Month: April 2021

Independent Contracting: Back in the Spotlight

Andrew C Wood Contracting, Employment Law, Employment Services Agreements, On-Hire 4 Comments
Photo by tyler hendy on Pexels.com two spotlights.

Labour hire providers should note that there are currently two appeals before the High Court, which challenge accepted approaches to the characterisation of independent contractors. The outcomes could upset independent contracting arrangements that are overly dependent on the technicalities and “deep entrenchment” of the Odco system and may lead staffing agencies to a fresh need to review their use of independent contractors.

CFMMEU v Personnel Contracting[1]

Trial

A young UK backpacker, who “had no aspect of a business or intended business, no expressed desire to act in any capacity other than as a builder’s labourer, and merely sought remuneration for the deployment of his labour on a building site supervised, directed and controlled by the builder”[2] was characterised, at first instance,[3] as an independent contractor on an application of the multi-factor test and Odco principles.

Appeal

The Full Court of the Federal Court of Australia upheld the finding despite the absence of any business clearly having been carried on by the worker.[4] However, in doing so, the Chief Justice expressed a preference for a different outcome though feeling constrained by intermediate appellate decisions which had previously supported Odco contracting arrangements.[5]

Special Leave

The High Court granted special leave to appeal in February this year. The Appellant’s submissions were filed last Friday (16 April 2021).

At issue is a question of whether the multi-factor test was correctly applied in a labour-hire context. There is a related question about the need for workers to be carrying on their own independent businesses in order to be independent contractors.

ZG Operations Australia Pty Ltd v Jamsek & Ors[6]

Trial

The case concerned the various entitlements of truck drivers, who derived their sole income by working for same business for nearly 40 years – and the corresponding obligations of the company for which they worked. It’s not a labour hire case, but it raises similar characterisation questions about the role of the business test in determining whether workers are employees or independent contractors.

The drivers were required to purchase a truck to retain work and contracted with the company through their family partnerships, which owned the trucks.  The drivers were required to be available to work during set hours. The company logo was displayed on drivers’ trucks and company branding appeared on the drivers’ clothing. Although the drivers theoretically may have had the ability of sell their goodwill, they had no practical capacity to generate any goodwill of their own.

On an application of the multi-factor test the drivers were held to be independent contractors.[7] A deciding factor was that the workers were held to be running businesses of their own.[8]

Appeal

The Full Federal Court reversed the decision on appeal.[9]  Wigney J’s judgment highlights the problems facing those who rely too much on cleverly crafted documents and overly sophisticated or artificial arrangements.

“To my mind, the primary judge concluded as he did by giving primacy and excessive weight to contractual labels and theoretical possibilities and insufficient weight to the reality and totality of the working relationship between the parties, as demonstrated by the way they actually conducted themselves over many years.”[10]

Although the drivers’ arrangements displayed some of the trappings of carrying on their own businesses, that was not sufficient to displace the reality, observed after consideration of the whole work relationship, that they were employees.[11]

Special Leave

The case is to be heard together with CFMMEU v Personnel Contracting. The Appellant’s submissions were filed last Friday (16 April 2021). At issue are questions about whether the drivers were “employees” for purposes of Fair Work Act 2009 (Cth), Superannuation Guarantee (Administration) Act 1992 (Cth) and “workers” for purpose of Long Service Leave Act 1955 (NSW).

What next?

Respondents’ submissions in both cases are due to be filed in May, and any replies in early June. After that, the matters will be listed for hearing.

In light of these developments, it might be prudent for staffing agencies to review their independent contracting arrangements, and make contingency plans for managing any that could unravel should the High Court hand down a decision that indicates that they may no longer be sustainable.

Andrew C. Wood

[1] Construction, Forestry, Maritime and Energy Union & Anor v Personnel Contracting Pty Ltd [2021] HCATrans 30 (12 February 2021).

[2] As described by Alsopp CJ on appeal. see fn.5 below.

[3] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2019] FCA 1806 at paras [171] to [181].

[4] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] FCAFC 122

[5] At para [31].

[6] ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors [2021] HCATrans 27 (12 February 2021).

