Last year, the High Court made two important decisions that significantly altered the test differentiating employees and contractors. Businesses scrambled to make sure their contracts properly reflected their relationships with employees and independent contractors, because the High Court had said the terms of the contract are paramount in determining the issue, rather than other factors.
The two truck drivers at the centre of one of the High Court cases, Mr Jamsek and Mr Whitby, claimed they were employees and that their “employer”, ZG Operations Pty Ltd, owed them superannuation contributions. They had worked for the same trucking company for 40 years.
However, when the High Court decided they were contractors, the question of whether super was payable was referred back to the Federal Court.
The Federal Court’s decision on whether superannuation was payable to the contractors was handed down on 24 March 2023.
Now, you might be thinking: Hang on a second, only employees are entitled to super. Contractors can’t claim super, just as they can’t claim annual leave or public holiday pay.
It is true that contractors and subcontractors are not always entitled to super contributions by their clients.
However, the issue here is that the Superannuation Guarantee (Administration) Act 1992 (SGA Act) contains an extended meaning of who is an “employee” for the purposes of being entitled to superannuation. It says:
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.
This means that, where contractors are paid “wholly or principally for their labour” they will be deemed to be employees, even if they have an ABN, that their “employer” must pay superannuation contributions. The contributions must be paid into the worker’s super fund, not directly to the individual.
The Federal Court’s decision in relation to superannuation found that Mr Jamsek and Mr Whitby did not fit within the extended definition of “employee” and therefore were not entitled to superannuation.
This was because ZG Operations had not entered into contracts personally with the workers, but with the partnership structures that the drivers had set up (their wives were the other partners). Only an identifiable natural person and not a partnership can be an employee under section 12(3) of the SGA Act.
The contracts were not for the labour of the drivers because:
- the contracts required both the provision of the labour of the drivers as well as equipment (i.e. the trucks owned by the partnerships) and the benefit derived by the business was integrated and not separated into components for labour to drive and the other being the use of a truck;
- the partnerships could delegate the work to substitute drivers so that performance was not personal to Mr Jamsek and Mr Whitby;
- the partnerships took on the risks and costs of running the trucks;
- properly categorised, the benefit to the company under the contracts was the delivery of goods and not principally the labour of the workers.
For these reasons, the workers lost their appeal and were not entitled to superannuation contributions.
For a confidential discussion or if you would like some legal assistance, please contact our employment team.
