Why a “moral” payment obligation might indicate the need for a labour hire licence

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As you know, a payment obligation has to be part of the arrangement between the provider and the individual who performs the work if the individual is to be regarded as the provider’s worker (as that term is defined).

Throughout the “Lachie & Martin” series of videos , I’ve been suggesting that, even where a temping agency arranges for a payroll company to go “on record” as the employer of its temps, the agency can be left with a residual payment obligation sufficient to constitute the temps as its “workers” for the purposes of the labour hire licensing Acts. Why is that?

It’s because that Acts are clear that the arrangement between a labour hire provider and the individual who performs the work needn’t be contractual.

Now, if the arrangement needn’t be contractual, it follows that the payment obligation needn’t be contractual either. So what sort of obligations could those be? I can think of several different sources for such an obligation. Perhaps you can too.

Keep in mind that an arrangement, as distinct from a contract, is essentially a plan of action that the parties intend to put into effect with a sense of (moral) committment to it even though it may not be legally enforceable.

What temping agency, when it is setting its temps up to be employed by a payroll company, doesn’t enter into such an arrangement? It’s the arrangement, rather than the employment contract, that can leave the temp agency with the residual obligation… and, hence, the need to obtain a licence.

We’ll take a closer look at some typical arrangements next month, when we examine the “employer-of-record” phenomenon as well as some of the myths surrounding it.

Andrew C. Wood

Lachie & Martin examine their consultancy project team for labour hire licensing supply arrangements: Part 3 – Temp Agencies & Payroll Providers

In thisa third and final part of the series, Fictional characters, Lachie & Martin are back to examine the staffing arrangements for their consulting project team. This time, they’re focusing on the Interstate Temp Agency and Payroll (Employer of Record) Providers. Does anyone need a licence? Let’s find out.

A case for disclosing “RoT” in recruitment?

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Last week, I had the wonderful opportunity to contribute on a discussion panel with recruitment luminaries, Ross Clennett and Fiona Harland. We were discussing Restraints of Trade (RoT) in recruitment, and recognised that a RoT could be regarded as any impediment to a person’s freedom to carry on a trade or profession, to find or obtain work, or to arrange their workforce as they wish.

In that context, we began to examine the common practices of charging temp-to-perm (T2P) fees and of imposing restraints on clients and work seekers restricting direct engagement.

The RoT potential of T2P fees has long been recognised by the courts.[i]  Likewise, the courts have recognised the direct and indirect RoT effects of no-direct-engagement provisions.[ii]

In our discussion, we started to examine the transparency of these provisions in some of the cases we were considering.

Could the worker in Earth Force Personnel, for example, have known that his labour hire agency was going to charge the host/hirer $7,500 if he obtained a job directly with the host/hirer … in any capacity… of any duration … ever? Could he have been aware of the impact which that provision would have on his future employability?

Could Woolworths, in Informax International v Clarius, have known that the 12-month no-direct-engagement provision in its contract for the acquisition of labour hire services was protecting the providers’ interest in a 6-month restraint imposed on the contractor?   

Could the contractor, who was bound directly by an express  6-month restraint in her contract, have been aware of the indirect effect that the corresponding 12-month restraint imposed on Woolworths would have on her future employability? Or that the misaligned restraints had different start points?

All of this starts to raise issues of recruitment ethics and professional conduct. How are you dealing with these questions?  Is there a case for greater transparency on the part of recruiters?

Should recruiters be required to disclose to clients the nature of the restraints imposed on work seekers; and to work seekers, the nature and effect upon employability of the restraints imposed on clients?

What do you think?

Andrew C. Wood

[i] Earth Force Personnel Pty Ltd v EA Negri Pty Ltd [2010] VSC 426

[ii] Informax International Pty Ltd v Clarius Group Limited [2011] FCA 183

Keep Checking Your “ACN Contractors”

I wonder if the message is getting through to labour hire providers, yet, that the reason why all four Australian labour hire licensing schemes need an “incorporated worker exemption” is that all those companies that their “ACN contractors” are working through are supplying their people to other people to perform work.

