Legal Insights

The High Court agrees that Mr Harrison is not an employee for superannuation purposes

By Emma Rae

• 06 December 2023 • 4 min read
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The ongoing debate of contractor v employee status was explored in the landmark case of JMC v Commissioner of Taxation; MC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76 (JMC case).

The context

The JMC case centred on whether a lecturer, Mr Harrison, was an employee or an independent contractor for superannuation purposes. JMC, a provider of higher education programmes, engaged Mr Harrison to provide teaching services as an independent contractor. It did not make superannuation contributions for him during his engagement with JMC.

The challenge

The Commissioner of Taxation issued Superannuation Guarantee Charge assessments to JMC for Mr Harrison as it disagreed with the position taken by JMC and alleged that Mr Harrison fell within the ordinary or extended meaning of "employee" under the Superannuation Guarantee (Administration) Act 1992 (SGA Act). This was objected to by JMC.

The decision

The Full Federal Court looked at what was written in the contract between JMC and Mr Harrison. In doing so, the Court held that Mr Harrison did not fall within the ordinary meaning of an employee.

This decision was largely based on the contracted right of Mr Harrison to sub-contract his services. As a result of his right to sub-contract, even though there was no evidence Mr Harrison in fact exercised this right, the Full Federal Court found that the contract could not be wholly or principally for his own labour. This meant that Mr Harrison did not fall within the extended meaning of “employee” under the SGA Act. The Commissioner of Taxation sought leave to appeal the Full Federal Court’s finding, arguing the principal purpose of the contract was still for Mr Harrison’s labour. The High Court rejected the special leave application.

Key update for employers

The significance of written contracts

The Full Court’s decision, accepted by the High Court, again emphasises the importance of written contracts in determining employment status. Careful consideration should be given as to what is (and is not) included within a written contract between a contractor and a principal.

The 'how' is important

Ensure that written contracts not only stipulate which party determines what, where and when services are to be performed, but most significantly, how those services will be performed. An independent contractor controls how the work is done; whilst an employer has the right to control not only what is done, but how the work is performed.

The right to subcontract

There is significant weight placed by the Courts on the right to subcontract, and whether or not this right has been exercised. If a right to subcontract is in the contract, the contract will generally not be wholly or principally for the labour of that person.

Review, review and review

Review your written contracts to ensure that, as far as possible, they reflect the case law on contractor-principal relationships. While the contractor v employee issue is likely to be altered by the 'Closing Loopholes' amendments, the chart below can be used as a tool. Please note that the chart is not exhaustive and should be used as a guide only. Basically, a contractor provides services to the business (and is in business on their own account); an employee works in and for the business.

If you have any questions in relation to this case, please do reach out to a member of our Employment & Workplace Team.

Guide on the difference between a contractor and employee

Indicative of a contractor-relationshipIndicative of an employee-relationship
Right to subcontract or delegateNo right or limited right to subcontract
Is paid after submitting an invoiceIs paid a wage
Has an ABNHas PAYG deducted from a wage
Pays own superannuation contributions, payroll tax, WorkCover leviesIs permitted to take paid holidays and other types of leave, for example, long service leave
Required to maintain own insurance policies in relation to the provision of servicesHas limited control over how and when their work is performed, for example, has set hours
Is able to perform work for other businessesIs unable to perform work for other businesses
Supplies and maintains own equipment to perform the servicesUses company's equipment to provide services and/or is required to wear a unifrom

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