The High Court has ruled that, when applying the multifactorial test to determine whether a worker is an employee or an independent contractor, the various indications of employment are only relevant to the extent that the terms of any written contract give effect to them (unless the contract is a sham or has been varied by the subsequent conduct of the parties). It is only where the terms of a contract are oral or ambiguous, that the court can apply the multifactorial test against the practical reality of the relationship and the manner of performance of the contract.

The High Court recently handed down the decisions of Construction, Forestry, Maritime, Mining and Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel) and ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 (Jamsek).

These decisions have clarified the approach to determine whether a worker is an employee of a business or an independent contractor. They also provide an incentive for employers to review their working arrangements and ensure the terms of their agreements accurately reflect the nature of their relationships with their workers.

The classification of these arrangements as one of employer/employee or principal/independent contractor is relevant to a number of obligations including those relating to:

  • Pay As You Go withholding from payments made to employees;
  • provision of WorkCover insurance;
  • provision of superannuation contributions for employees or “deemed employees” (including for some contractors properly so classified for other purposes);
  • compliance with employment related legislation, including as to the provision of leave entitlements available to employees.

This article discusses:

  • the state of the law prior to Personnel and Jamsek;
  • the High Court’s reasoning in those decisions and what has changed;
  • three subsequent cases seeking to apply Personnel and Jamsek;
  • how the decisions affect employers’ obligations to make superannuation contributions; and
  • what is likely to happen in this area going forward.

A note about payroll tax is also included, which as a general proposition, is a tax levied by the states and territories on wages paid to employees. In some scenarios, liability for payroll tax, in respect of fees paid to a contractor, will occur as in the correct analysis undertaken according to the recent cases, the work arrangement is one of employment. However, as noted below, the payroll tax net in all Australian jurisdictions will frequently capture fees paid to contractors.

Before Personnel and Jamsek

Since cases such as Stevens v Brodribb Sawmilling Co Proprietary Ltd [1986] HCA 1; 160 CLR 16 and Hollis v Vabu Pty Ltd [2001] HCA 44; 207 CLR 21, determining whether a worker is an independent contractor or an employee has involved the application of a multifactorial test.

The test assesses the totality of the relationship between the parties by applying the various indicia of employment developed through the common law to both the terms of any relevant employment contract, as well as to the way the relationship operates in practice.

While the multi-factorial test has not been totally disregarded, the High Court has clarified the circumstances in which it is to be applied.


Personnel involved an agreement between Mr Daniel McCourt, a British backpacker on a working holiday, and labour-hire company, Personnel Contracting Pty Ltd trading as Construct (Construct).

Under the terms of the Administrative Services Agreement (ASA) between Mr McCourt and Construct, Mr McCourt was engaged as a self-employed contractor to supply labour to builders and was subsequently offered work on a building site with the company Hanssen Pty Ltd (Hanssen).

In what’s known as an ‘Odco’ arrangement,1 Construct had an agreement with Hanssen to supply workers to its building sites, but there was no agreement between Hanssen and Mr McCourt.

Seeking compensation from Construct for contraventions of the Fair Work Act 2009 (Cth) (FW Act) and for breaches of the relevant award, Mr McCourt and the CFMMEU argued that Mr McCourt had in fact been an employee of Construct.

At first instance in the Federal Court, O’Callaghan J considered various indicia, such as:

  • the degree of control Construct had over Mr McCourt’s work;
  • whether Mr McCourt was running his own business;
  • his mode of remuneration;
  • whether he provided his own tools and equipment; and
  • whether he was integrated into Construct’s business, among other things.

O’Callaghan J found that, on balance, the indicia pointed in different directions and could not determine the issue. In such circumstances (where the parties are acting honestly and the contract is not a sham), regard may be had to the intention of the parties and how they characterised their relationship. It was held that Mr McCourt was an independent contractor, as it was clear from the ASA that the parties intended for him to be engaged as such.

This decision was upheld on appeal to the Federal Court of Australia (FCA). Allsop CJ, Jagot and Lee JJ acknowledged various limitations with the multifactorial approach, especially in its application to trilateral arrangements. They noted that, had they been the ones to weigh up the same factors in the first instance, they would have found Mr McCourt to be an employee. However, they found that they were bound by an earlier decision of Personnel Contracting Pty Ltd (t/as Tricord Personnel) v Construction, Forestry, Mining and Energy Union of Workers, 2 where the worker was found to be an independent contractor in very similar factual circumstances and engaged an earlier version of the same ASA.

