Evolution of Contractor Agreements – a return to a Multifactorial Approach

The High Court’s decisions in Personnel Contracting and Jamsek have underscored the significance of the contractor agreements between parties, marking a shift from the previously applied multifactorial test to emphasising the contractual relationship’s primacy.

These High Court rulings underscored the critical importance of meticulously drafted contracts for workers classified as independent contractors. In the event of legal scrutiny, the specifics of the contract would be paramount, (although not entirely exclusive) but still overshadowing the multifactorial analysis once prevalent.

Insights into the Fair Work Closing Loopholes Legislation

The Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 introduces significant amendments to the Fair Work Act 2009, including a pivotal section that redefines the criteria for distinguishing between employees and contractors based on the actual nature of their working relationship.

Key reforms under this legislation involve redefining casual employment and addressing “employee-like” contract arrangements marking a departure from the High Court’s stance in Personnel Contracting and Jamsek in previous rulings.

For the purposes of the distinction between employees and contractors, the proposed amendments to the Fair Work Act 2009 (Cth) (FW Act) under the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (CL Bill)sees the addition of a new section under 15AA of the FW Act. This section outlines that the ordinary meanings for “employee” and “employer” will be determined by reference to the

“real substance, practical reality and true nature of the relationship between the parties”.

Redefining the Multifactorial Approach

The multifactorial approach has not been so much thrown out but instead, been limited in its scope of use. Put simply, where there is no written contractor agreement, the “contract is king” approach taken in both Jamsek and Personnel Contracting is unable to be applied. In these circumstances, the previous multifactorial test can be used to determine whether the worker is an employee or a contractor.

Key points in the multifactorial approach are:

  • control
  • terms of the contract
  • method of remuneration
  • provision of equipment
  • obligation to work
  • hours of work and leave
  • deduction of income tax
  • ability to delegate work
  • ability to perform work for others
  • risk.

Top 5 Tips For Business

  1. Revise and Update Contractor Agreements
    • Regularly review and update contractor agreements to ensure they are in line with the latest legal standards and clearly define the nature of the relationship. This includes specifying the scope of work, payment terms, and the independent status of the contractor. Although Personnel Contracting and Jamsek have been limited, the terms of the contract will still be a persuasive element.
  2. Implement Clear Distinctions Between Contractors and Employees
    • Establish clear operational distinctions between employees and contractors. This could involve differences in work location, equipment provision, and how tasks are assigned and completed, to reflect the true nature of the contractor’s independence.  There should be particular focus on control and whether the contractor knows and is able to perform work for others.
  3. Conduct Regular Legal Compliance Audits
    • Periodically audit your contractor management practices and agreements for compliance with current laws and regulations. This proactive approach can help identify potential issues before they escalate and ensure adjustments are made in a timely manner.
  4. Educate Management and HR on Legal Changes
    • Keep your management and human resources teams informed about legal changes affecting contractor relationships. Training sessions workshops and regular updates can help ensure that decisions regarding contractors are made with a full understanding of current legal requirements.
  5. Seek Expert Legal Advice
    • Consult with legal experts specialising in employment law and contractor law to review your contractor agreements and practices. Expert advice can provide tailored solutions to navigate complex legal landscapes and mitigate risks associated with contractor engagements.

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Written By  

Jonathan Mamaril  


NB Employment Law  

[email protected]  

+61 (07) 3876 5111 

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