Employer or contractor? Recent guidance from the High Court and what medical practitioners should know

22 March 2022

Background

In February 2022, the High Court handed down two significant rulings in relation to the distinction between contractors and employees for the purposes of the Fair Work Act 2009 (Cth). [1] These were ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek) and Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel).

The majority of judges in these decisions emphasised the importance of considering whether a person’s work is so subordinate to another’s business that the work cannot be said to have been carried on as part of an independent enterprise. Importantly, the majority of judges held that written agreements between persons generally define those aspects of the relationship most relevant to this consideration.

In these decisions, Chief Justice Kiefel and Justices Keane and Edelman deviated from the well-established ‘multi-factorial’ or ‘totality of relationship’ approach that involves the Court examining the wider circumstances of the relationship, including the way work was carried out, the level of control exerted by the principal or employer, and the obligations of each party.

Instead, their Honours determined that the Court ought to examine the written contract itself and apply the usual contractual interpretation principles to ascertain the true nature of a relationship where:

  • the rights and duties of the parties are found exclusively in the written contract; and
  • the contract is not alleged to have been varied, is unambiguous, does not lack particularity, is not a sham and should not otherwise be set aside by law.

Importantly, simply claiming a specific employment or contractor relationship is not sufficient. All terms of the written contract should be considered in assessing whether an employment or contractor relationship exists.

We discuss the cases of Jamsek and Personnel in detail here:

How does this apply to the shared services model common in medical centres?

We have previously written about the different ways medical centres can structure their practices. Link 

As you may know, many medical centres operate under the shared services model where each doctor runs their own business. The “medical centre” does not provide medical services to the doctor’s patients. Instead, the medical centre only provides the support services that enable each doctor to conduct it’s business (such as administration, nursing, staffing and use of the premises). The medical centre acts as agent to receive all payments on behalf of the doctors (i.e. from Medicare or patients), holds those amounts on trust and then delivers these payments to the doctor less a percentage for payment of services. The medical centre does not exercise control over the doctor’s practice, allowing the doctor to provide medical services (and conduct business) however they see fit.

Medical centre structures use the shared services model to reflect the reality that only doctors should and can provide medical services to patients, which in turn can mean that certain liabilities such as payroll tax do not apply.

How do these new rulings affect the shared services model?

Jamsek and Personnel were decisions relating to the legal definition of “employee” under the Fair Work Act – not the State-based payroll tax legislation. The relevant State-based payroll tax legislation is drafted to make both employment and contractor relationships subject to payroll tax (as “relevant contracts”).

The payroll legislation does this through its own unique definitions of “employee” and “employer”, which intentionally capture both employees and contractors. These “payroll tax legislation definitions” are inherently contrary to the legal definition of employee/contractor for the purposes of determining issues under the Fair Work Act. For that reason, we do not believe the decisions in Jamsek and Personnel will bind a Court when considering payroll tax legislation.

Further, the shared services model is not an embodiment of either an employment relationship or where the doctor provides services to the medical centre as a contractor. However, in cases concerning a medical centre’s liability for payroll tax, a key issue for determination is whether the doctor is really conducting their own business or providing services to the medical centre.

Courts considering payroll tax issues for medical centres may be guided by comments in Jamsek and Personnel about how to determine whether a person works in their “own business or employer’s business”. However, Courts assessing payroll tax liability already heavily rely on the terms of contracts between a doctor and the medical centre, so we are unsure whether guidance from Jamsek and Personnel would materially affect payroll tax decisions.

Provided that the agreement implementing a shared services arrangement is drafted properly and that the parties do not act contrary to it, we don’t expect Jamsek and Personnel to have a material effect on the how payroll tax legislation is currently applied to medical centres. Jamsek and Personnel do stress the importance of a properly drafted shared services agreement. Contractual elements in such agreements which indicate that the doctor provides services to the medical centre as opposed to the medical centre providing services to the doctor (such as restraints on doctors, control over doctor’s working hours or regulations around the doctor’s absences from medical centres) will likely support a Court’s finding that the relationship is a “relevant contract” subject to payroll tax. However, that was the position before Jamsek and Personnel anyway.

If you have any concerns about the contracts you have in place, the commercial team at Mahoneys can assist by reviewing your existing contracts or preparing new contracts for your contractors and/or employees.

Please contact Mahoneys Commercial Partner Antony Harrison, Associate Rhys Williamson or Lawyer Sabrina Austin on (07) 3007 3777 or email aharrison@mahoneys.com.au, rwilliamson@mahoneys.com.au or saustin@mahoneys.com.au.

 

[1] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek); Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel).

 

 


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