On appeal to the High Court, six of the seven judges overturned the FCA’s decision and held that Mr McCourt was an employee of Construct.

Kiefel CJ, Keane and Edelman JJ found that the lower courts had misapplied the multifactorial test. They determined that where a contract is entirely in writing and there is no suggestion it is a sham, it is the rights and obligations under the terms of the contract that are decisive of the character of the relationship.3 As such, it is not appropriate to review the history of the dealings between the parties or any subsequent conduct, unless it is argued that such conduct has varied the terms of the agreement or gives rise to an estoppel or waiver. Furthermore, the label chosen by the parties for the relationship is not determinative.

In analysing the specific terms of the ASA, Kiefel CJ, Keane and Edelman JJ highlighted that Construct had the right to fix Mr McCourt’s remuneration, was responsible for paying him and could terminate the ASA if he failed to obey Construct or Hanssen’s directions.4 Given these features, it was not possible to determine that Mr McCourt was running a business of his own.

Mr McCourt also had no discretion as to how he carried out the work. Even though Hanssen was the party that directed his actions at the site, the terms of the ASA requiring Mr McCourt to cooperate with Construct and the builder (and Construct’s right to terminate the ASA if he failed to do so), meant that Construct was the party that ultimately had control over Mr McCourt.5

Gageler and Gleeson JJ acknowledged that the multifactorial test may lead to results that are contestable in marginal cases, but nevertheless defended it.6 They considered the most relevant indicia to be the degree of control Construct had over Mr McCourt under the terms of the ASA. However, they determined that in applying the test, the Court was not limited to an analysis of the terms of the contract but could also analyse its manner of performance.7

Gordon J confirmed that the assessment of the totality of the relationship is carried out by reference to the legal rights and obligations provided for in the contract and does not require consideration of the subsequent conduct of the parties. Nevertheless, recourse may be had to events, circumstances and things external to the contract which are objective, known to the parties at the time of contracting, and which assist in identifying the purpose or object of the contract.8

While agreeing with Gordon J’s reasoning, Steward J dissented and dismissed the appeal. He determined that this was a matter better left to the legislature and that the previous decisions in this area were not plainly wrong.

Overall, the appeal was allowed and Mr McCourt was held to be an employee of Construct.


In 1977, Mr Jamsek and Mr Whitby (Respondents) were employed as truck drivers by the previous owners of a lighting business, which is now owned by an entity named ZG Operations Pty Ltd (Company). In 1986, the Company told the Respondents that it would no longer employ them, but that it would continue to use their services to carry goods for the Company as independent contractors.

The Respondents then established partnerships with their wives (Partnerships) and the Partnerships purchased trucks and supplied services to the Company until the agreements terminated in 2017. The Respondents sought statutory entitlements on the basis that they were engaged as employees under the FW Act and the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act) and were ‘workers’ under the Long Service Leave Act 1955 (NSW) (LSL Act).

At trial, the primary judge held that the Respondents were independent contractors. The Partnerships were found to be running businesses of their own, as there was a mutual intention in 1986 to alter the structure of the relationship and this was reflected in the contract. Another significant factor was the requirement for the Partnerships to purchase their own vehicles, which were items of substantial value.

On appeal to the FCA, the Respondents were held to be employees. The FCA came to this conclusion by considering the ‘substance and reality’ of the relationship between the parties, which encompassed an analysis of the history of the parties’ dealings together over the course of their long relationship.

In the appeal to the High Court, it was unanimously held (for varying reasons) that the Respondents were independent contractors.

Kiefel CJ, Keane and Edelman JJ noted two issues with the FCA’s approach. Firstly, it placed too much emphasis on the conduct of the parties throughout the course of their relationship. Secondly, the FCA found that the disparity in bargaining power between the parties altered the ‘reality’ of the relationship, such that the Respondents were engaged as employees.9

Kiefel CJ, Keane and Edelman JJ clarified that an analysis of the totality of the relationship does not require an assessment of the practical performance of the contract or the circumstances of entry into it. Furthermore, a disparity in bargaining power cannot alter the meaning of the contractual terms.10

When analysing the relevant rights and obligations created by the contract, the Partnerships were held to be running a business of their own. The Partnerships contracted with the Company to provide the services with the trucks they owned and operated. The Partnerships invoiced the Company for the services, earned income from the Company and took advantage of tax benefits of the partnership structure.11

