In brief - the recent appeal judgment in JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76 reversed the Federal Court's June 2022 decision and offered further clarification on some differences between employee and contractor relationships. This has implications for determining whether superannuation contributions should be made for service providers.

Employee or contractor?

Whether an individual is an employee or contractor for the purpose of superannuation laws is drawn from two sources: the ordinary meaning of employee at common law, and its extended statutory meaning pursuant to section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act).

  • Ordinary employment is generally established by reviewing the contractual terms between the parties, however, other surrounding context might be relevant to the determination (for example the nature of the contracting parties or the assumption of risk)

  • The extended employment definition under section 12(3) of the SGA Act broadens employment relationships to cover situations where a person performs work pursuant to a contract that is wholly or principally for the labour of that person

Extended employment is satisfied where the substantial benefit of the contract for the principal is the labour of the contractor. It will not be satisfied where the contract is for the provision or production of a result. 

For example, a contract that is plainly for the provision of substantial equipment is not principally for the labour of that person (even if labour is involved in the delivery of that equipment), see Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48.

If the extended definition of employment is made out, employers must make superannuation contributions. 

Background to the proceedings

JMC Pty Ltd (JMC) provides higher education programs to students in the creative industries sector. Mr Harrison was engaged by JMC to deliver teaching services, including the provision of lectures and marking papers. Consideration for Mr Harrison's services was based on an hourly rate. 

JMC did not make superannuation contributions for Mr Harrison on the basis that they formed the view that he was a contractor, and not a JMC employee. 

Initial judgment

The Federal Court applied two recent High Court decisions that established the employee relationship is determined from the contractual terms, and not the totality of relationship under which the person is engaged. 

Under this interpretation and following a close analysis of the contractual terms setting out the arrangement between JMC and Mr Harrison, the Federal Court found in the first instance that Mr Harrison was an employee of JMC under both the ordinary meaning at common law, and further confirmed this assessment under the extended statutory definition in the SGA Act. As a result, the ATO issued assessments of superannuation guarantee charges to JMC.

In summary, the decision at first instance confirmed employee status based on several factors, including: 

  • The terms of the contract afforded JMC control over Mr Harrison (including supervision and monitoring of teaching services)

  • Invoices were required to be issued with signed, detailed lesson plans, further demonstrating JMC's control over the relationship

  • Consideration to Mr Harrison amounted to an 'hourly rate'

  • Mr Harrison was obliged to provide services at specific times and places

  • Mr Harrison was bound by JMC's teaching policies and procedures

  • The right to delegate or subcontract services was subject to express written consent by JMC. 

For a more detailed analysis of the initial decision, read our article, Who is an employee for superannuation guarantee purposes after decisions in Personnel Contracting and Jamsek? 

On appeal

Justices Bromwich, Thawley and Hespe deconstructed this position on appeal, finding that Mr Harrison did not satisfy the common law tests for employment or the statutory test under the SGA Act. 

The Court's decision affirmed the High Court's approach to determining whether a party is an employee or a contractor according to the terms of the contract. However, it found that the Court had incorrectly balanced the above factors and erred in its characterisation of Mr Harrison as an employee. 

In summary, the Full Court found that: 

  • The right to subcontract or delegate work is indicative of a contractor relationship, and the Court erred in giving weight to the fact this right was subject to the principal's consent 

  • Mr Harrison had the ability to negotiate changes to the lecture timetable consistent with a contractor relationship and the control element had been overstated

  • The Court had erred in failing to give weight to the following factors of a contractor relationship:

    • Mr Harrison was required to use a registered business name to issue invoices for work performed 

    • invoices included an ABN

    • Mr Harrison was obligated to indemnify his work and was responsible for his own workers' compensation and income protection insurance

    • Mr Harrison was not entitled to entitlements including leave or superannuation.

Takeaways for principals

This decision is a reminder for principals to review their contracts with service providers and ensure they are drafted in a manner that clearly articulates a contractor relationship. 

If possible, contracts should provide that the service provider is being paid to provide a product or result, contain limited ability for the principal to control how, when and where the services are provided, provide for fixed remuneration for the product or result, require the service provider to provide their own equipment and allow the service provider an unlimited right of delegation. 


This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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