done per contract.
In the Jamsek case the contract described a contractor relationship. In the Personnel Contracting Case (CFMEU v Construct), the contract described an employment relationship.
The only time you step away from the contract is if you can show that the contract is either outdated or a sham.
How It Used To Be
So this is very different to how it used to be. It used to be that you ignore the contract and just look at the actual facts. How was the work actually performed? Now you only look at the facts if you want to show that the contract was a sham or outdated.
So going forward, make sure you have a contract for anybody you want to treat as a contractor and that could – in theory – be seen as an employee.
The drafting of the contract will be more important than ever. There will probably be more cases now involving claims of contractual variation or sham in an attempt to justify looking beyond the contract.
So these are the Jamsek and the Personnel Contracting case in summary. If you want to drill further, you have to look at the arguments by the different judges.
Actual Court Arguments
The arguments by each of the judges is what later court cases will be measured by. We have reproduced the main arguments here – in parts paraphrased to make them easier to read.
The High Court has seven judges, which currently are Kiefel, Gageler, Keane, Gordon, Edelman, Steward and Gleeson. Although they issue just one verdict, each judge outlines their reasoning. And it is this reasoning that can then applied to similar cases and hence requires our attention.
The Jamsek Case
Let’s start with the Jamsek case, even though this case was the second one.
Arguments By Kiefel, Keane and Edelman
The High Court judges Kiefel, Keane and Edelman provided five arguments against the reasoning of the Full Court – the court that had previously ruled.
# 1 – Reality v Contract
The first error of approach was the significant attention devoted by that Court (and indeed the primary judge) to the manner in which the parties actually conducted themselves over the decades of their relationship. That was thought to be necessary because those courts took the view that a proper characterisation of the totality of the relationship required consideration of how the parties’ contract played out in practice.
# 2 – Bargaining Power
The second error of approach was the Full Court’s reasoning that the disparity in bargaining power between the parties affected the contract pursuant to which the partnerships were engaged, so that the “reality” of the relationship between the company and each respondent was one of employment.
# 3 – Expectations
The High Court judges argued that the “expectations” referred to by the Full Court did not alter the contractual rights and obligations which characterised the relationship between the partnerships and the company.
Moreover, the willingness of the respondents to display the company’s branding on their trucks is quite consistent with a sensible, self‑interested response of an independent contractor to legitimate commercial pressure from its best customer.
As to the expectation on the drivers to be available 5 days a week and that the partnerships hence had no further capacity to serve the needs of other customers, the High Court judges argued that such a state of affairs is not inconsistent with the independent status of the partnerships. And in any event, “expectations” of the kind referred to by the Full Court are not apt to alter, and indeed were not alleged to have altered, the rights and duties which characterised the relationship between the partnerships and the company.
# 4 – Goodwill
The previous judges had pointed to the inability to generate goodwill. They had argued that the contract did not entitle the partnerships to sell their businesses accompanied by a right to continue providing delivery services to the company.
The High Court argued that this did not prevent the generation of goodwill. Each partnership was at liberty to introduce a purchaser of its business to the company as an established customer. Whether a purchaser would see sufficient value in such an introduction to pay a substantial sum for it would depend upon the circumstances of the market.
More importantly, many businesses – such as manufacturers of products for a single customer – do not generate goodwill. That is a feature of the niche in the market occupied by those businesses; it is not a circumstance which denies the independence of such businesses from their customers.
# 5 – Sham
The High Court argued that in Australia, claims of sham cannot be made by stealth under the obscurantist guise of a search for the “reality” of the situation. Even if this disguised submission of sham were to be countenanced, the reality of the situation is that the partnerships, and not the respondents individually, owned and operated the trucks. The partnerships contracted with the company and invoiced the company for delivery services provided by the operation of the trucks.
The partnerships earned income from the company, incurred expenses associated with the ownership and operation of the trucks, and took advantage of tax benefits of the structure. It is not possible to square the contention that the respondents were not conducting a business of their own as partners with the circumstance that, for many years, they enjoyed the advantages of splitting the income generated by the business conducted by the partnerships with their fellow partners.
