THE EMPEROR’S NEW CLOTHES From the illustration in colour by Edmund Dulac

But he isn’t wearing anything at all,” said a little child.

“Dear God, listen to the voice of innocence,” his father said, and each person whispered to the other what the child had said.

“But he isn’t wearing anything at all!” everyone shouted at last.

The Emperor shuddered because he was afraid they were right, but he thought, “I have to finish the parade,” and the haughty servants walked on, carrying the train that wasn’t there.

Adapted from Marte Hvam Hult’s translation of H.C. Andersen’s Eventyr (1963-1967)

Illustration (detail) sourced from The Outline of Literature (Vol II), (1923)[i]

Lately, I’ve being hearing a lot about so-called “labour-hire contracting chains”[ii].  But I really wonder whether, like the Emperor’s new clothes, they might be “the train that isn’t really there” – at least as regards the purported on-hire “supply” of employees[iii] via labour-hire chains. Here’s why, in twelve points of contention:

1. “Labour is not a commodity”.[iv] That’s not so much a legal principle, as description of the special characteristics of labour. It’s also the foundational principle of much of the International Labour Organisation’s charter and its decent work agenda.
2. This is reflected in the notion that the employment relationship is a personal relationship that arises from a relational contract.[v]
3. As stated by the House of Lords and the Australian High Court, “No employee is an asset in the employer’s balance sheet to be bought and sold”.[vi]
4. So, perhaps we need to re-think what REALLY happens under a labour-hire contract; because it’s quite unlike hiring a piece of industrial equipment, or a car.
5. A labour hire contract is NOT a contract by which a labour-hire firm promises to “supply employees”. That is because employees are not “supplies” – see points of contention 1, 2 and 3. But, unfortunately, that’s the language that is commonly used; and it leads to all kinds of misconceptions that basically view employees as property.
6. A labour hire contract is BETTER CONCEIVED of as a contract by which a labour-hire firm promises to exercise its relational control[vii] stemming from a contract of employment in order to have its employees present themselves to perform work under supervision and direction and at a place usually determined by the client.
7. If a putative labour-hire company lacks the requisite relational control in the case of workers, who are employees – e.g. because it is not the employer – whatever else it might provide, it does NOT provide a labour-hire service. That is because it cannot “on-hire” those whom it has not hired.
8. If that is so, what purports to be a labour-hire contract between supplier and client where a labour-hire chain is involved, upon closer analysis, may sometimes prove not to be a labour hire contract at all.
9. If the supplier fails to supply that which it has agreed to supply, the contract may be set aside; and in some cases, will be ignored by the Courts as they seek to find the true employer… who could be the client.[viii]
10. Where the putative employer purports to pass relational control to another person to exercise for that other person’s own benefit (or even as purported agent for the putative employer), the relationship between putative employer and putative employee can become so attenuated that it ceases to bear any resemblance to an employment relationship. See point 2.
11. If the putative employee is bound to the service of a third party, to whom the putative employer has passed relational control, the relationship begins to bear the hallmarks of contractual bondage.
12. The doctrine of joint employment provides no solution in Australia; because, whilst it is still considered in some quarters to be an open question, Australian employment law has not adopted it.[ix]

So, what’s to be done? Here are some practical steps that employment services providers and their clients might take to make sure that they not left exposed.

• Know what services you’re actually supplying or acquiring. Don’t stop at whatever label happens to be given to them. Go deeper and look at the real nature of the services. Examine their legal substance and ask if they stack up.
• If you find that you are involved in a labour-hire contracting chain, make sure you know where your workers are coming from and how they get there.
• Beware of extended contracting chains with weak links that don’t seem to add any real value and seem only to add cost, or to distance the point of engagement of your workers from the point where work is performed.
• Be prepared to discover that some of the participants in your contracting chain, despite what they might call themselves, are not labour-hire agencies at all; but could be some other type of labour intermediary – e.g. sourcing/placement agency; workforce contractor; or contract management company.
• If you are unsure of the nature of the services in your contracting chain, seek professional advice from someone, who can undertake the legal analysis necessary to make a correct identification.
• Make sure that your contracts and terms of business support the type of transaction in which you re actually involved.
• Beware of “templates” and “standard form contracts” that might not really be suited to your actual supply situation.
• Once you know how your service network is constructed, make sure that you have in place a range of contractual and other controls that can provide adequate assurance that the suppliers you are dealing with are reputable; that any risk of exploitation is properly controlled; and that amelioration measures are appropriate. Robust certification schemes and resources such as the Fair Work Ombudsman’s new guides to labour contracting can help.
• And, lastly, when in doubt, seek expert guidance.

Andrew C. Wood

[i] Drinkwater, John and Drinkwater, John, 1882-1937 The Outline of literature (Vol II). G. Newnes, London, 1923, page 582.

[ii] An arrangement by which labour-hire firm (A) sources workers from labour-hire firm (B), which employs the worker and purports to “supply” workers to A for on-hire by A to A’s client. In Australia, such “chains” have been discovered to consist of as many as seven “links” before the original employer can be identified. The arrangement can be problematic because, in cases where it is misused it serves to distance the point of employment from the point where labour is performed. This type of buffered sub-contracting makes little or no value contribution. It draws value out of the supply chain, adds cost, and creates a next-to-impenetrable cloud around exploitative employment practices. In short, it lacks sustainability.

[iii] The position as regards independent contractors, whose services are on-hired through labour-hire chains, may be different and warrants separate consideration.

[iv] Declaration Concerning the Aims and Purposes of the International Labour Organisation (Declaration of Philadelphia) (1944) http://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—ilo-islamabad/documents/policy/wcms_142941.pdf accessed 9 May 2017 at 12.17 pm.

[v] Johnson v Unisys Ltd [2003] 1 AC 518 at 532. See also the discussion of this point in Commonwealth Bank of Australia v Barker [2014] HCA 32 per French CJ and Bell and Keane JJ at [para 17].

[vi] Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd [2005] HCA 9; (2005) 222 CLR 194, per Gleeson CJ, Hayne, Callinan and Heydon JJ.

[vii] This is the type of lawful authority to command so far as there is scope for it that is derived from the contract as discussed by Dixon CJ, Williams, Webb and Taylor JJ in Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73; (1955) 93 CLR 561.

[viii] Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] FCAFC 37 per North and Bromberg JJ at [paras 215 to 218]. Although the orders were varied on appeal to the High Court, this part of the Full Court’s decision was not disturbed.

[ix] Coghill v Indochine Resources Pty Ltd [2015] FCA 377 per Katzmann J at [para 27].