What is an ‘employee’? ATO aims to review superannuation guidance after landmark court ruling

The Australian Taxation Office (ATO) is reviewing its advice on who qualifies as an ‘employee’ for superannuation purposes, after a major High Court ruling found a worker contracted by a labour hire firm actually qualified as an employee.

On Monday, the ATO reminded employers it is examining six tax office guidelines which provide clarity on who is and who is not an employee, with a specific focus on whether those workers are entitled to the Superannuation Guarantee.

The guidelines under review include advice on who is an employee for superannuation purposes, how superannuation applies to work arranged by intermediaries, and the provision of superannuation to sportspeople and pizza delivery drivers, respectively.

One of those documents highlights the confusion surrounding certain labour hire firms and employment status, stating, “it can sometimes be difficult to tell whether the worker is an employee of the intermediary or end-user, or neither, when they are engaged through an intermediary”.

The ATO anticipates releasing those updated guidelines before October 2022, when the tax office expects to complete its review.

Review sparked by major labour hire High Court case

The review was prompted by a High Court ruling in the high-profile case of Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) vs Personnel Contracting Pty Ltd.

The legal stoush began in 2019 when the CFMMEU took on the case of 22-year-old British backpacker Daniel McCourt, a labour hire worker operating at Western Australian construction sites.

McCourt had signed a contract with Personnel Contracting, operating as Construct, to provide services at building sites operated by Hanssen.

The CFMMEU argued before the Federal Court that McCourt had little say over the day-to-day realities of his work, making him a casual employee of Construct and not a independent contractor.

The Federal Court ruled against the union in both the first instance and at appeal, leading the CFMMEU to try its luck before the High Court.

That appeal proved successful in February this year, when the High Court ruled on a majority basis that McCourt was indeed an employee of Construct as the firm ultimately decided who he could work for and his hourly rate.

Businesses, tax office now working through aftershocks of ruling

In a statement after the ruling, CFMMEU national construction secretary Dave Noonan described the decision as a win against contract arrangements which pay workers less than what employees would earn in the same role.

“Bosses who try to rip their employees off by mislabelling them as independent contractors are not engaged in inadvertent underpayment; they are operating a deliberate strategy across the industry to steal wages from workers,” Noonan said.

But the ruling also upended the established use of ‘Odco’-style contracts, in which an intermediary signs a contract with a worker before assigning them work at a third-party client.

Speaking to The Australian Financial Review after the High Court ruling, Construct managing director Peter Wieske said the verdict effectively “destroyed” the way his company operated.

In a public statement, major Australian law firm Clayton Utz said the decision meant labour hire companies should “urgently review their contracting arrangements or risk underpayment claims from independent contractors now seeking payment as employees”.

With the ATO now examining what the decision means for superannuation entitlements, interested parties have been advised to contact the tax office directly.