Gageler and Gleeson JJ agreed with the FCA’s application of legal principles but came to a different conclusion. They placed emphasis on the fact that the Partnerships were required to provide and maintain their own trucks, which were a substantial item of mechanical equipment.12 Furthermore, it was the Partnerships, not the respondents, that were contracted to perform the work under the contract and that were entitled to invoice the Company for the services.13

Gordon and Steward JJ relied on Gordon J’s reasoning in Personnel to determine whether the totality of the relationship was one of employment. They analysed the terms of the contract and concluded that the Partnerships were independent contractors to the Company.14

In relation to whether the Respondents were ‘employees’ for the purposes of the SGA Act, the High Court remitted this back to the FCA, as it did not have the benefit of the FCA’s reasoning on this point and considered it inappropriate to determine the issue without joining the Commission of Taxation as a party.15

After Personnel and Jamsek

The following cases have since applied the reasoning in Personnel and Jamsek:

1. Pruessner

Between 2012 and 2020, Mr Peter Pruessner provided various services (such as supervising concrete pouring work) to Caelli Constructions (Vic) Pty Ltd (Caelli). Mr Pruessner brought an application against Caelli for redundancy pay, long service leave and superannuation contributions (as well as pecuniary penalties for contraventions of the FW Act), on the basis that he was employed under an oral agreement with Caelli for that period.

Caelli argued that it had engaged Mr Pruessner’s construction contracting business, Pruessner Holdings Pty Ltd (PH), for services from time to time under a contractor agreement and Mr Pruessner merely supplied the services for PH.

Acknowledging the decisions of Personnel and Jamsek, McNab J highlighted the primacy of the contract in determining the relationship between the parties.16 However, in such circumstances (where there was no written contract), it was admissible to look at the parties’ post-contractual conduct to infer the terms of the contract.17

In doing so, McNab J found that some matters pointed towards an employment relationship. For example, Mr Pruessner worked exclusively for Caelli for a period of time and was paid by an hourly rate.18 However, McNab J concluded that there was clearly no agreement that Mr Pruessner would be employed by Caelli and considered the following:

  • PH invoiced Caelli for Mr Pruessner’s labour and he was paid at a rate far higher than the award rate;
  • PH invoiced Caelli for labour provided by workers other than Mr Pruessner (i.e. Mr Pruessner’s son); and
  • the way that PH treated the remuneration it received from Caelli in relation to tax (e.g. GST was added to the invoices and PH obtained tax credits for GST on business expenses) as well as its allocation of revenue in excess of expenses (e.g. expenses included payment of Mr Pruessner’s wages and superannuation contributions).19

McNab J held that:

  • Mr Pruessner had no standing to bring a claim for long service leave;
  • Caelli was not required to make superannuation contributions (as there was a contract between Mr Pruessner and PH, under which PH had been paying his superannuation); and
  • having concluded that Mr Pruessner was not an employee of Caelli, his claims for redundancy pay and pecuniary penalties were also dismissed.

2. Taarnby

This case involved a contract between Mungoorbada Aboriginal Corporation (MAC) and Meaford Pty Ltd (Meaford) for Meaford to provide ‘CEO services’ to MAC. While he was not a party to it, the contract provided that Mr Chris Taarnby (the director of Meaford) would perform the CEO services for MAC.

For the purposes of bringing a general protections claim under the FW Act, Mr Taarnby argued he was an employee, or in the alternative, an independent contractor of MAC. MAC brought an application for summary dismissal of Mr Taarnby’s claim, particularly to strike out the pleading (in the alternative) that Mr Taarnby was an independent contractor of MAC.

Young J raised the point that the existence of a corporate structure does not necessarily exclude the possibility that the individual who actually performs the services could be an employee of the party receiving the services.20 Young J discussed the approach in Personnel but noted that it was of limited use in this case, where the contract did not clearly appear to be either a contract of service or a contract for services.21 As such, Young J quoted Gordon J’s reasoning in Personnel, which recognised the need to analyse the subsequent conduct of the parties where the contractual terms are unclear.22

Young J concluded that the contract alone could not determine this issue and oral evidence from the parties would be required.23Therefore, he could not be satisfied that there was no reasonable prospect of success and the application was dismissed.