In short, they’re micro labour hire firms.

There are probably thousands of them – maybe tens of thousands.

So, the regulations and exempt worker declarations exclude some individuals who are supplied to perform work through their own companies from the definition of “worker“.

And because you can only be a labour hire provider under a supply arrangement if you suppply a “worker” as defined, excluding them from the definition means that the individuals are not “workers” for their own companies, which therefore don’t need licences.

Pretty cool work-around when you think about it. But there’s a hitch.

The exemptions are very technical and they differ from jurisdiction to jurisdiction. Basically, that can mean that your ACN Contractor mightn’t need a licence in, say, Victoria; but could need one in the A.C.T.

The sort of factors you need to consider include:

  • how many directors the company has;
  • how many individuals it supplies to perform work for other people;
  • whether the individuals have a management role or share in profits.

You also need to check how the individuals actually get paid by their ACN entities, because not all payments are payment for the work performed. Some are share dividends; others are trust distributions; some payments might be by way of directors fees – all of which might not be able to be characterized as payments for the work performed.

So, keep checking the arrangements that your ACN contractors have with the individuals who perform the work.

And keep in mind that circumstances can change. Someone’s mother is appointed as a director and suddenly the maximum number of directors required for the exemption to operate is exceeded; or someone’s little brother starts freelancing through the Contractor’s entity, and the maximum number of workers required for the exemption to operate is exceeded.

Before you know it – and perhaps without knowing it – you’re involved in an unlicenced labour hire supply arrangement.

You wouldn’t want that, would you?

Andrew C. Wood

Cast the Spotlight on Your Labour Hire “Arrangements”

In discussions throughout October and November about labour hire licensing, I’ve observed that there seems to be a bit of a misconception about who’s a provider and who’s merely an intermediary. 

The misconception is fueled by the false notion that it comes down to who’s on record as the employer.

We know that notion doesn’t stack up, because the labour hire licensing Acts all state that a person can be a labour hire provider regardless of whether the provider enters into any contract with the worker for the performance of the work.

One view that I’m coming to is that the critical question is not, “Who’s the employer?”; but rather, “Who makes a labour hire arrangement with the individual who performs the work?”

And those arrangements can come in many different forms.

There can even be more than one labour hire arrangement with the same worker in respect of the same labour hire transaction.

So, when you’re examining your workforce supply or procurement models, ask yourself this question: “Who makes ‘arrangements’ with the individuals who are to perform the work?”

Try to keep in mind that an “arrangement” need be nothing more than a plan of action between two people that may not be enforceable at law but which they have every intention of following to the extent that they feel some moral commitment to it.

Some of the answers could be:

  • Recruiters
  • Temp agencies
  • Payroll providers
  • Accommodation providers
  • Contractor management services providers
  • The individuals’ own entities – if they are operating as “incorporated workers”.

Give it a try.

Make a list, and then check to see whether the arrangements that you’ve identified need to be supported by labour hire licences (Qld, SA, Vic, ACT) and/or private employment agency licences (SA, WA, ACT).

You might be surprised at what you discover.

Andrew C. Wood

Rethinking Independent Contractor Status

This might be unorthodox; but I’ll ask the question anyway. Can I choose not to be an employee?

Do the current common law tests, which are used to distinguish employment from independent contracting, override my decision to work for someone but not be their employee; to work for them, but not have them as my master?

Can the common law force upon me the status of employee against my will by virtue of a judicial consideration of all relevant factors?

If I do not consent, and never did consent, to be an employee, can I really have an enforceable contract of employment?

I’m not talking here about “sham contracting” or disguised employment. I’m talking about a genuine exercise of a volition not to enter into an employment relationship. And can “contracting out” really be a problem if I have never “contracted in”?

Looking forward to seeing what guidance the High Court will give when it hands down decisions in two cases that have recently been argued before it.

Andrew C. Wood

Lachie & Martin examine their consultancy workforce supply arrangements – Part 2: the external specialist contractors.

