By Raf Priest
When we consider contract law, what are the fundamental principles that we associate with a valid contract? For those of us unable to remember, or those who haven’t yet enjoyed the pleasure that is LAWS1204, some common phrases would be ‘A meeting of the minds’, ‘consideration’ or ‘sufficient capacity’. Generally, when we think about the formation of a contract, we tend towards the notion that a contract is an agreement between mutually consenting parties acting in good faith with an element of quid pro quo.
But what about when it comes to the peculiar class of contract that is the employment contract? Can we really consider the majority of these agreements as satisfying this notion? Consider the following; when you have been trying to find work, at how many jobs or firms have you been able to assume the same level of negotiating or bargaining power as your employer? What about when you are offered a job, do you have any real power to change any terms in your contract? Or once you start working, how much control do you have over the performance and operation of the employment contract? At the end of the day, the majority of us as employees are relatively replaceable and are in no position to properly negotiate specific terms of our employment.
However, contrary to the logic of the above, the High Court would have us think otherwise. In 2022, the majority of the Court found that an employment contract and all of its associated obligations should be interpreted no differently to how we would interpret a contract of sale or lease for premise. In Construction, Forestry, Maritime, Mining And Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and ZG Operations & Anor V Jamsek & Ors [2022] HCA 2 (Jamsek) the Court directed that where the terms of a relationship are comprehensively committed to in writing, the rights and obligations arising from that relationship are only to be derived from the established principles of contract interpretation. In other words, unless the contract is a sham, you are to exclude consideration of the relationship in practice and the real conduct of the parties.
Now, this train of thought probably doesn’t pose many problems for the seven most in demand legal minds of the land when it comes to their employment with the Commonwealth. But what of us mere plebs at the bottom of the employment ladder, those of us working entry-level and/or low skill jobs? How does a worker in these spheres of employment negotiate the terms of their boilerplate contract? Most importantly, what about workers who are termed as ‘contractors’ in their contract for work but are, for all intents and purposes, subject to all the obligations of an employee – just without the rights of one? Think rideshare drivers, construction labourers etc. This was the principal issue in Personnel Contracting and Jamsek; workers sought the entitlements of full employment where they had operated like an employee but had not received the benefits of such – superannuation, leave entitlements etc.
The standard for a sham in contracts, per Lockhart J in Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy, is a ‘disguise’ or a ‘facade’ that is deliberately constructed in order to conceal a ‘real’ transaction. Considering we are restricted to only assessing the text of the contract to ascertain the intention of parties where there is no ambiguity, this is an exceedingly difficult standard to prove in cases of employment contracting. It also sets an unreasonably high standard to achieve for the members of our workforce most vulnerable and susceptible to exploitation in the workplace.
Now this is where the proposed amendments to the Fair Work Act 2009 (FW Act) found in the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (the Bill) enter the frame to re-balance employment bargaining. The Albanese Government has re-instigated the multifactorial test to determine if an employment relationship exists. This was the approach favoured by the Full Bench of the Federal Court in Personnel Contracting and Jamsek, as well as being the prevailing approach in disputes of this kind prior to the HCA’s intervention. The test found in Part 15 of Schedule 1 to the Bill will direct Courts to consider the ‘substance and reality’ of the relationship by assessing a variety of factors, including both the conduct of the parties and the terms of the written contract.
The primary indicia which the court must consider under this amendment are;
Right of control over the worker – The higher the flexibility as to how work is performed will lead to an assessment that the worker is an independent contractor; and
Own business / employer’s business dichotomy – An employee will be serving the interest and creating assets of the employer’s business.
Other factors which will inform the Court’s assessment of the relationship include;
Commercial risk
Terms and circumstances of the formation of the contract
A contract for services (“results contracts”) vs a contract of service (employment contract)
Location where work is performed
Provision of tools and equipment and payment of business expenses
Whether the work can be delegated or subcontracted
Uniform
Taxation, superannuation, insurance
Exclusivity
The legislature’s intervention is a welcome clarifying move that, in the opinion of this writer, is an important step in moving the law towards the position recognising the special place that an employment contract holds. As stated in the introduction to this article, there are very good reasons why we should consider the employment contract as something other than an orthodox meeting of the minds. The employment contract encapsulates fundamental economic and social hierarchies that are not present in orthodox contracts. The employment contract for the majority of us represents more than a contract, it is a relationship which we rely on for the maintenance and improvement of our standard of living. There are few relationships that have caused such academic, social, political and real conflict as the relationship between an employer and employee; civil wars and revolutions have been fought over the relationship between capital and labour.
The courts need to be allowed flexibility to consider employment relationship and look to the intent, not the mere form. In this area of law the Courts should be focused primarily on doing justice by the employee and employer as opposed to being bound by legal orthodoxy.
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