ESM1004 - Detailed guide to determining status: importance of a written contract

Establishing the terms of a contract

Where there is a comprehensive written contract (that is, a contract which contains all the terms of the agreement between the parties) the Courts will decide employment status based on the written contractual terms - viewed in the factual matrix that existed when the contract was made. They will not normally refer to evidence other than that of the written contract (for example, they will not refer what the parties did in practice).

In the case of Narich Pty Ltd v The Commissioners of Payroll Tax: Privy Council (see ESM7090), it was held that

‘…where there is a written contract…a Court is confined, in determining [status], to a consideration of the terms, express or implied, of that contract in the light of the circumstances surrounding the making of it; and it is not entitled to consider also the manner in which the parties subsequently acted in pursuance of such contract.’

The only exceptions are where

• the contract is not comprehensive (other terms and conditions then have to be established from other evidence)
• one or more of the written terms have been varied by agreement
• one or more of the written terms are a sham.

What the true terms of an agreement are is ultimately a question of fact. If a written contract appears to be comprehensive it should not normally be challenged except where it is apparent that the parties might not have acted in accordance with it. Clear evidence of that may show the contract is not complete, has been varied or is a sham. The guidance at ESM1006 onwards will help you decide whether a written contract is genuine.

Written contracts are therefore extremely important. When dealing with a written contract you should not try to go behind a written term unless you can clearly demonstrate it does not reflect the true agreement between the parties. If Commissioners proceedings become necessary it is essential that you ask the Commissioners to identify - and find as a fact - all instances of where the true agreement between the parties differs from the written contractual terms.

Fact/Law

Where there is a comprehensive written contract the Courts regard the status issue as one of law because it depends on the construction of a written document. They will therefore, in an appeal, re-examine the whole question and decide status afresh. In contrast, where there is no comprehensive written contract the Courts regard employment status as a question of fact, or a mixed question of fact and law, and will not disturb a Commissioners' decision based on fact unless they think it is perverse.

This principle was considered in the case of Edwards v Bairstow and Harrison (36TC207).