For a long time, Australian unions, labour academics, and their political fellow travellers have sought to cut away at the right of people to earn their income through the commercial contract. The Albanese government has committed to doing this later in 2023.

The alleged justification for this is the ‘little bit pregnant’ argument. That is, self-employed, independent contractors are really a little bit ‘like employees’. It’s an argument born from a social and psychological perspective that reasons it’s impossible for individuals to be anything but a ‘wage-like slave’. The government has promised to turn this social/psychological view into law. But according to Australia’s High Court, this is plain wrong.

In February 2022, the High Court made the most important decision on the definition of self-employment versus employment in more than 50 years. The Court said: ‘The employment relationship with which the common law is concerned must be a legal relationship. It is not a social or psychological concept like friendship.’

What defines the differences between employment and self-employment is simple. Employees earn their income through the ‘employment contract’. Self-employed, independent contractors earn their income through the commercial contract. It’s that straightforward.

The commercial contract is the contract that all of us use when we buy things – a car, a house, even a carton of milk – although in most cases the milk contract is unwritten. As a society we assume that individuals are mature and sensible enough to spend buckets of money when they buy a house.

In Australia and other market-based societies, in fact, even in mixed socialist/market societies, we acknowledge the individual’s right to use the commercial contract to engage in transactions. But for many academics it seems that this same right or capacity is one that should not be extended to the use of the commercial contract for earning an income. In other words, that individuals are not competent to make decisions in this area.

Take the claims put to the Senate Select Committee on Job Security in 2021 proposing to ‘clarify or expand definitions of “employment” to capture the relationship between a digital intermediary and its workers’ and ‘creating a new category of “independent worker” to define new rights and protections tied explicitly to the circumstances of gig workers’.

What’s being put forward by such claims is the encroachment of employment law to cover the commercial contract. This is dangerous for the operation of commercial transactions and attacks the right of individuals to use the commercial contract.

The idea of creating a third category of worker has been around since the 1960s. It was initiated by a Professor Arthurs of Canada in his 1965 thesis The Dependent Contractor: A Study of the Legal Problems of Countervailing Power. Arthurs’ thesis was based on a study of self-employed fisherman working off the east coast of Canada who had only one cannery where they could effectively sell their catch. Arthurs argued that although the fisherman were operating as small business people, they were nonetheless ‘dependent’.

Arthurs’ idea of ‘dependent contractors’ has found currency, favour, and promotion amongst many labour law academics and has been translated into some legislative forms globally (for example, in Quebec, Canada). It also featured in the United Kingdom from around the mid-1980s with the introduction of the Wages Act 1986. More significant for this discussion was the UK Employment Rights Act 1996.

The term ‘worker’ is defined by section 230(3) of the UK Employment Rights Act 1996. It creates a statutory definition of ‘workers’ that sits outside the common law. It defines this ‘other worker’ as an individual working under:

‘…any other contract, … whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual; and any reference to a worker’s contract shall be construed accordingly.’

This UK-specific, non-common law statutory definition remained somewhat ‘asleep’ until an ‘Uber’ decision of the London Employment Tribunal (2016) declared Uber drivers to be subject to the Employment Rights Act. This was confirmed by the UK’s highest court in February 2021.

The Uber decision in the UK has created a good deal of animated commentary suggesting that the definition of independent contracting has changed. In fact, the Uber decision is specific to the UK statute. It is not common law. It effectively declares that someone who is an independent contractor can also be a ‘little bit’ an employee.

We surmise that a one-line comment in the recent Australian High Court ruling (Personnel v CFMEU Feb 2022) is a reference to the UK Uber decision. The High Court said:

‘In the United Kingdom, the common law distinction seems of late largely to have been abandoned.’ (at paragraph 97) 

And this limited statutory abandonment of common law in the UK is out of sync with international labour principles.

In 2003 the International Labour Organisation resolved the definition of ‘worker’ as follows.

The term employee is a legal term which refers to a person who is a party to a certain kind of legal relationship which is normally called an employment relationship. 

The term worker is a broader term that can be applied to any worker, regardless of whether or not she or he is an employee.

Self-employment and independent work based on commercial and civil contractual arrangements are by definition beyond the scope of the employment relationship.

Report of the Committee on the Employment Relationship (page 52)

Then again, in 2006, the ILO Recommended that:

‘National policy for protection of workers in an employment relationship should not interfere with true civil and commercial relationships…’ (Page 77, Item 8)

Australia is a signatory to this ILO labour definitional settlement. It therefore has obligations arising from it with which it must comply.

In other words, the idea of being a ‘little bit pregnant’, the ‘dependent contractor’ (or ‘little bit employee’ independent contractor) concept is not part of Australian law. The Australian definition of employee/independent contractor is entirely one of common law. This is made clear in the High Court’s Personnel High Court ruling . Further, the ILO definition to which Australia has committed itself – that self-employment (independent contracting) is based on commercial and civil contracts – is also in accord with common law.

The Albanese government is moving in entirely the wrong direction on this issue. It can be hoped that Parliament can look through this and ignore ideas such as ‘dependent’ contracting, ‘employee-like’, and the hyperbole created around the UK Uber decision for example. If they do keep pushing these concepts then they should prove their intellectual and political consistency, but also creating legislative concepts of ‘independent employee’ and ‘independent contractor-like employees’. But that’s an article for another day.

The legal and factual reality is that in Australia, a worker is either an employee or an independent contractor. There is no ‘bit’ in-between. To summarise, this is cemented in Australia under common law and confirmed in 2022 by the High Court. It’s also secured under statute with the Independent Contractors Act and through ILO labour conventions to which Australia is a signatory.

Clarity in this matter is crucial. As the High Court stated in the Personnel case: ‘…It is the task of the courts to promote certainty with respect to a relationship of such fundamental importance.’ (Referencing the employment contract versus the independent contractor/commercial contract.) (at par 58)

Likewise, the government and the Parliament of Australia have a duty, we would argue, to create and secure that clarity. The government’s commitment to create ‘employee-like’ law does the opposite. It upends the integrity of the commercial contract and even the employment contract. That is if the government continues to push this and if Parliament supports this, it’s a leap into contractual confusion. It’s bad for everyone.

Ken Phillips is Executive Director of Self Employed Australia. He also publishes on Substack. 

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