Independent contractors, roosters and ducks — the High Court decision in CFMMEU v Personnel Contracting28 October 2022
A recent High Court decision regarding how workers are properly classified as independent contractors and employees has important implications for some labour hire providers.
If you are supplying all workers as employees and are complying with your obligations then you don’t have anything to be concerned about.
If you are supplying workers such as labourers, fruit pickers, cleaners, security guards or production workers, and calling them independent contractors, then you now have important decisions to make. You will need to consider your approach and seek independent legal advice.
The Court found that labour hire providers cannot merely call their employees “independent contractors” and treat them as such.
The nature of a labour hire relationship, in and of itself, calls into question whether a worker can be an independent contractor, where the nature of work involves relatively low skill. In a separate case, it is clear that a worker can be an independent contractor where the worker is directly supplying substantial plant or equipment such as a semi-trailer truck, on an owner driver basis.
The distinction between independent contractor and employee is important. As employees, workers are entitled to employee benefits and protections such as Award wages, penalty rates, and leave etc. If an employee is misclassified as an independent contractor:
- There may be significant claims for backpay, leave and other entitlements and significant penalties can be imposed.
- Penalties may apply to Company Directors personally
- The Labour Hire Licence may be cancelled
- Other requirements, such as superannuation and PAYG, may be enforced by the Australian Taxation Office.
Labelling a worker as an independent contractor, even in a formal written contract, may not hold up in court. As remarked in the High Court decision:
"the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck".
LHA is targeting the misuse of independent contracting which results in workers receiving less than they otherwise would have as employees. LHA will also refer cases of exploitation for prosecution by appropriate agencies.
LHA investigations have uncovered cases where labour hire providers may have misclassified workers. Where the LHA finds that workers have been misclassified as independent contractors, it can take a variety of actions, including imposing conditions or cancelling labour hire licences.
“The principle is crystal clear – labour hire providers must ensure that workers receive at least Award wages and conditions. Calling workers independent contractors does not escape employment law obligations. ” says Steve Dargavel, Labour Hire Commissioner.
“Not only is sham contracting unlawful, it deprives workers of their entitlements, while enabling unscrupulous businesses to undercut the great many companies doing the right thing.”
“With our strong investigative powers, any labour hire provider that exploits workers can expect to be held to account.”