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Norman Waterhouse

Contract is king in characterising a worker as an employee or independent contractor

The Full Court of the Federal Court (the Full Court) in JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76 recently overturned a decision of the Federal Court of Australia and found that a worker was not an employee pursuant to section 12(1) or section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act).

The decision is one of the recent authorities which have discussed the distinction between whether a worker is deemed an employee or independent contractor in the context of superannuation obligations.


Mr Nicholas Harrison was engaged by JMC Pty Ltd (JMC), a company that provides accredited higher education programs, to provide teaching services to students enrolled in the Bachelor of Creative Technologies course.

Between July 2011 and August 2017, Mr Harrison was subject to 22 fixed term contracts that included obligations to deliver ‘teaching services’. Mr Harrison was paid varying rates depending on whether he was lecturing or marking and would issue JMC invoices using his registered ABN. JMC did not make superannuation contributions to Mr Harrison, on the basis that it considered him an independent contractor and not an employee.

The Commissioner of Taxation (the Commissioner) subsequently issued JMC with assessments of superannuation guarantee charges on the basis that it considered Mr Harrison to be an employee within the common law meaning in section 12(1) of the SGA Act and the extended definition in section 12(3) of the SGA Act.

Section 12(1) of the SGA Act reflects the ordinary common law meaning of ‘employee’ and section 12(3) of the SGA Act extends the definition of ‘employee’ for the purposes of the SGA Act to include that if a worker ‘works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.’

JMC objected to the Commissioner’s decision as it considered Mr Harrison an independent contractor, not an employee, and appealed the decision to the Federal Court.

Decision at first instance

Common law definition

The primary judge determined that Mr Harrison was an employee of JMC within the common law meaning of ‘employee’ under section 12(1) of the SGA Act. In making this characterisation, the most significant factor was that JMC had a contractual right to effectively control when, where, and how Mr Harrison provided the teaching services. The primary judge found that Mr Harrison was contractually required to provide the lectures in accordance with the lesson plans, which meant he was subservient to, and dependent upon, JMC. Other factors supporting the conclusion that Mr Harrison was an employee included his remuneration at an hourly rate as opposed to being paid for a result or product, not being required to provide his own equipment, and foregoing any intellectual property rights.

Extended definition

The primary judge found that Mr Harrison provided teaching services ‘for his labour’ pursuant to section 12(3) of the SGA Act as his employment was subject to a contract and he worked under that contract. The primary judge rejected JMC’s submission that Mr Harrison was paid for producing a result and had a right to subcontract, so the contract was not ‘wholly or principally’ for his labour.

Decision on Appeal

JMC appealed the decision of the primary judge to the Full Court. The two key appeal grounds were whether Mr Harrison had a real contractual power to subcontract, and whether JMC had control of how, when, and where Mr Harrison performed the teaching services.

The Full Court upheld the appeal, finding that Mr Harrison was not an employee within the common law meaning or the extended definition in the SGA Act.

Common law definition

The Full Court held that the primary judge placed undue weight on the fact that Mr Harrison’s right to sub-contract his teaching services was subject to the unfettered discretion of JMC. The Full Court emphasised that where a worker has a contractual right to have someone else perform that work, ‘the existence of the right is inherently inconsistent with an employee relationship’. The Full Court noted the fact would be different if the right to sub-contract was legally incapable of being exercised but did not find that to be the case here.

The Full Court also determined that JMC did not have enough control over how, when, and where the teaching services were performed to characterise Mr Harrison as an employee. The Full Court found that the lesson plans were not detailed enough to dictate how a lesson was conveyed, or to mandate the duration, method, or content of the lesson. While JMC included a ‘suggested class delivery’ as guidance and identified topics to be covered in each lesson, lesson outcomes and teaching resources, Mr Harrison had the freedom to implement his own teaching style. The Full Court also found that dictating when and where a service was to be performed is common, for example in building work, and was a matter of practical necessity for the education provider.

Extended definition of employee

The Full Court also found that Mr Harrison’s contract was ‘one for the provision of teaching services, and not principally for [his] labour.’ Mr Harrison’s contract expressly stated that it was not ‘wholly or principally for the labour of the person’ as required for a person to be characterised as ‘employee’ within the extended definition of employee in section 12(3) of the SGA Act.

Take Home Messages

This decision reaffirms recent guidance from the High Court in CFMEU & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 in finding that the characterisation of an employment relationship is comprehensively set out in, and will be determined by, the terms of a valid written contract of employment.

Employers should note that section 12(3) of the SGA Act has an extended definition of an ‘employee’ and requires superannuation contributions to be made in those circumstances where a contract is ‘wholly or principally for the labour of the person’. Employers should ensure that their written contracts of employment are clearly drafted to characterise a worker as an ‘employee’ to avoid any claims for superannuation and other entitlements.

For more specific information or advice on any of the material contained in this article please contact Sathish Dasan on +61 8 8210 1253 or, Thomas Tagirara on +61 8 8217 1337 or, or Divya Narayan on +61 8 8210 1279 or


2 July 2023


Business, Government

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