Fictional characters, Lachie and Martin, are back to use their 4-Step process once more, as they examine their consultancy workforce supply arrangements to check for A.C.T. labour hire licensing issues. In Part 1, they examined the in-house employee members of the workforce. Nowthey have to examine arrangements with the external specialist contractors they’re recruiting for a secret defence industry project – all hypothetical of course!

Spoilers: Lachie and Martin uncover a few new issues that might resonate with commercial litigators searching for “triable issues” in the labour hire licensing schemes of the four states and territories. Let’s hope they never have to argue them!

A big “Thank You” to Ian Lindgren of PayMe for contributing this scenario, which allowed me to test the principles and methodology I’ve been developing to identify labour hire licensing issues in supply arrangements.

Lachie and Martin examine their consultancy workforce supply arrangements: Part 1 in-house employees.

Fictional characters, Lachie & Martin, examine their consultancy workforce supply arrangements to check for A.C.T. labour hire licensing issues. In Part 1, they examine the in-house employee members of the workforce. In later eposodes, they will examine the external contracted specialists and the auxiliary staffing agency sourced members of a consultancy workforce they’ve assembled for a secret defence industry project – all hypothetical of course!

A big “Thank You” to Ian Lindgren of PayMe for contributing this scenario, which allowed me to test the principles and methodology I’ve been developing to identify labour hire licensing issues in supply arrangements.

Australian Labour Hire Licensing: Providers and Intermediaries (cont’d)

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In this post, I report on WorkAccord’s continuing examination of the topic of Australian labour hire arrangement intermediaries and attempt to untangle the knotty problem of distinguishing providers (who need labour hire licences) from mere intermediaries (who don’t).  

I put forward a fresh proposition that it is possible, within labour hire supply arrangements, for there to be more than one labour hire provider in respect of the same worker/s, and suggest that the possibility arises from the different types of arrangement which a provider may have with its workers and from the different sources of the attendant payment obligation.   

Drawing on the competition cases, I also discuss what is meant by an “arrangement”, and how the licensing schemes’ focus on arrangements rather than on contracts results in casting a very wide net that is intended “to ensure that labour hire arrangements cannot be hidden behind a particular set or combination of arrangements”.

I conclude with some practical tips for identifying and analysing labour hire arrangements under the labour hire licensing schemes.

Progress so far…

So far, we’ve untangled the following threads:

  1. In order to distinguish between providers (who need labour hire licences) and intermediaries (who don’t, but may need other types of licence)[i] it is necessary to examine the whole of the arrangement by which workers are engaged, supplied, managed, accommodated, and paid.
  2. That means we need to consider arrangements made with:
    • work seekers;
    • clients – either hosts (hirers) or users.[ii]
  3. Three types of arrangement may require a labour hire licence:
    • supply arrangements (Qld, SA, Vic, ACT);
    • accommodation/ recruitment arrangements (Vic); and
    • contractor management/ recruitment arrangements (Vic).
  4. The arrangements can be distinguished according to their different functions and the different definitions of worker applicable to each type of arrangement.
  5. We can identify three broad types of intermediaries who may participate in the arrangements recognised in the legislation: supply intermediaries; recruitment/ placement intermediaries; and payment intermediaries. They can also be distinguished by the functions they perform.
  6. Intermediaries participate in arrangements between:
    • a provider and a host (“host-side intermediaries”); and/or
    • a provider and a worker (“worker-side intermediaries”)
  7. Other participants may sometimes be involved in labour hire arrangements – e.g., by supplying supporting services without being either an intermediary or provider.
  8. Intermediaries and other contributing participants can be distinguished from providers because only providers have workers (as defined).
  9. The definitions of worker in Qld, S.A. and the A.C.T. all require that the individual who is to perform the work enters into the requisite arrangement with the provider. This would seem to require that the provider and the worker make reciprocal commitments to each other; although they need not be legally enforceable.  
  10. Contrastingly, the various definitions of worker in Victoria require merely that an arrangement be “in force”. The different formula used in Victoria potentially raises a question about whether a worker could be a passive participant in such an arrangement – that is to say, whether a worker could be “entered into an arrangement” made by others, without the necessary reciprocal commitment and perhaps without knowledge or consent.
  11. We prefer the view that this question should be answered in the negative, because Vic. s. 9 requires that the arrangement must still be between the individual and the provider. We also consider that passive entry into a labour hire arrangement would be inconsistent with the principle that a contract of employment (at least) cannot be novated or assigned without the employee’s consent;[iii]and would run counter to the dictum in Gribbles Radiology that “no employee is an asset in the employer’s balance sheet to be bought or sold”.[iv] Accordingly, we take the view that the making of reciprocal commitments between provider and worker is also an essential element in Victoria.