3. Waring

Mr Nicholas Waring, a pastry chef, brought an unfair dismissal application against Hage Retail Group Pty Ltd (Hage), a manufacturer of baked goods and bakery operator in South Australia.

In 2020, Mr Waring entered into an agreement (Agreement) with Hage to form a new entity (which was to be owned by Mr Waring, Mr Ben Hage and others). The Agreement contemplated that the joint venture entity would lease a manufacturing plant in Brisbane, supply goods to any café retailer clients it secured, and Mr Waring would be employed by the entity to bake its products. After the agreement was signed, Mr Waring flew to South Australia and worked to manufacture sample products (to try and secure a client for the joint venture), as well as baking for Hage’s bakery.

In November 2021, the relationship between Mr Waring and Mr Hague broke down and the joint venture arrangements were never finalised. Mr Hage sent Mr Waring an email stating that he was stood down pending an investigation into whether he had sold and/or received funds from the sale of company assets or goods without permission.

In response to Mr Waring’s unfair dismissal application made under the FW Act, Hage argued he was not an employee and therefore had no standing to claim a remedy for unfair dismissal. The Agreement was conditional upon the parties securing a major client and therefore was not operational. Rather, Mr Waring was merely a contractor for Hage’s business on an interim basis pending the establishment of the joint venture business. Mr Waring argued that he was employed under the terms of the Agreement for the interim period, and this arrangement arose out of an oral agreement with Mr Hage on behalf of Hage.

Deputy President Anderson discussed how the decisions in Jamsek and Personnel Contracting have modified the previous approach to classifying an employment relationship. Where the contractual terms can be ascertained and the contract is not a sham, an analysis of the relationship between the parties ‘across its life span’ should not be examined.24 What is relevant is the contractual terms, not their performance. In other words, the indicia of employment are only relevant as far as the terms of the contract enliven them. However, where the contractual terms are not ascertainable, how the relationship plays out in practice will be relevant to determine the true nature of the relationship.

In this case, the terms of the arrangement between Mr Waring and Hage were not sufficiently clear to confine the analysis to any such terms.

The Agreement was held not to govern the relationship between the parties for the interim period for various reasons, but mainly because it provided that Mr Waring’s employment would not start until the first order was placed under the Agreement, which never occurred.25

Therefore, Deputy President Anderson found that an oral agreement was reached for Mr Waring to perform work in the interim period, but not as an employee. The nature of the activities he undertook were found to be ‘strongly indicative of work as a contractor’, as he was acting as an entrepreneur for the primary purpose of establishing the joint venture.26 He had discretion as to the days and hours he worked, he exercised control over the services he provided, and manufactured goods for the bakery by supplying his skills as a pastry chef. He did not produce an ABN and PAYG taxation was not withheld from payments to him.

As such, Mr Waring was held to be an independent contractor and did not have standing to bring an unfair dismissal application.

Key takeaways from the decisions

The High Court has not disturbed the well-established practice of examining the totality of the relationship. The most significant clarification arises in primarily examining the terms of the written contract between the parties to establish the character of the relationship, where that contract is an accurate and accepted record of the agreement struck between the parties.

In particular, where the contract is entirely in writing and there is no evidence that it is a sham or has been varied by subsequent conduct, the terms of the contract determine whether the relationship is one of employment. Where a contract is partly or entirely oral, the subsequent conduct and manner of performance of the agreement can be analysed to determine the nature of the relationship between the parties.

The long-established employment indicia are still relevant when characterising the contractual relationship between the parties. However, they are to be considered through the focusing question or prism of whether the putative employee is working in the business of the employer. The High Court has elevated that test as one of the primary and focusing aspects of the examination of the contractual terms, complemented by examination of control.

It is possible that certain arrangements that might previously have been characterised as employment relationships could now be characterised as independent contracting relationships.

Where this occurs, this will undoubtedly result in the “deemed employee” test under the superannuation law (discussed immediately below) becoming a focal point.

Superannuation obligations

The SGA Act requires employers to pay minimum prescribed contribution amounts on behalf of all eligible ‘employees’, as defined in section 12. This section provides that ‘employee’ and ‘employer’ have their ordinary meaning, but it also expands the meaning of those terms purely for the purposes of the SGA Act.27 Relevantly, section 12(3) provides ‘If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract’.

In 2005, the ATO released the Superannuation Guarantee Ruling (SGR 2005/1) (Ruling), which provided some guidance on the application of the broader definition of ‘employee’ at the time.

