Daniel Butler, director of DBA Lawyers, said the bill proposes a range of new measures, including the insertion of a statutory test to determine the meaning of “employee” and “employer” by “reference to the real substance, practical reality and true nature of the relationship between the parties”.
This, according to the bill, would require the totality of the relationship between the parties, including not only the terms of the contract governing the relationship but also the manner of performance of the contract, to be considered in characterising a relationship as one of employment or one of principal and contractor.
Mr Butler explained that the change is the Labor government’s response to a couple of decisions brought by the High Court mid-2022, including in CFMMEU v Personnel Contracting and ZG Operations v Jamsek.
Speaking to ifa’s sister brand, SMSF Adviser, he stressed the importance of providing certainty for employers, including advisers.
“Businesses and employees/contractors need certainty in this important area of the law and any change in definition should not be undertaken without regard to the follow-on implications for things like PAYG, super guarantee, WorkCover, payroll tax, and other aspects such as worker entitlements and vicarious liability,” Mr Butler said.
He explained that the law, in relation to determining the status of an employee or an independent contractor, has developed over many years both in Australia and overseas.
“Leading up to the High Court decision in 2022, the courts were looking at the overall totality of the arrangement by weighing up a multitude of factors to decide whether a given person based on all the factors considered was more likely an employee versus an independent contractor,” he said.
“There have been various tests that have developed over the years to determine who is an employee and who is an independent contractor, including the master–servant control test, the multi-factorial test and a recent trend towards placing more focus on the terms of the contract,” Mr Butler said.
He explained, however, that the current bill suggests reinstating the “multi-factorial” test previously applied by courts and tribunals to determine if a worker is an employee or independent contractor. This is despite there being a number of High Court decisions where the rights and obligations of the parties under the contract take primacy over the multi-factorial test.
“Broadly, the High Court said in the CFMMEU and Jamsek cases that if you have a comprehensive written agreement, there is no need to do this totality test – the multi-factorial test,” he said.
Moreover, Mr Butler highlighted that the High Court had previously pointed to the considerably limited application of the multi-factorial test.
However, the proposed changes now indicate that the government is essentially reversing the recent High Court decisions regarding the merit of a comprehensive written agreement.
“It is a big issue and what the government is now proposing to change the legislation which will have the effect of ousting the High Court’s decisions,” Mr Butler said.
“The government wants to change it back to where it was. From the point of view of an adviser, you need to be on top of these changes.”
Ultimately, Mr Butler said that the critical thing to understand is that “we had the multi-factorial test for many years then the High Court said it could be determined with a comprehensive written agreement”. Nevertheless today, many businesses engage contractors without any contract.
“If the legislation changes back to where it was, there is added complexity in the system once again and advisers need to be on top of this as businesses, employees, and contractors will all be impacted, some with severe penalties,” he concluded.