Weaving some of the threads untangled so far

We applied these propositions to examine a hypothetical scenario for a fictional, Canberra-based, temp staffing agency. 

Our fictional agency, “Holdings” claimed that:

  • it did not supply its temps directly; other related companies did that; and
  • it did not pay its temps; an outsourced payroll company did that.

In that examination, we reached a point where it appeared that “Holdings” would require a labour hire licence for the supply arrangement it had with its temps. 

We also discovered some additional supply intermediaries and a payroll intermediary. Finally, we highlighted some “loose ends”, which we were able to pick out from the intermediaries’ involvement in Holdings’ supply arrangement.

You can follow that story by viewing our YouTube video, A.C.T. Supply Arrangements with Ashlee and Daniel.

Picking out a new thread

The exercise led us to uncover a further proposition, which we can now state provisionally:

  1. When intermediaries, participating in an arrangement, additionally form their own arrangements with workers, there arises the possibility that those participants have ceased to be intermediaries and have become providers. In this scenario, it seems that there can be multiple providers, having different payment obligations – some legal (e.g., arising from an employment contract); some “moral” or equitable arising from non-contractual “arrangements”.

It’s not just about the contract

This possibility suggests that we need to look more closely at what is meant by an “arrangement” – particularly as there seems to be a view, currently circulating, that all issues can be determined by the agreed terms of the parties’ formal contract.

We know that view doesn’t stack up because the express provisions of the labour hire licensing Acts of Qld, Vic and the A.C.T. all state that a person can be a labour hire provider regardless of whether the provider enters into any contract with the worker for the performance of the work.

Focus on the arrangement

The labour hire licensing Acts focus on arrangements between providers and their workers.  We know, from our consideration of “the Regardlesses”, that an arrangement need not be contractual.

The “Regardlesses” are the set of provisions, inserted into each of the four Acts,[v] that provide that a person may be a labour hire provider regardless of whether they: employ their workers; have a contract with their worker; have a contract with their hosts/hirers; or supply workers directly or through intermediaries.

There are some variations between the states and territories, but the labour hire licensing Acts are intentionally cast very wide. The pattern was laid down in Qld and set out in the accompanying Explanatory Memorandum:

“…a provider provides labour hire services whether or not:

  • the worker is their employee;
  • a contract is entered into between the worker and provider, or between the provider and the [hirer];
  • the worker is supplied by the provider to another person directly or indirectly through one or more agents or intermediaries, for example through a chain of labour hire arrangements; and
  • the work done by the worker is under the control of the provider… or another person…

This is to ensure that labour hire arrangements cannot be hidden behind a particular set or combination of arrangements.”

What is an arrangement?

The Australian Competition and Consumer Commission (ACCC) provides helpful guidance about what is meant by an “arrangement” in competition law, where certain contracts, arrangements or understandings may be unlawful. It says:[vi]

“Essentially, [arrangements and understandings] involve the development of a plan of action between two or more people that may not be enforceable at law but they have every intention of following.

