Month: August 2022

Contracting Workforce: “The winds of change blow shrilly…”

Andrew C Wood Employment Law Tags: , , Leave a comment
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I would like to acknowledge the 18 August 2022 LinkedIn post by Anthony Wood, Partner at Herbert Smith Freehills, Lawyers (and no relation of mine, so far as I know). Anthony brought to the attention of the LinkedIn community an important decision of the Full Bench of the Fair Work Commission this week, which sheds further light on the way in which Australian courts and commissions are likely to apply recent decisions of the High Court that have changed the rules about how we distinguish between employees and independent contractors. He concludes his insightful post as follows:

“With job security one of the themes underpinning Labor’s 2022 election platform, it’s now likely to become a political and legislative issue before the new federal parliament”.

Please be sure to read Anthony’s post and engage in the conversation.  You can find Anthony’s post on LinkedIn here.

“…as winds of change blow shrilly round my poor abode.” [i]

FWC Full Bench decision

Earlier this week, the Full Bench of the Fair Work Commission finally handed down its delayed decision in Deliveroo Australia Pty Ltd v Diego Franco.[ii]The case was an appeal from a finding of unfair dismissal in relation to a food delivery worker. 

The decision was delayed whilst the case was put on hold to give time for the High Court to consider the appeals in Personnel Contracting[iii] and Jamsek;[iv] and then to allow the Full Bench to consider the effect which those decisions were to have on disposal of the matter before it.

Distinguishing between casual employment and independent contracting

Platform-based work, or gig-economy work, often presents as either casual employment or independent contracting.  Sometimes it can be difficult to distinguish between them. That was certainly so in this case.

However, feeling constrained by the recent High Court’s decisions to limit its consideration to an analysis of the contractual rights and obligations of the parties, the Full Bench reversed the finding at first instance and determined ultimately that Mr Franco was an independent contractor. Consequently, his unfair dismissal claim was beyond the Commission’s jurisdiction.

Equivocal and weak factors

The following factors, though somewhat equivocal, were considered by the Full Bench to be not inconsistent with conventional understandings of casual employment:

  • that Mr Franco was not obliged to do any work for Deliveroo and that Deliveroo was not obliged to make any work available to Mr Franco (clause 2.2)[v]
  • that Mr Franco could accept or reject any work offered to him when logged into the Deliveroo Rider App (clause 2.4)[vi]
  • that Mr Franco was free to work for any other party including competitors of Deliveroo (also clause 2.2)[vii]

The following factors, though difficult to reconcile with conventional understandings of casual employment and weighing somewhat against a finding that Mr Franco was an employee, were still not determinative by themselves:

  • that Mr Franco had the right to elect not only when but where he chose to work, and that Deliveroo was restricted to offering work within the parameters thus determined by Mr Franco (clause 2.3)[viii]
  • that Mr Franco, even once he had accepted an order, was allowed to subsequently “unassign” himself from that order, in which case he was not obliged to perform it (clause 2.5.1)[ix]

The lesson, here, is that these factors are not decisive either of themselves or in aggregate.

Weightier factors

However, the Full Bench considered that four aspects of the work contract did weigh decisively in favour of the conclusion that Mr Franco was in an independent contracting relationship with Deliveroo. 

Keep in mind that the factors might weigh differently in other cases. This was a case involving food delivery work. In a case involving construction or horticultural labour or academic work, the factors might not carry the same weight.

1. Deliveroo lacked control over the manner of performance of the work which Mr Franco agreed to undertake.[x]

Mr Franco was able to determine the route and what type of vehicle he would use to carry out his deliveries.

The Full Bench considered that the requirement for timely delivery was typical for independent contracting arrangements in the road transport industry and constitutes a performance standard rather than a right of control.

 Similarly, broadly stated contractual obligations “to deal with others professionally” when performing delivery services and to “provide the services with due care, skill and ability” were interpreted by the Full Bench as merely establishing performance standards rather than a contractual right to control the manner in which the work was performed.

2. Mr Franco was obliged by clause 4.1 of the contract to provide, at his own expense, the vehicle used to carry out his deliveries.[xi]

Drawing upon the language of Gageler & Gleeson JJ in Jamsek, the Full Bench considered that the contract required Mr Franco to provide a “substantial item of mechanical equipment” such that “the personal is overshadowed by the mechanical”.

