The amended Fair Work Act 2009 (Cth) (‘FWA’) introduces revised definitions of “employer” and “employee”, to address concerns that unscrupulous employers are misclassifying workers as independent contractors, thereby avoiding employer obligations.
The new definitions came into effect on 26 August 2024. They apply to all employment arrangements in place as of that date, as well as to any agreements entered thereafter.
Legal Context
Historically, courts evaluated employment relationships based on the “substance over form” principle, focusing on the overall relationship between the parties, rather than any contractual characterisation. However, recent High Court decisions in 2022 such as CFMMEU v. Personnel Contracting Pty Ltd,[1] and ZG Operations Pty Ltd v. Jamsek,[2] placed greater emphasis on the contract’s terms, potentially allowing employers to manipulate agreements to obscure the true nature of the relationship.
In response, the FWA now stipulates that an “employee” and “employer” will be determined by the “real substance, practical reality and true nature” of the relationship between the parties. The new meaning considers that the nature of the employment relationship may change over time, and it will no longer rely solely on the terms of the written contract. This holistic assessment considers both the written contract and how the arrangement operates in practice, ensuring that even if a contract suggests otherwise, the true nature of the relationship is recognised.
Key Factors to Consider
When determining the nature of a working relationship, several factors are considered:
- Control: The degree of control the employer has over how work is performed.
- Financial Responsibility and Risk: Who bears financial responsibility and risk.
- Provision of Equipment: Who provides and maintains necessary equipment.
- Delegation: Whether the worker can delegate or subcontract tasks.
- Work Hours: Whether there are set hours of work.
- Taxation: How income tax is deducted.
- Right to Dismiss: The employer’s right to terminate the worker.
These factors help determine whether a worker is genuinely operating as an independent contractor or functioning as an employee within the business.
Implications for Employers
Misclassifying workers can lead to significant liabilities, including claims for unfair dismissal, back payments of wages, annual leave and entitlements such as long service leave, and obligations for superannuation, workers’ compensation, and payroll tax. Employers must ensure that their classification practices align with the new definitions to mitigate these risks.
To ensure compliance, employers should:
- Regularly review and update employment contracts.
- Ensure that the terms and actual practices align with the intended classification.
- Seek professional advice to avoid inadvertent misclassification.
By understanding and adapting to these changes, businesses can mitigate legal risks while maintaining compliance with workplace laws.
To better understand how these changes might affect your business and to ensure compliance with all relevant laws and regulations, reach out to Daniel Morgan (daniel@morganenglish.com.au) and our Workplace & Conduct team at M+E today.
[1] CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1.
[2] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.
