The High Court of Australia ruled last week in an appeal judgment that a 22-year old UK backpacker who worked for a labour hire company had been engaged as an employee and not a contractor.

The High Court allowed an appeal from a judgment of the Full Court of the Federal Court of Australia.

The appeal concerned whether the backpacker was engaged by a labour-hire company as an employee or an independent contractor.

The appellant, ‘Mr McCourt’, was a 22-year-old British backpacker with limited work experience who had travelled to Australia on a working holiday visa. He sought work from Construct, a labour-hire company. He was offered a role and signed an Administrative Services Agreement with Construct.

The ASA described McCourt as a "self-employed contractor". Construct assigned McCourt to work on two construction sites run by Construct's client, Hanssen Pty Ltd. According to the ruling, McCourt performed basic labouring tasks under the supervision and direction of supervisors employed by Hanssen. The relationship between Construct and Hanssen was governed by a Labour Hire Agreement. There was no contract between McCourt and Hanssen, the court noted.

McCourt and the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) began proceedings in court against Construct. The crucial issue was whether McCourt was an employee of Construct for the purposes of the Act. The primary judge held that McCourt was an independent contractor, and an appeal to the Full Court was dismissed. Both courts applied a "multifactorial" approach, by reference to the terms of the ASA and the work practices imposed by each of Construct and Hanssen.

The High Court, by majority, held that McCourt was Construct's employee. The majority held that where parties have comprehensively committed the terms of their relationship to a written contract, ‘the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute,’ the characterisation of that relationship as one of employment or ‘otherwise must proceed by reference to the rights and obligations of the parties under that contract’.

Under the ASA, Construct had the right to determine for whom McCourt would work, and McCourt promised Construct that he would cooperate in all respects in the supply of his labour to Hanssen, the court documents showed. In return, McCourt was entitled to be paid by Construct for the work he performed.

According to the ruling, the ‘right of control’, and the ability to supply a compliant workforce, was the key asset of Construct's business as a labour-hire agency. These rights and obligations constituted a relationship between Construct and McCourt of employer and employee, the decision stated.

“That the parties chose the label "contractor" to describe McCourt did not change the character of that relationship,” the Court noted.

The ruling follows a similar High Court ruling last week with a different outcome. In that case, the High Court ruled that two truck drivers were independent contractors, not employees.

Innes Willox, Australian Industry Group chief executive, said "Applying the same principle, the High Court — in a separate decision — determined that a young backpacker engaged by a labour hire business to work as a labourer on construction sites was not a genuine independent contractor.”

"The Court held that the business exerted a very high degree of control over the work of the labourer and, therefore, the labourer was not a genuine independent contractor,” Willox added. "The High Court's decisions highlight the ongoing workability and appropriateness of the common law tests that distinguish between an employee and an independent contractor.”

Both deci­sions also fol­low from that of the High Court last year in Work­pac Pty Ltd v Rossato.