3. The contract did not require personal service on the part of Mr Franco.[xii]

Clause 9 of the contract provided that Mr Franco had the right, without the need for prior approval from Deliveroo, to arrange for someone else to perform delivery services on his behalf.

Many contracts provide for delegation.  What was significant about this contract was that Deliveroo did not try by its contract to control Mr Franco’s right to delegate performance of the work to others. Whether or not it did so by other means was not relevant to the task of characterising the relationship.[xiii]

4. Although the method of remuneration (payment by results) was not inconsistent with an employment relationship, and would not have been determinative by itself, Mr Franco was required to pay an administrative fee of 4% of the amount earned by him.[xiv]

The fee was charged for access to Deliveroo’s software and for Deliveroo’s providing invoices and other administrative services. The Full Bench considered that this was not consistent with an employment relationship.

A word of caution, however.  Reliance on this factor can quickly lead you into error if the weight of factors points to the relationship being one of employment. In those circumstances, charging an “administration fee” might amount to nothing more than making unlawful deductions from a worker’s wages.

Alternative redress and remedial frameworks

From a reading of paragraphs [53] to ]55] of the decision, one gets that the Full Bench reached its conclusion with a deep sense of regret. Anthony Wood, in his recent LinkedIn post,[xv] which I again encourage you to read, foreshadowed the need for a legislative solution when he wrote:

“With job security one of the themes underpinning Labor’s 2022 election platform, it’s now likely to become a political and legislative issue before the new federal parliament.”

Anthony Wood ,18 August 2022

He may well be right; and a legislative solution might eventually look something like the UK extension of employment entitlements to certain classes of dependent contractors defined as “workers” under the Employment Rights Act 1996 (UK). But I fear that such a solution will take time to develop, and that the complexities of applying a characterization tri-chotomy to the wide range of situations in which the distinction between employees and independent contracting is important under federal, state and territory legislation[xvi] may add an extra layer of complexity and confusion.  That is not to say that it should not be attempted.

Commercial rather than industrial remedies?

For now, workers who find themselves in the position of Mr Franco may need to consider what alternative remedies may be available to them under the Independent Contractors Act 2006 (C’th) and the unfair-terms-in-small-business-standard-form-contracts of the Australian Consumer Law. They (and their representatives) may need to consider how to take advantage of the small business collective bargaining class exemption under the Competition and Consumer Act 2010 (C’th) if they seek to redress bargaining imbalances[xvii] and seek commercial, rather than industrial remedies.

A group of Boral concrete carters in Western Australia obtained protection under the ACCC’s class exemption earlier this year to collectively bargain with Boral Limited over “terms of agreement for the provision of cartage services including payment for carting concrete including using own vehicles, and other related terms”.

Whilst the outcome may not be as satisfactory as extending employment-like entitlements or providing legislative clarification of their worker status, there would be no reason in principle why Deliveroo independent contractors (and others in the same position) could not do likewise were someone to step forward to assist them with organization and representation.

Let’s hope somebody does.

Andrew C. Wood

[i]      Anon.

[ii]     Deliveroo Australia Pty Ltd v Diego Franco [2022] FWCFB 156 (17 August 2022).

[iii]    Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd  [2022] HCA 1.

[iv]    ZG Operations Australia Pty Ltd v Jamsek  [2022] HCA 2.

[v]     At para [43].

[vi]    At para [43].

[vii]    At para [44].

[viii]   At para [45].

[ix]    At para [45].

[x]     At para [46].

[xi]    At para [48].

[xii]    At para [49].

[xiii]   At para [54] the Full Bench observed, with regard to the workplace reality (as distinct from the legal character of the parties’ relationship): “As a matter of reality, Deliveroo exercised a degree of control over Mr Franco’s performance of the work, Mr Franco presented himself to the world with Deliveroo’s encouragement as part of Deliveroo’s business, his provision of the means of delivery involved no substantial capital outlay, and the relationship was one of personal service. These matters, taken together, would tip the balance in favour of a conclusion that Mr Franco was an employee of Deliveroo. However, as a result ofPersonnel Contracting, we must close our eyes to these matters.”

[xiv]   At para [50].

[xv]    18 August 2022.

[xvi]   Consider how such a tri-chotomy would apply to state and territory payroll tax or workers compensation schemes.

