Court backs High Court’s independent contractor decision

We previously reported on two High Court decisions that examined how to determine whether a worker is an employee or an independent contractor (Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) & Anor v Personnel Contracting Pty [2022] HCA 1 (Personnel Contracting) and ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 (Jamsek).

The principles in Personnel Contracting and Jamsek (read our previous article here) have now been applied in the recent Federal Circuit and Family Court of Australia case of Pruessner v Caelli Constructions Pty Ltd [2022] FedCFamC2G 206 (Pruessner).

In the current case, Mr. Pruessner, a labourer, argued that he was an employee of Caelli Constructions Pty Ltd (Caelli) between August 2012 and 15 July 2020. Mr. Pruessner pointed to factors including that he worked exclusively for Caelli for the entire period, that he worked on average 38 hours a week and that he was an emanation of the Caelli business – wearing its uniform and using one of its email addresses.

After applying the High Court’s principles, primarily those in Jamsek, Judge McNab found that Mr. Pruessner was clearly an independent contractor.

Judge NcNab noted that the verbal agreement between the parties was vague, however that it was clear there was no agreement that Mr. Pruessner would be employed.

As there was no written contract in place between Mr. Pruessner’s company and Caelli, the court had to consider the parties’ post-contractual conduct to ascertain the terms of the agreement. Importantly, Judge McNab placed emphasis on the tax advantages enjoyed by Mr. Pruessner which flowed from the way that he had structured his business – a factor which was highly relevant in Jamsek. For example, Mr. Pruessner’s company rendered invoices to Caelli for Mr. Pruessner’s services and charged GST, it obtained tax credits for GST paid on business expenses, it paid directors fees and trust distributions (and for a time, wages) to Mr. Pruessner and his wife, and for a number of years the company paid superannuation on behalf of Mr. Pruessner.

Key takeaway

Although it was interesting to see how a court treated a factual scenario that did not involve a written agreement, this outcome was to be expected given the structure of Mr. Pruessner’s business arrangements.

As we noted in our earlier article, it is now vitally important to carefully consider the corporate structures under which contractors will provide their services.

However, Pruessner did not involve allegations of sham contracting. We therefore continue to wait and see how courts will apply Personnel Contracting and Jamsek in cases where sham contracting is alleged and the court undertakes a wider analysis of day-to-day working arrangements.

What do we do next?

For businesses that engage contractors:

• Ensure your independent contractor agreements are drafted carefully and reviewed regularly to reflect a genuine contracting relationship.
• Before entering into a new contractor agreement, carefully consider the corporate structures under which contractors will provide their services, if any.
• Ensure that day-to-day working arrangements reflect the terms of the agreement – this will assist in the event that the contract is challenged as a sham.

Gadens is able to assist with any queries you have in respect of engaging employees or independent contractors, drafting or reviewing written agreements and advice on how best to mitigate risks.

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Authored by:

George Haros, Partner
Diana Diaz, Special Counsel
Carlyna Yap, Lawyer