[7] Whitby v ZG Operations Australia Pty Ltd [2018] FCA 1934.

[8] At para [213].

[9] Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119.

[10] At para [19].

[11] At para [248].

“Employer-of-Record” vs “True Employer”

Andrew C Wood Contract, Employment Agents, Employment Law, Employment Services, Employment Services Agreements, Labour Hire Licensing, On-Hire 4 Comments
Judge’s bench in a law court.

The recent NSW Supreme Court decision in Branded Media Holdings[1] holds some important lessons for recruiters and others who are considering the use of outsourced employer-of-record (EoR) services – especially if they imagine that using EoR services will protect them, in all cases, from liability as the “true employer”.  That’s because statutory and common law liabilities generally rest with the true employer, irrespective of where formal documents might be trying to direct them

In Branded Media, liquidators and deed administrators of two related companies sought directions from the court as to the identity of the employer of specified employees within the Branded Media Group.

The companies were Branded Media Holdings Pty Ltd (in liq) (Holdings) and Brand New Media Pty Ltd (subject to a deed of arrangement) (BNM). The liquidators and deed administrators’ position was that Holdings was the employer.

The Commonwealth intervened to contend that BNM was the employer. The Commonwealth had advanced more than $1 million in respect of the employees’ unpaid entitlements under the Fair Entitlements Guarantee Act 2012  and stood to recover a substantially higher amount if BNM was held to be the true employer.

The contest was clouded by uncertainty because, whilst the formal documents recorded Holdings as the employer, day-to-day management of the work relationship was conducted by BNM.

The court held that the true employer was BNM. Some telling factors included:

  • Holdings did not conduct any business by which it generated income;
  • Holdings was not the recipient of the services of the employees;
  • the employees provided their services to BNM;
  • Holdings was wholly dependent upon BNM to meet its financial obligations;
  • Holdings did not operate any bank accounts;
  • Holdings did not in fact pay the employees;
  • BNM in fact paid the salaries and wages of the employees;
  • BNM had its logo on some employment forms;
  • business cards used by the employees bore the logo of BNM;
  • the sign-off section of emails sent by the employees referenced BNM;
  • the website referencing the Employees referenced BNM.

You might already be getting a sense of how some of those factors might play out in a case where a staffing agency supplies workers to one of its clients, managing their shifts, providing them with agency uniforms, and binding them to agency policies; but arranging for those workers to be employed “on-the-record” by an outsourced payroll company.  

The Branded Media case is important because the Court clarified the principles that are used to determine which of the two companies was the actual employer. In doing so, it made clear that:

The Court must look to the “substance and reality” in identifying the true employer in these circumstances and would look beyond contractual documentation and to the reality of the manner in which the parties conducted themselves in order to do so.[1]

[The Court may also] have regard to whether the suggested arrangement had an “intelligible business objective” which is “consistent with the financial and administrative organisation of the business”.[2]

The case is also helpful to the extent to which it clarifies that employment-of-record is not a distinct category of employment, but nothing more than an expression to describe an arrangement by which certain of the true employer’s statutory or contractual responsibilities are performed by someone else.

Such an arrangement will not necessarily relieve the true employer of those responsibilities if the EoR fails in performance. And some liabilities, such as the employer’s vicarious liability at common law, may continue to rest with the true employer to the extent to which they derive from the true employer’s notional control of its employees.

The need to identify the true employer will also arise in the context of labour hire licensing prosecutions to the extent to which it may be necessary to determine whether workers of an unlicensed provider who has sought to outsource the obligation to pay its workers to an EoR payroll company may be left with the residue of the statutory obligation to pay sufficient to necessitate the holding of a licence -despite having passed to the EoR a contractual obligation to pay the workers.

Andrew C. Wood

[1] In the matter of Branded Media Holdings Pty Limited (in liquidation); In the matter of Brand New Media Pty Limited (subject to a Deed of Company Arrangement) [2020] NSWSC 557 at [14] adopting Counsel’s submission to that effect.

[2] At [26], developing a further dimension to the test which may be effective to challenge sham arrangements directed at avoidance.