[xvii] Collective Bargaining Class Exemption Notice Form 15th July 2022, ACCC Class Exemptions Register, https://www.accc.gov.au/system/files/public-registers/documents/Boral%20concrete%20carters_0.pdf

FWC Unfair Dismissal Jurisdiction: Contest where labour hire worker engages payroll provider

Andrew C Wood Employment Law, Employment Services, On-Hire, Payroll Services Tags: 2 Comments
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A recent Fair Work Commission decision might be worth a read if you’re scanning the labour hire horizon for signs of squalls ahead. It was an unfair dismissal case in which the applicant claimed she had been dismissed by Hays from her labour hire engagement as a project manager. However, it was not a typical tri-partite labour hire scenario.

Contractual Arrangements

Here’s how the Commission, described the multi-party contractual arrangements that underpinned the work relationship:

[13] It is necessary to briefly mention the contractual arrangements that were applicable to the work performed by [the applicant]. [The applicant] had entered a contract with a company called PayMe in May 2017 to provide what is in effect a payroll service to her …

[14] In November 2020 [the applicant] contracted through PayMe to provide her services to a client of Hays… Hays made weekly payments to PayMe in relation to the hours worked by [the applicant] while she was on the assignment.

per Deputy President Dean

Jurisdictional Contest

Although it was not included as a respondent to the application, the interposition of PayMe, in the arrangement for the supply of the applicant’s labour to Hays’ client, raised a question about the identity of her true employer (as distinct from her employer-of-record). Was it Hays, or was it PayMe?

Hays contested jurisdiction[i] on the grounds that:

  1. the applicant was not an employee of Hays;
  2. the applicant was not dismissed;
  3. Her application was out of time; and
  4. She earned more than the high-income threshold.

The parties agreed to contest the high-income threshold point as a preliminary issue on the basis that, if the application was knocked out on that ground, there was no need to argue the other points.[ii]

The Commission held that the applicant earned above the high-income threshold and that she was not an Award covered employee. It appears that only three awards were contended by her to apply to her employment:[iii]

  1. Australian Government Industry Award 2016;
  2. Clerks Private Sector Award 2020; or
  3. Miscellaneous Award 2020.

Coverage under the Professional Employees Award 2020, which might also have been a contender, was not argued.

In view of its findings on income and Award coverage, the FWC determined that the applicant was an excluded employee and that her unfair dismissal claim was beyond its jurisdiction.[iv]

A “Missed Opportunity” or a “Near Miss”?

Consequently, the question of who was the true employer did not need to be decided. 

There was no examination of Hays’ back-to-back contract with its client, as there was in Personnel Contracting[v]; and therefore, no core asset analysis of the type that might have determined whether Hays or PayMe controlled the provision of the worker’s labour[vi], or rendered the work performed by her dependent upon and subservient to[vii] either Hays or PayMe.

An answer to those questions may have provided further clarification of how the approach adopted by the High Court in Personnel Contracting and Jamsek[viii] should be applied in cases, where the contest is not merely about whether a worker is an employee or an independent contractor, but concerns the need to identify the true employer when there is more than one contender for that honour.

Whilst those questions remain unanswered, workers will continue to bear the cost and uncertainty of having to decide who, as between the person who pays them and the person who controls the supply of their labour to its clients, should respond to matters such as their worker entitlements, casual conversion and unfair dismissal claims, and their applications for anti-bullying orders.  In harsh cases, they may be left without timely, reliable and effective remedies.

So, we will have to wait for answers to those questions.

I’m guessing it might not be too long.

Andrew C. Wood

[i] Grounds as summarised at para [2].

[ii] See para [3].

[iii] At para [27].

[iv] At paras [25] and [32]-[33].

[v] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 96 ALJR 89; [2022] HCA 1. See in the judgments of Kiefel CJ, Keane & Edelman JJ at paras [11]-[13], despite the view taken by their Honours that it was not necessary to refer to the LHA “in detail”. See also in the judgments of Gageler & Gleeson JJ at paras [144] and [158]; and Gordon J at para [168].

[vi] Personnel Contracting per Kiefel CJ, Keane & Edelman JJ at para [89].

[vii] Personnel Contracting per Kiefel CJ, Keane & Edelman JJ at para [90].

[viii] ZG Operations Australia Pty Ltd v Jamsek (2022) 96 ALJR 144; [2022] HCA 2.

