Labour Hire Update: A recent High Court decision on how workers should be classified as independent contractors or employees.

A recent High Court decision on how workers should be classified as independent contractors or employees has significant implications for some labour hire companies.

Independent contractors, roosters and ducks — the High Court decision in CFMMEU v Personnel Contracting.

You have nothing to be concerned about if you provide all workers as employees and meet all of your obligations. If you supply workers such as labourers, fruit pickers, cleaners, security guards, or production workers as independent contractors, you must now make important decisions. You should think about your approach and seek independent legal advice.

The Court ruled that labour hire companies cannot simply refer to their employees as "independent contractors" and treat them as such. The nature of a labour hire relationship raises the question of whether a worker can be an independent contractor when the nature of the work requires relatively low skill. In a separate case, it is obvious that a worker can be an independent contractor if the worker directly supplies substantial plant or equipment, such as a semi-trailer truck, on an owner-driver basis.

It is critical to distinguish between independent contractors and employees. Employees are entitled to employee benefits and protections such as award wages, penalty rates, and leave, among other things. If a worker is mistakenly classified as an independent contractor:

• Significant claims for backpay, leave, and other entitlements may be made, and significant penalties may be imposed.
• Penalties may be imposed on Company Directors personally.
• The Labour Hire Licence could be revoked.
• The Australian Taxation Office may impose additional requirements, such as superannuation and PAYG.

Even in a formal written contract, labelling a worker as an independent contractor may not be held up in court. According to 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".

Related reading: Contractor Provisions

LHA is focusing on independent contracting abuse, which results in workers receiving less than they would as employees. LHA will also refer exploitation cases to appropriate authorities for prosecution. Labor hire companies may have misclassified workers, according to LHA investigations. When the LHA discovers that employees were misclassified as independent contractors, it has the authority to impose conditions or cancel 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. 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.” says Steve Dargavel, Labour Hire Commissioner.

Related reading: Employers' New Labour Hire Obligations - State-by-State Guide and Update

Written by Yon Ta, 8 November 2022

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