Independent Contractors and the new definition of employment

From 26 August 2024 section 15AA of the Fair Work Act 2009 (Cth) (‘the FWA’) has come into effect and introduces a new ‘ordinary meaning’ for employee and employer.

These changes were introduced in response to the decision handed down by the High Court of Australia in 2022 in the matter of the CFMEU v Personnel Contracting Pty Ltd [2022] HCA and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA. These decisions held that the nature of the relationship should be determined by the contract entered between the parties in the first instance.

The new definition contained in the FWA disregards the High Court decisions and requires that employment be defined by determining the real substance, practical reality and true nature of the relationship between the individual and the person.

To ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person, the following should be considered:

(a) the totality of the relationship between the individual and the person; and

(b) in considering the totality of the relationship between the individual and the person, regard must be had not only to the terms of the contract governing the relationship, but also to other factors relating to the totality of the relationship including, but not limited to, how the contract is performed in practice.

From the new definition of employment it is clear that certain independent contractors may be regarded as an employee from 26 August 2024. In order to prevent an employment relationship, the FWA  now allows individuals who earn above the High Income Contractor Threshold to ‘opt out’ of the relationship where it is considered an employee.

How to ‘opt out’

The FWA allows a principal to notify an independent contractor of their right to “opt out” by issuing a written notice if the principal believes that the individual:

1. earns above the High-Income Contractor Threshold of $175,000.00; and
2. will be regarded as an employee under the new definition.

An independent contractor may issue an ‘opt out’ notice within 21 days of receiving the notice from the principal, or issue such an ‘opt out’ notice on their own. An independent contractor must include a statement that its earnings is in excess of the High-Income Contractor Threshold and may only issue one ‘opt out’ notice for the duration of the relationship

Need more?

Should you need further guidance on the employment relationship, the Workplace Relations and Legal Team are here to help and support you. Reach out on 02 6175 5900.