Arguments By Gageler and Gleeson
The High Court judges Gageler and Gleeson offered another argument in the Jamsek case.
# 6 – Partnership
Two features of the relationship that existed in fact between Mr Jamsek and the company point inexorably to it having been a relationship within which Mr and Mrs Jamsek in partnership provided carriage services to the company using their own truck as distinct from a relationship within which Mr Jamsek provided personal service to the company as a truck driver.
The first is that Mr and Mrs Jamsek were obliged to, and did, maintain the truck which was used to perform the 1993 contract.
The second important feature of the relationship is that it was Mr and Mrs Jamsek in partnership who contracted for the doing of the work involving the use of the truck, and who were therefore jointly and severally liable to the company for the performance of the 1993 contract and jointly and severally entitled to be paid by the company when performance in fact occurred. They together invoiced the company as partners and were together paid by the company as partners.AA
Arguments By Gordon and Steward
The High Court judges Gordon and Steward referred to the principles set out by Gordon in the Personnel Contracting case – ie whether by construction of the terms of the contract, the person is contracted to work in the business or enterprise of the purported employer – and also find Mr Jamsek and Mr Witby weren’t employees.
# 7 – Contracting Parties
Assessing the totality of the relationships between the partnerships and ZG as set out in the 1993 Contract, Mr Jamsek and Mr Whitby were not employed by ZG. The partnerships, not Mr Jamsek and Mr Whitby, were the contracting parties. Each partnership contracted to provide, to operate and to maintain a truck to carry ZG’s goods to its customers. The partnerships were entitled to invoice ZG for carrying the goods that they carried. It is true that the 1993 Contract between the partnerships and ZG addressed the obligations of the partnerships providing drivers. But we expect that. A truck could not in 1986 or 1993 carry and deliver goods without a driver.
CFMEU V Construct ( The Personnel Contracting Case )
In the Personnel Contracting Case (CFMEU v Construct) the judges argued as follows re the Administrative Services Agreement (‘ASA’) between Mr McCourt – the backpacker – and Construct – the labour hire company.
Arguments by Kiefel, Keane and Edelman
High court judges Kiefel, Keane and Edelman argued that:
# 1 – Terms of the Contract
Where a written contract outlines the terms of the parties’ relationship, and if nobody challenges the validity of the contract as a sham or variation, waiver or estoppel, there is no reason why the legal rights and obligations in this contract should not determine the character of the relationship – at 43.
Look at the parties’ legitimate freedom to agree on the rights and duties which constitute their relationship. It does not extend to attaching a “label” to describe their relationship which is inconsistent with the rights and duties otherwise set forth. To do so would be to elevate their freedom to a power to alter the operation of statute law to suit themselves or, as is more likely, to suit the interests of the party with the greater bargaining power. – at 58
Where the parties have comprehensively committed the terms of their relationship to a written contract the validity of which is not in dispute, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that ASA. – at 59
The ASA described Mr McCourt as “the Contractor”. But the effect of the rights and duties per the contract was that Construct engaged Mr McCourt to serve Construct in its business. The rights and duties agreed between Construct and Mr McCourt leave no room for ambiguity as to the character of that relationship. For the reasons stated above, that the parties have described their relationship a certain way cannot change the character of the relationship established by their rights and obligations. – at 79
# 2 – Control
Under the ASA, Mr McCourt promised Construct to work as directed by Construct and by Construct’s customer, Hanssen. Construct has to pay Mr McCourt in return for the work he performed pursuant to that promise. That promise to work for Construct’s customer, and his entitlement to payment for that work, were at the core of Construct’s business of providing labour to its customers. The right to control the provision of Mr McCourt’s labour was an essential asset of that business. Mr McCourt’s performance of work for, and at the direction of, Hanssen was a direct result of the deployment by Construct of this asset in the course of its ongoing relationship with its customer. In these circumstances, it is impossible to conclude other than that Mr McCourt’s work was dependent upon, and subservient to, Construct’s business. That being so, Mr McCourt’s relationship with Construct is a contract of service rather than a contract for services. Mr McCourt was Construct’s employee.- at 89 and 90
Arguments by Gageler and Gleeson
# 3 – Relationships
Whilst Construct didn’t employ Mr McCourt merely by reason of having entered into the ASA, Mr McCourt became an employee of Construct during each of those periods by reason of what then occurred in the performance of the ASA. – at 102
Employment is a relationship, separate and distinct from the contract, which establishes and maintains the relationship.