…when each of two or more parties intentionally arouses in the others an expectation that he (sic) will act in a certain way, it seems …that he (sic) incurs at least a moral obligation to do so. An arrangement as so defined is therefore something whereby the parties to it accept mutual rights and obligations.”[vii]

The ACCC goes on to explain:[viii]

“To …make an arrangement it is not necessary for anything to be written down. In fact, such agreements are often not put into writing. Nothing need even be expressed—a ‘nod and wink’ is sufficient.

If necessary, the court will infer the requisite ‘meeting of minds’ from circumstantial evidence such as evidence of joint action, similar pricing structures, or even from evidence of opportunities the parties had to reach an understanding.

It is important to consider both what is actually said and what each party understands to be the position.”

Consistently with that broad view of what amounts to an arrangement, the Victorian regulator explains, simply, that “arrangements include informal or formal agreements.[ix]

Something more than a mere hope.

However, an arrangement involves something more than a mere hope or expectation.

In ACCC v Channel Seven Brisbane Limited, the High Court said:[x]

“An arrangement or understanding ordinarily involves an element of reciprocal commitment even though it may not be legally enforceable. It involves more than a mere hope or expectation that each party will act in accordance with its terms.”

So, what is the something “more” – the additional element that converts loose assent, or a sense that “we are all on the same page”, into an arrangement of interest under the labour hire licensing Acts?

A helpful explanation was provided by Gray J in Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd,[xi] when considering the related expression, “understanding”. Once again, it takes us back to a sense of “moral obligation” or – an expression that I especially like – something that is “binding in honour”.

“…there can be no such thing as an understanding that leaves each party to it free to do whatever it wishes. Whatever word may be chosen to represent the essential element of an understanding for the purposes of the relevant statutory provisions, it is clear that element involves the assumption of an obligation, unenforceable in any court of law, but merely morally binding or binding in honour.”

Practical application

Armed with this information, you may now be in a position to review your own operations to see if you are involved in any labour hire arrangements that you make, participate in, or support – whether as a provider, host/hirer, intermediary, user, or contributor.

Think about who all the participants in the arrangement are and identify what roles they play. You might want to pay particular attention to any points in your operations that interface directly or indirectly with the people who are to perform the work.

Keep in mind that inter-state labour hire arrangements may be governed by more than one licensing scheme.

Next, you might try to identify what type of labour hire arrangements they are – whether they are supply arrangements, recruitment/accommodation arrangements, or recruitment/ contractor services management arrangements.

When you are scanning for labour hire arrangements governed by the South Australian and Victorian licensing schemes, you’ll have to apply the different “work-(in-and)-as-part-of” qualifications. That could necessitate your undertaking fact-sensitive inquiries similar to those required to apply the employment agency provisions of payroll tax legislation.   

In South Australia, you’ll be able to limit your investigation to arrangements for the performance of “prescribed work”.[xii]

In Victoria, you’ll additionally need to scan for recruitment/ accommodation arrangements[xiii] and recruitment/ contractor services management arrangements.[xiv]

Once you’ve identified your arrangements of interest, check to see if they involve persons who are your workers (as defined) for each type of arrangement that you participate in.

Remember, that some workers are exempted under the supporting regulations and declarations. If you reach a conclusion that an individual appears to be your worker (as defined) make sure you go on to the next stage and consider the various grounds for exemption.

Supply Arrangements & Recruitment/ Accommodation Arrangements

For supply arrangements and recruitment/ accommodation arrangements, where the payment obligation falls can be a deciding factor.

Keep in mind that a payment obligation can arise even if you are not the employer or engager of the worker, and that it needn’t be a contractual obligation – a moral obligation would seem to suffice.

Work out where each payment obligation falls. It might fall on you, or it might fall on another participant in the arrangement. Different types of payment obligation may fall on more than one participant in the arrangement.

You will use that information to work out whether the people who are to perform the work are your workers (as defined) for the purposes of the particular type of labour hire arrangement you are investigating.

Under a supply arrangement, the payment obligation falls on the person/s who is/are supplying the worker.

Under a recruitment/ accommodation arrangement, the payment obligation falls on the person for whom the work is performed.[xv]

If the persons who are to perform the work turn out to be your workers (as defined), you are probably a labour hire provider.  If they are not your workers, you are likely to be an intermediary, user, or host/hirer; or to be providing support services.

