You might not want to place all your trust in the written contract and the “Golden Trio” of recent High Court cases^[i] if you’re still using an employer-of-record payroll arrangement in the belief that it relieves you from your employer responsibilities. That’s because the NSW Supreme Court has recently held^[ii] that the High Court’s guidance about characterizing employment relationships by reference solely to the terms of the contract does not apply to the challenge of identifying the “true employer” – at least, not where the provisions and policy of Part 5.6, Div. 6 of the Corporations Act 2001^[iii]are engaged.

Whether the NSW Supreme Court’s decision withstands challenge on appeal and whether it stands for any broader principle are matters that remain to be seen. In the meantime, what many may have regarded as having been clarified by the Golden Trio cases may still be a “grey area”.

Background

Spitfire Corporation was the holding company of seven wholly-owned subsidiaries, including Aspirio. Aspirio was set up as employer-of-record for the group. Aspirio:

• was party to the employment contracts, which provided for the payment of wages, superannuation and other entitlements to employees of the Spitfire Group;
• took out workers’ compensation insurance and paid premiums for employees of the Spitfire Group;
• reported PAYG for employees in BAS lodged through the ATO portal;
• recorded leave entitlements of the employees; and
• was identified as the payer on payslips issued to the employees.

Before going into liquidation, Spitfire Corporation gave security over its assets to Resilient Investment Group Pty Ltd (Resilient). In the course of the liquidation, a question arose as to whether assets of Spitfire should be used to pay the workers, who were apparently employees of Aspirio, in priority to Resilient as secured creditor.

Determination of the issue required the Court to decide whether Spitfire Corporation or Aspirio was the true employer. If Spitfire Corporation were the true employer, its assets would have been available for payment of the employees ahead of any payment to Resilient.

Argument

Resilient argued, relying on the Golden Trio of recent High Court cases, that determination of the true employer’s identity “does not permit inquiry beyond the employment contract (other than in cases of sham or contractual variation) and that, by reference to the written employment contracts and orthodox contractual principles, Aspirio was the relevant employer of the employees”. It contended that reference to the “totality of the relationship” or to a “multifactorial analysis” was no longer available after the High Court’s decisions.^[iv]

In support of a less constrained approach, the liquidators and the Commonwealth (with an interest in payment in the employees’ superannuation) argued that the High Court’s decisions did not deal with a question of who, between competing entities within a corporate group, was the true employer, and that they did not address the question of how the identity of the employer, for the purposes of the insolvency provisions of the Corporations Act, was to be approached. On those grounds, they argued that the High Court decisions did not overrule existing case law that required the true employer’s identity to be determined by reference to the “totality of the relationship” or on the basis of a multifactorial analysis.^[v]

Decision

The workers were held to be the employees of Spitfire Corporation.

Black J accepted that earlier “true employer” cases directed to Pt 5.6 Div 6 of the Corporations Act comprised a discrete line of authority which the Court was bound to follow unless the line of authority was overruled by an appellate court.^[vi] 

His Honour did not consider the High Court, in Workpac, Personnel Contracting or ZG Operations  expressly or impliedly overruled the earlier line of authority, where the Golden Trio cases “did not need to address and did not address the terms, functions or policy of Pt 5.6 Div 6 of the Corporations Act and the High Court did not there need to consider the implications of treating employment contracts with corporate shells, that have no assets or nominal assets and perform no real business functions, as a means of defeating employee entitlements in insolvency or shifting the liability for them to the Fair Entitlements Guarantee scheme”.^[vii]

Although the employment contract named Aspirio as the employer, a number of provisions imposed on the employee obligations owed to members of the Spitfire Group. To that extent, they indicated that Aspirio was merely the agent of the true employer.^[viii]

Moreover, the evidence did not establish any business reason for Aspirio, a company without assets, to be the employer of record for all but the managerial employees.^[ix]

Significantly, Aspirio:

• did not carry out any business activities, other than as a formal employer of record;
• did not have any external clients or customers;
• had no substantial assets or revenue stream to meet its employment liabilities
• held only minimal amounts in its bank accounts, except when other entities in the Spitfire Group transferred money to Aspirio to enable it to make tax payments
• did not make payments to employees from its bank accounts, and Spitfire Corporation made those payments, which were recorded as loans from Spitfire Corporation to Aspirio
• did not repay the resulting debt that it owed to Spitfire Corporation, and could not do so where it had no assets of substance and did not charge management or other fees to Spitfire Corporation or any other entity in the Spitfire Group.^[x]

Further:

• employees nominally employed by Aspirio undertook work for other companies in the group, each of which conducted different and separate business activities;
• each business unit had its own supervisors, who made their own decisions about bringing on more staff, dismissing staff, and employee entitlements;
• each business unit entity was responsible for managing the day-to-day operations of each entity, including giving directions to employees;
• Aspirio did not carry out any business activities and had no assets or revenue streams to meet its employment liabilities
• Spitfire Corporation paid the employees and relinquished, without consideration, its formal entitlement to pursue Aspirio for the value of those payments; and
• there was no evidence of a contractual arrangement between Aspirio and Spitfire Corporation (such as a management services agreement) which would have allowed Aspirio to receive payment for the services it undertook in making its employees available for the benefit of the Spitfire Group, or to fund the payment of their salaries.^[xi]

When those factors were considered, and the totality of the relationship examined, the Court held that there was no “intelligible business objective” consistent with the “financial and administrative organisation of the business” in Aspirio’s being the employer of the relevant employees^[xii] and that Spitfire Corporation rather than Aspirio was the true employer of the relevant employees, at least for the purposes of Pt 5.6 Div 6 of the Corporations Act.^[xiii]

Observations

This seems to have been a fairly clear case in which the evidence overwhelmingly pointed to Aspirio being nothing more than an employer of record or agent for Spitfire Corporation. Its significance lies not so much in the outcome of the multifactorial approach, as in the fact that the multifactorial approach was applied at all following the High Court’s decisions in the Workpac, Personnel Contracting and ZG Operations. 

The NSW Supreme Court felt able to distinguish those cases because of what the High Court had not dealt with – the question of identity; application in a corporate group situation, where questions of agency might arise; and the circumstance that the provisions and policy of the insolvency protections in the Corporations Act were engaged. 

That should be enough at least to start alarm bells ringing for anyone who might have thought that the Golden Trio cases represented the last word on the topic, and that it was now safe to rely wholly on the terms of the written contract.

Andrew C. Wood

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[i] WorkPac Pty Ltd v Rossato (2021) 95 ALJR 681; [2021] HCA 23 (“Workpac”); Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel Contracting”); ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (“ZG Operations”).

[ii] In the matter of Spitfire Corporation Limited (in liq.) and Aspirio Pty Ltd (in liq) [2022] NSWSC 340 (“Spitfire Corp”).

[iii] Proof and ranking of claims in insolvency. The division includes s. 561 Priority of employees’ claims over circulating security interests.

[iv] Summarised at para [72].

[v] Summarised at paras [73]-[74].

[vi] At para [74].

[vii] At para [76].

[viii] At para [80].

[ix] At para [82].

[x] At para [83].

[xi] At para [84].

[xii] At para [85].

[xiii] At para [90].