The most significant indication that the relationships between Mr McCourt and Construct during the two relevant periods were relationships of employment was the degree of control that Construct ultimately had over how Mr McCourt physically performed his labour – 122
The reticence of the parties to engage with the manner of the performance of the [contract] and its interaction with the manner of the performance of the [labour hire contract between the two companies] was, in our opinion, unwarranted. As noted, WorkPac held that you find the distinction between a casual employee and another employee in the terms of the contract of employment. The plurality was not laying down any principle directed to the distinction between an employee and an independent contractor – 141
Arguments by Gordon
# 4 – Totality of the Relationship
The resolution of the central question requires consideration of the totality of the relationship between Construct and Mr McCourt. Determine this by reference to the legal rights and obligations that constitute that a relationship. Where the parties have entered a wholly written employment contract, as in this case, consider the totality of the relationship as the totality of the legal rights and obligations provided for in the contract. Construed according to the established principles of contractual interpretation.
In such a case, the central question neither permits nor requires consideration of subsequent conduct. Don’t look at the question as involving a binary choice between employment and own business. The totality of the relationship between Construct and Mr McCourt was that of employer and employee. – 162
The task is to construe and characterise the contract at the time of signing. This way they can have recourse to events, circumstances and things external to the contract which are objective. Which parties knew at the time of contracting. And which assist in identifying the purpose or object of the contract – 174-175
# 5 – Whose Business
In construction of an employment contract, it is not necessary to ask whether the purported employee conducts their own business. That is, don’t reduce the inquiry to a binary choice between employment or own business. The question must always focus on the nature of the relationship created by the contract between the parties – 180
There is another reason for not asking whether a person is carrying on a business of their own. And that is that inquiry will ordinarily direct attention to matters the contract doesn’t outline. Such as what the parties said or did after signing the contract.
But there is a better question to ask. Is the person – by the terms of the contract – to work in the business or enterprise of the purported employer? That question focuses on the contract, the nature of the relationship disclosed by the contract and, in this context, whether the contract discloses that the person is working in the business of the purported employer. It invites no inquiry into subsequent conduct – 183
# 6 – Multifactorial Approach Put Aside
That multifactorial approach directs attention to subsequent conduct. And potentially to matters which are peculiarly within the knowledge of one party. For reasons explained, this is contrary to principles of contractual interpretation. Namely, that you can have recourse to events, circumstances and things external to the contract which are objective. Which the parties know at the time of contracting. And which assist in identifying the purpose or object of the contract – 187
# 7 – WorkPac
We should follow WorkPac. We should put aside the multifactorial approach applied in previous authorities when characterising a relationship as one of employment under a contract. The approach in WorkPac seeks to avoid the difficulties just identified with the multifactorial approach. In particular it seeks to avoid “employee” and “employer” becoming legal terms of meaningless reference.
The need for judgment is unavoidable. But this approach promotes certainty by providing identified and well‑established limits. Admissible evidence to identify the formation and the terms of the contract and the established principles of contractual interpretation – 189
Arguments by Steward
# 8 – Odco
Justice Steward largely agrees with Gordon including her characterisation of the test. However, Justice Steward argues that the appeal warrants dismissal because the employer had followed the Odco precedent. To uphold the appeal would reverse Odco. And that would be unfair on the employer as a result, having followed that previous precedent.
Overturning the Full Court’s decision in Odco would expose the respondent to significant penalties on a retrospective basis. That is unfair. It will also, as Lee J observed, greatly damage the respondent’s business and the businesses of many others. That is undesirable. It will also potentially deny workers a choice. A choice they may wish to make. They may want to supply their labour as independent contractors. Taking away this choice will take away one of the objects of the Independent Contractors Act.
The decision, and those that have followed it, are not plainly wrong. The cogency of the reasons of the learned primary judge, in this case, is a sufficient basis for that conclusion.
So these were the different arguments in both cases.
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