As the Dust Begins to Settle on the Employee/ Independent Contractor Dichotomy

Andrew C Wood Contract, Employment Law, Independent Contracting, On-Hire, Uncategorized 1 Comment
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Six months on from the High Court’s decisions in Personnel Contracting[i] and Jamsek,[ii] the dust is beginning to settle and we’re getting a clearer look at how those decisions may be affecting the labour hire landscape. In that time, I’ve seen many things written about the High Court’s new approach to determining whether a work relationship is one of employment or independent contracting. But one of the clearest and most helpful explanations of the new approach that I’ve seen so far, comes from the recent Federal Court decision in JMC Pty Limited v Commissioner of Taxation.[iii]

Background

The case concerned JMC’s liability as an employer to pay superannuation to a worker whom it engaged to provide it with “teaching services”. Those teaching services comprised delivering lectures to JMC’s students at its Melbourne campus and marking student examinations or assignments.[iv] JMC contended that the worker was an independent contractor and that it was therefore  not required to make superannuation contributions on his behalf.  The Commissioner for Taxation disagreed.

Six Key Principles

In the course of holding that the worker was an employee, Wigney J outlined six key principles that can be extracted from Personnel Contracting; Jamsek and related cases. I’ve set them out in “digest” form below, without their references and additional elaboration.

The decision from paragraphs [16] to [27] is worth reading in full. It should only take you about five to ten minutes. But if you’re pressed for time, here are the six key principles in digest form:

  1. Where the rights and duties of the parties are comprehensively committed to a written contract, the legal rights and obligations established by the contract are decisive of the character of the relationship provided that the validity of the contract has not been challenged as a sham, or that the terms of the contract have not been varied, waived or are subject to an estoppel.
  2. In order to ascertain the relevant legal rights and obligations, the contract of employment must be construed in accordance with the established principles of contractual interpretation. …regard may be had to the circumstances surrounding the making of the contract, as well as to events and circumstances external to the contract which are objective, known to the parties at the time of contracting and which assist in identifying the purpose or object of the contract. 
  3. …the characterisation of the relationship between the parties is not affected by circumstances, facts or occurrences arising between the parties that have no bearing on their legal rights.
  4. The contractual provisions that may be relevant in determining the nature of the relationship include, but are not limited to, those that deal with the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax, the delegation of work and the right to exercise direction and control.
  5. Characterisation of the relationship …, often hinges on two considerations. The first consideration is the extent to which the putative employer has the right to control how, where and when the putative employee performs the work. The second is the extent to which the putative employee can be seen to work in his or her own business, as distinct from the business of the putative employer. Neither of those considerations are determinative and both involve questions of degree
  6. A “label” which the parties may have chosen to describe their relationship is not determinative of the nature of the relationship and will rarely assist the court in characterising the relationship by reference to the contractual rights and duties of the parties. The characterisation of a relationship…, is ultimately an evaluative judgment that takes into account the totality of the parties’ contractual rights and obligations.
My emphasis

A common mistake

One common mistake that I’ve observed, both in commentary about the High Court’s new approach and in attempts to apply it in drafting contracts, is that there is often a failure to distinguish between what the contract says, on the one hand; and the legal rights and obligations that it creates, on the other.

So, you get the situation where employers are still going to great lengths to include and rely on acknowledgements that the relationship is one of independent contract.

Then they say something like: “Well, the High Court decided that you can only look at what the contract says. And look, see, it says right here that our relationship is one of independent contract. So, it can’t be anything else.”

They’re entirely wrong, of course. What they’ve missed is that the High Court was really saying that you look to contract to find “the totality of the parties’ rights and obligations”, and proceed from there.  Look, again, at points 1, 2, 4, 5 and 6 of the principles summarised so comprehensively by Wigney J in JMC.

Don’t confuse mere acknowledgments with legal rights or obligations. You can acknowledge, in your contract if you want to, that the world is flat, or that a duck is a rooster; but it doesn’t make it so. Neither does it give you the legal right to make it so; or to oblige someone else to make it so for you.

Some emerging issues

There are also several emerging issues that it may be important to note in labour hire arrangements that do not conform to the traditional tripartite model.

Loose and uncertain arrangements

Personnel Contracting and Jamsek apply in cases where the parties’ rights and obligations are “comprehensively committed to a written contract”.  But in cases where there is some uncertainty or looseness in the arrangement, the courts may still undertake a more wide-ranging examination of the totality of the relationship.