Labouring the Point: “Workers” and the obligation to pay

Andrew C Wood Labour Hire Licensing 1 Comment
A female agent sits at a desk whilst discussing an assignment with a labour hire worker.The workeris wearing hi vis jacket.

One of the more intriguing features of the Australian labour hire licensing schemes concerns the definition of a “worker” and the requirement that a person is only a worker for another person (the provider) if the provider is obliged to pay the worker, in whole or part, for the work.[1] Whether such an obligation exists should be relatively easy to determine in most cases. But it will not always be so; and the issue may sometimes be clouded by the involvement of intermediaries.

Take the case of a labour hire agency’s worker who is engaged through a payroll company that provides outsourced “employer-of-record” services. Where does the obligation to pay the worker lie? Is it with the agency or the payroll company? Does a statutory obligation to pay perhaps rest with the agency as the “true employer”[2], whilst a contractual obligation lies with the payroll company?  

You can already see that we are now having to distinguish between contractual and statutory obligations.

If the payroll company is found to be the “true employer”, is the agency necessarily off the hook? What happens if the payroll company fails to pay – perhaps because of insolvency? Could a restitutionary claim against the agency, as someone who has benefited from the work to the extent that it was paid by the host for supplying the worker – give rise to an equitable obligation on the part of the agency to pay the worker? Would the obligation be to pay “in whole or in part for the work”? What questions of characterisation arise? And to what extent are those questions resolved by the express legislative provisions in South Australia, Victoria and the ACT, but not in Queensland, that the obligation may arise “directly or indirectly”?

So far, we have distinguished between contractual, statutory, and equitable obligations to pay.

Next, take the case of an agency worker who operates through a family company that is the trustee of a discretionary trust which receives payment for the supply of the worker. The trustee may be under no obligation at all to pay the worker; and any distribution under the trust, being an exercise of discretion, might not be able to be characterised as being “in whole or in part for the work”.

As I say, these are intriguing questions – at least for some! They were not answered when the legislation was being drafted. And whilst they may seem highly technical, success and failure in prosecutions and civil actions may well depend upon the answers that the courts will eventually have to provide.  

Andrew C. Wood

[1] Labour Hire Licensing Act 2017 (Qld) s. 8(1)(b), Labour Hire Licensing Act 2017 (SA). s. 8(1)(b), Labour Hire Licensing Act 2018 (Vic) s. 9(1)(b), Labour Hire Licensing Act 2020 (ACT) s. 8(1)(b).

[2] For discussion of the distinction between an “employer-of-record” the “true employer” see Gothard (recs & mgrs of AFG Pty Ltd) (in liq) v Davey [2010] FCA 1163; Re Plutus Payroll Australia Pty Ltd (in liq) [2019] NSWSC 1171;and In the matter of Branded Media Holdings Pty Limited (in liquidation); In the matter of Brand New Media Pty Limited (subject to a Deed of Company Arrangement) [2020] NSWSC 557.

Labouring the Point: Advertising Labour Hire Services

Andrew C Wood Labour Hire Licensing Leave a comment
Businessman reading legislation with magnifying glass checking details for compliance

If you’re advertising your ability to provide labour hire services throughout Australia – as many agencies do – please take a moment to consider whether you could be committing an offence in Queensland, South Australia, or Victoria if you don’t hold a licence in those States.

It’s not enough to hold a licence in just one State. That appears to be so regardless of where your business is located, because all three States have a provision that says it’s an offence to advertise your willingness to provide labour hire services unless you hold their licence[1]. They’ve also bestowed inter-state operation on their labour hire licensing laws.[2]

The Australian Capital Territory’s scheme, which has not commenced yet, does not appear to have a similar provision. However, whether advertising the ability to supply labour hire services in the Territory without holding a licence could be prosecuted as an attempt to commit an offence may be a question that warrants careful consideration.

So, have a look at what you claim, on your websites and in your marketing materials, to be able to do, and get it checked out.

Andrew C. Wood

[1] Qld s, 10(2); SA s. 11(2); Vic s, 14.

[2] Qld s. 5; SA s. 4; Vic s. 6.