Choose your words wisely! The implications of the HC ruling in CFMMEU v Personnel Contracting and ZG Operations v Jamsek for your medical practice

The ‘employee vs contractor’ distinction has always been a complex one – and the High Court has traditionally emphasised the importance of using a multi-factorial approach that focuses on the ‘totality of the relationship’. Just recently, the High Court delivered two highly anticipated judgments in CFMMEU v Personnel Contracting [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2 concerning this employee vs contractor distinction, which appear to mark a shift in this area of employment law.

You may recall, in 2021 we did a blog ‘Words matter more now than ever’ in response to the WorkPac v Rossato case concerning casual employment. Well, words matter now more than ever because similarly to WorkPac v Rossato, these HC cases reinforced the primacy of contract and how the rights and duties under a written contract are paramount to determine a worker’s status. 

So, what were these two cases about?

CFMMEU v Personnel Contracting concerned McCourt, who was a backpacker on a working holiday visa in Australia, engaged by a labour hire company under a contract that described him as a “self-employed contractor”. Despite labeling the arrangement as a ‘contractor’ one, the High Court found that the terms in the agreement itself reflected an employer/employee relationship.

In ZG Operations v Jamsek, two workers (Jamsek and Whitby) were held to be contractors. Although they were initially employed by ZG Operations as truck drivers, they agreed to end this employment relationship. Through setting up partnerships with their wives, they entered into the contracts (as that entity) to purchase the trucks from the company and carry goods for the company. Not only did they purchase the trucks, they paid for the maintenance of them and invoiced the company for the services they provided. In addition, they ‘enjoyed the tax benefits of splitting the partnership income with their wives’.

As you can see, these cases had different facts and different outcomes, however the overarching legal reasoning employed by the High Court to reach these decisions, is essentially the same.

What is the effect of these cases?

These cases mark a shift in employment law, the exact long-term consequences of which are unclear. Whilst the distinction between employee and contractor is still a complex one, these cases have strongly emphasised the importance of a comprehensive contract.

These cases seem to have provided a bit more certainty in one regard for employers, however, it may raise concerns that there is a statutory regime that can be contracted out of. The effect of these decisions may mean it will make it easier for businesses to engage workers as independent contractors, potentially shortcutting minimum pay and conditions (provided the contracts are correctly drafted). Jamsek at [9]:

‘…as a practical matter of the due administration of justice, the task of raking over the day-to-day workings of a relationship spanning several decades is an exercise not to be undertaken without good reason having regard to the expense to the parties and drain on judicial time involved in such an exercise’.

In long-standing employment relationships, it is not uncommon for the arrangement to change over time, although the HC seems to be implying that time is an issue to assess such arrangements.

The High Court has now made it clearer that the importance of the reality of working arrangements has taken a back seat. This is a big shift, as the court had previously (since Hollis v Vabu Pty Ltd) highlighted the need to look beyond the contract at the reality of the working arrangement. To this effect, these cases make it clearer and give a ‘go ahead’ to businesses sourcing work from contractors rather than employees, with less risk attached.

How does this interact with the Thomas and Naaz payroll tax case?

As a refresher, the Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259​ case concerned Dr. Thomas (who runs three practices in Sydney). He was found to owe the state almost $800,000 in retrospective payroll taxes because despite the doctor contractors holding themselves out as individual sole traders, co-located on the same premises, their income was still deemed a “relevant contract” & how the money flowed to their accounts was subject to payroll tax.​ The reason for this, was the way that the money flowed between the practice and the doctors was the key indicator the Court considered, together with some of the clauses in the agreement between the doctors and the practice.

Medical Centres are currently under the spotlight for payroll tax, which is a state-based tax.​ Many QLD & NSW based practices are getting in touch after receiving payroll tax audits at the moment. These people are talking to have been told that the area is being targeted by the State Revenue Depts.​ We understand from industry that Thomas and Naaz will be appealed, and so it is essentially too soon to tell.

Advice to our medical practice clients

Our advice to our medical practice clients is to keep treading carefully as this is an area of the law that is constantly evolving. However, consistent with the Thomas and Naaz case, and these two High Court cases, is the emphasized need to review your current contracts. Essentially, make sure that what you have in your contract, reflects what you want in your contract, in both language and effect. You should ensure that your contracts are well-drafted – meaning that they are up-to-date and comprehensive, constituting the full agreement with each worker.

If you and your medical practice need any help navigating this area, please get in touch.