In the aftermath of the High Court’s landmark independent contractor decisions last year, the impacts for superannuation in contractor arrangements have now been clarified by the Full Federal Court.
In this blog, our Workplace Relations and Tax teams look at how the ‘deemed employee’ test under superannuation laws should be applied and what the Court’s decision means for businesses who engage in contractor arrangements.
In a significant cross-appeal decision of the Full Federal Court on 24 March 2023 (see Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48), the Court has once again taken a black-letter view of who constitutes an ‘employee’ for entitlement purposes.
The decision ends the two truck drivers’ claim to access decades of superannuation entitlements on the basis they were employees and not contractors under the Superannuation Guarantee (Administration) Act 1992 (Cth) (Act). Union representatives in the transport industry are likely to be frustrated by the outcome as they continue to push to increase minimum standards and reform regulatory frameworks to capture more non-standard working arrangements. However, we think the decision is essentially just a confirmatory one which clarifies how the definition of a ‘deemed employee’ under s12(3) of the Act should be correctly applied (which has always been the case).
Last year’s High Court decisions
As many of you will recall, in making its unanimous decision last year that the two truck drivers were not employees, the High Court in Jamsek[1] found that:
- The rights and duties as defined in the written contract are now the preeminent considerations of the Court in determining the nature of the working arrangement as either an employment or contracting relationship.
- Because the partnerships rather than the individuals owned and operated the trucks, it could not be said that the drivers in Jamsek were not conducting their own business as partners, in circumstances where they were splitting the business-generated income amongst each other.
The Jamsek decision of the High Court was handed down at the same time as Construction, Forestry, Maritime, Mining And Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 which also reinforced the primacy of written agreements in determining an employee/contractor worker status.
Superannuation test now clarified
Notwithstanding the decisions last year, the High Court opted not to deal with the drivers’ cross claim in respect of unpaid superannuation for the drivers. Specifically, this was a claim that the expanded definition of a ‘deemed employee’ under s12(3) of the Act should have applied to them and that the Federal Court should have held as such.
Relevantly, s12(3) of the Act defines an employee under the Act to include persons who ‘work under a contract that is wholly or principally for the labour of the person.’[2]
In circumstances where the Commissioner of Taxation was not a party to the High Court proceedings and where the Full Federal Court did not deal with these questions in the earlier decision which was appealed to the High Court[3], the drivers’ cross claim was therefore remitted to the Federal Court for determination as a final step in the legal saga.
Findings
In dismissing the cross appeal, Judges Anderson and Perram accepted the submissions of the Commissioner of Taxation that s12(3) of the Act only applies where the employee is an identified natural person, who is a party to the contract in their individual capacity, rather than in their capacity as a partner or trustee. Although s72 of the Act deems a partnership to constitute a legal person for the purposes of contracting as an employer under s12(3), this did “not operate to deem a partnership to be a ‘legal person’ for the purposes of being treated as putative ‘employee’ under s12(3) of the Act”.
“This is because only an identified natural person, and not a partnership, can be an ‘employee’ under any of the ss 12(2)-(11) of the SGA Act,”.[4]
The Court did not accept the drivers’ arguments that the partnership was not a separate legal entity, therefore the contract was directly with the workers for the purposes of s12(3) of the Act. It also rejected the submission that s12(3) only requires a person to work under a contract, rather than that a contract be made with the individual worker.
Additionally, the Court held that the contracts between the truck drivers and ZG (the trucking company) were not wholly or principally for the labour of the drivers as required under s12(3); rather, the contract was for a delivery service (which included a labour component). This was decided partly because the contractors were substantially left to do the work themselves and had the ability to delegate work.
Implications
This decision has important superannuation and taxation ramifications in clarifying the actual scope of s12(3) of the Act, with the drivers’ partnership not falling within the scope of the ‘deemed employee’ definition for super contribution purposes.[5]
Whether Parliament will legislate to expand the definition of who constitutes a deemed employee under the Act for the purposes of accessing superannuation remains to be seen. Given the significant taxation and revenue implications for businesses, we think that any changes will likely require considerable consultation with all stakeholders. However, such changes may be inevitable in time given the gathering momentum for consistent minimum standards and regulation, particularly in the gig economy.
For businesses who engage in contractor arrangements, we recommend that you carefully review your engagement models to ensure that workers are appropriately classified in the relevant capacity (whether as an identified natural person or in some other capacity) for entitlement purposes, including in respect of superannuation.
Aligned to this, written agreements should continue to be frequently reviewed and appropriately drafted in properly defining the relationship, duties and obligations of each party to the working arrangement.
If you have any questions or wish to discuss, please do not hesitate to contact our Workplace Relations & Safety or Tax & Structuring teams.
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[1] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2
[2] Superannuation Guarantee (Administration) Act 1992 (Cth), s12(3)
[3] Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119.
[4] Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48, 45
[5] The result was consistent with the existing ATO guidance set out in Superannuation Guarantee Ruling SGR 2005/1.