Recruitment/ Contractor Management Services Arrangements

Under a recruitment/ contractor management services arrangement, it is not material where the payment obligation falls. What matters is whether the person who recruits the worker manages the contract performance by the worker.[xvi]

Note that the object of the management services is performance by the worker.  Although the Victorian Regulator has issued guidance material[xvii] indicating that:

Examples of businesses that are captured by this provision include businesses that recruit or place independent contractors, and then provide ongoing administration and payroll functions, or supervision or performance management functions for hosts.

It may be necessary to distinguish between performance of the work contract by the worker and performance by the person for whom the worker performs the work. It is difficult to see, for example, how the provision of a payroll function for a host involves performance of the work contract by the worker – except perhaps to the extent that it involves management of time sheet completion and validation.

Conclusion: A problem for the commercial courts?

You will quickly see what the problem is – the Labour Hire Licensing Acts are couched in language that is either so general or so nuanced that it is difficult to interpret. 

Those points might not be pursued in an enforcement action, where priority might be given to the prosecution of clearly unlawful and egregious conduct. But they are precisely the sort of point that could be fairly taken by a commercial litigation defence lawyer to defeat or delay a claim for payment on the grounds that the services for which payment is claimed arguably involve unlicensed labour hire services.

In later posts, I will address additional scenarios and begin to explore the worker exemptions in greater detail. I’ll also address intermediary and host/hirer responsibilities and penalties that may be imposed for breach or involvement in avoidance schemes.

I hope this exploration to date has helped to distinguish between providers and intermediaries a little more clearly, and that it has outlined an approach to characterisation that you can implement. So far, the results have been promising.

Let’s talk again soon.

[i] For example, an employment agents licence under the Agents Act 2003 (ACT); Employment Agents Registration Act 1993 (SA); Employment Agents Act 1976 (WA).  Qld and NSW also have vestiges of private employment agent regulation but no longer have PEA licensing schemes.

[ii] We distinguish hosts/hirers as the person for whom the work is performed from users (of labour hire services) who are found as host-side intermediaries in a workforce services contracting chain. Users typically do not enter into any arrangement of substance with workers, but merely “buffer” the relationship between a labour hire provider, who does have such an arrangement, and a host who requires work to be performed.

[iii] Nokes v. Doncaster Amalgamated Collieries, Ltd. [I9401 A.C. 1014.

[iv] Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd Gribbles Radiology Pty Ltd v Health Services Union of Australia [2005] HCA 9 at [48].

[v] Qld s. 7 (2);  SA s. 7 (3);  Vic ss 7 (2), 8 (3) and 9 (3);  ACT s. 7 (3).

[vi] ACCC (n.d.) Anti-Competitive Conduct, https://www.accc.gov.au/business/anti-competitive-behaviour/anti-competitive-conduct.

[vii] Drawing on the Federal Court decision in TPC v Nicholas Enterprises Pty Ltd (No 2) (1979) FLR 83.

[viii] ACCC (n.d.) Anti-Competitive Conduct op. cit.

[ix] Labour Hire Authority (n.d.) Guidance Note on provision of information about workers https://labourhireauthority.vic.gov.au/media/1017/provision-of-information-under-s19.pdf

[x] Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Limited [2009] HCA 19 per French CJ and Kiefel J at [48].

[xi] [2007] FCA 794 at [37].

[xii] S.A. s. 6 defines “prescribed work” as  cleaning work; horticultural processing work; meat processing work; seafood processing work;  trolley work; and any other work of a kind prescribed by the regulations.

[xiii] Vic. S. 8 (1)

[xiv] Vic. S. 8 (2)

[xv] Vic. S. 9 (2) (a).

[xvi] Vic. S. 9 (2) (b).

[xvii] Labour Hire Authority (2019) “Contractor Management Services” https://labourhireauthority.vic.gov.au/provider/contractor-management-services/