The Ruling provides that, if a person is an employee at common law (determined in accordance with the employment indicia developed through the case law), they are an employee under the SGA Act. It also expounds that section 12(3) applies where the terms of the contract, in light of the subsequent conduct of the parties, indicate that:

  • the individual is remunerated (either wholly or principally) for their personal labour and skills;
  • the individual must perform the contractual work personally (there is no right of delegation); and
  • the individual is not paid to achieve a result.

Now that the High Court in Personnel and Jamsek have restricted the circumstances where the subsequent conduct of the parties is relevant to determining the relationship between the parties, the Ruling is being reviewed.

  • The ruling also provides that: where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of the SGA Act, either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual. .

If a partnership has contracted to provide services, then the person who does the work is not the employee of the other party to the contract. This is so even if the worker is a partner and even if the contract requires the partner to do the work.

However, since 2005, various cases have demonstrated that having a company or a trust as the engaged party to a contract on its own may not be sufficient to take an independent contractor outside the scope of section 12(3). Courts will look at the economic reality of the relationship between the key individual and the principal to determine whether the contract was actually ‘for the labour of’ that key individual.

In Jamsek, the High Court considered the Respondents’ contention that they were employees under section 12(3) of the SGA Act. This was not considered by the FCA, but the primary judge rejected this argument on the grounds that the relevant contract was between the Company and the Partnership (not the Respondents) and the contracts were principally of the provision of substantial equipment and labour, not ‘principally for the labour of the person’.28 The Respondents argued that section 12(3) merely required that the person work ‘under’ a contract, not that they are a party to it.29 Furthermore, while one of the purposes of the contract was to provide equipment, it was still principally for the labour of the drivers.30

The High Court did not rule on this issue, but Kiefel CJ, Keane and Edelman JJ considered the arguments advanced by the Respondents to be to be ‘not insubstantial’.31

This issue will not be determined until it is heard by the FCA, but the High Court’s indication in Jamsek is that it may be sufficient for a person to merely work ‘under’ a contract for the purposes of section 12(3), and that a legal structure such as a partnership does not necessarily mean that key people working for the partnership are not ‘employees’ under the SGA Act.

As a result of the decisions in Jamsek and Personnel Contracting, the ATO is also currently reviewing a number of other rulings relating to superannuation and PAYG withholding.

A note on payroll tax

It is worth noting that in all jurisdictions (apart from Western Australia), amounts paid to independent contractors will only be excluded from payroll tax if the arrangement falls within one of the specific contractor exemptions. If a contractor does not fall within one of the exemptions, they will be deemed to be an employee for payroll tax purposes and payroll tax will be payable on any amounts paid to them under the arrangement.

This means it is possible for a person to be classified as an independent contractor under the common law and for the purposes of the PAYG withholding and superannuation guarantee legislation, however, not satisfy one of the contractor exemptions under the payroll tax legislation and therefore be considered an employee for the purposes of calculating payroll tax.

The situation is different in Western Australia, where the payroll tax legislation gives the Commissioner a broad power to determine whether amounts paid to a party are part of a “tax reducing arrangement” and therefore classified as wages for the purposes of payroll tax. Unlike the other jurisdictions, the position in Western Australia requires consideration of the common law test to determine whether a worker is an employee or an independent contractor. It is too early to say whether the decisions in Personnel and Jamsek will have any effect on the Commissioner’s interpretation. There has been significant recent litigation in New South Wales and Victoria, effectively enlarging the types of arrangements in which payroll tax has been found payable. Those developments will inevitably impact upon the approach taken by regulators in other jurisdictions, including Western Australia.

From here, employers should ensure that they have engaged their workers under complete written contracts and that the terms of those contracts reflect the practical reality of their relationship. It is likely that we will start seeing cases that put forward arguments that the contracts are shams or that the subsequent conduct of the parties varied the terms of the contract. We will also have to wait and see what approach the Court takes where the conduct of the parties is inconsistent with their written contractual terms.

In relation to the potential liability of principals to make superannuation contributions for contractors, we will need to wait for the FCA to hand down its decision in Jamsek relating to the application of section 12(3) of the SGA Act and for the ATO to update its guidelines accordingly, including in relation to the use of interposed entities.

Given the numerous potential costs of mischaracterising arrangements, the terms of engagements should be considered carefully.