At least, that was the view of the Fair Work Commission in Waring v Hage Retail,[v] where the specific terms under which the work was to be performed were found not to be the subject of any express agreement, oral or written arrangements between the parties;[vi] and their arrangements, whatever they were, were described as “vague, opaque and amorphous”.[vii]

The issue should not arise where carefully drafted contracts that are used in traditional labour hire tri-partite settings. However, it may crop up in non-standard arrangements involving additional parties as supply or payment intermediaries, including where payroll services providers are appointed as employer-of-record, or where “pyramid” or tiered supply arrangements are used – especially if the written contracts used to support those arrangements are misaligned.

Where arrangement not contractual; or alternatives not limited to employment and independent contracting  

Personnel Contracting and Jamsek both “start from the position that there is a contract between the worker and the organisation”.[viii] However that may not be so in all cases.

For example, various unpaid work trial, work experience, internship and volunteer arrangements might not be underpinned by an identifiable “work contract”. In those cases, it may be difficult to identify what the terms of the arrangement were, and a court or commission might still embark on a wider inquiry.  

That is what happened in the Victorian Supreme Court case of O’Connor v Comensoli, where a question arose concerning the vicarious liability of the Catholic Archdiocese of Melbourne for alleged conduct of one of its priests.

After observing that the relationship between the Archdiocese and its priests is not contractual and that the employee/ independent contractor dichotomy, which permits only two alternatives neither of which applied in the circumstances of the case, Keogh J held that High Court’s decision in Personnel Contracting did not authoritatively dispose of the vicarious liability issue.[ix]

The case highlights that there may still be situations that were not addressed by the High Court’s new approach and that parties will need to be on their guard to identify situations in which that approach will not apply.

In a labour hire setting, the issue could arise between a labour hire provider and its temps, noting that a person can still be a “worker” for a labour hire provider even in the absence of a contractual arrangement between them[x]  – especially where non-standard arrangements that involve additional parties as supply or payment intermediaries are used.

Parties to such arrangements will need to exercise special care to identify where the legal rights and obligations fall, how they control the provision of the worker’s labour, and who is responsible for them.

Employer identity question

Whilst Rossato,[xi]  Personnel Contracting, and Jamsek clarified the approach to determining employment status questions, they did not deal with the separate employer identity question – that is to say: who, amongst more than one contender, is the true employer.

In Spitfire Corporation[xii], the NSW Supreme Court carefully distinguished the High Court decisions, saying that they did not apply to a determination of the employer identity question, in the circumstances of that case.

Conclusion

Whilst the High Court’s decisions in Personnel Contracting and Jamsek have clarified the approach that the courts will adopt in classifying a work relationship as either employment or independent contracting, a number of issues regularly encountered in the labour hire setting were not addressed. Moreover, the approach can be difficult to apply for anyone who is not familiar with the categorisation of legal rights and obligations. Those difficulties can be exacerbated in cases where the parties’ arrangements are loose and uncertain, or where they are misaligned.

Labour hire providers and their intermediaries (as well as their advisors) will therefore need to exercise considerable care in applying the approach adopted by the High Court in Personnel Contracting and Jamsek and remain alert to identify those situations in which it might not apply at all.

Andrew C. Wood

[i] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 96 ALJR 89; [2022] HCA 1.

[ii] ZG Operations Australia Pty Ltd v Jamsek (2022) 96 ALJR 144; [2022] HCA 2.

[iii] JMC Pty Limited v Commissioner of Taxation [2022] FCA 750.

[iv] JMC v Commissioner for Taxation at para [1].

[v] Nicholas James Waring v Hage Retail Pty Ltd [2022] FWC 540 (23 March 2022).

[vi] Per Deputy President Anderson at para [76].

[vii] Per Deputy President Anderson at para [58].

[viii] As explained by Keogh J in O’Connor v Comensoli [2022] VSC 313 (10 June 2022) at para [327].

[ix] Per Keogh J at para [327].

[x] See for example, Labour Hire Licensing Act 2017 (Qld) s. 7(2)(b); Labour Hire Licensing Act 2018 (Vic) s. 9(3)(b), Labour Hire Licensing Act 2020 (ACT) s. 7(3)(b).

[xi] WorkPac Pty Ltd v Rossato (2021) 95 ALJR 681; [2021] HCA 23.

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