It’s about time we had a serious conversation about some of the nonsense that’s been creeping in to so-called “payroll services” supply contracts.
Consider this common contractual formula:
Labour Hire Firm has sourced Individual to work as an on-hired physiotherapist for its Client.
Individual means Jo Physio.
Client means the Department of Health.
Payroll Provider must employ Jo Physio.
Payroll Provider must provide Services of Jo Physio to Client.
Services means physiotherapy services.
What do you make of it?
Has the Payroll Provider contracted a primary obligation to supply physiotherapy services to the Department of Health? If so, what authority did Labour Hire Provider have to make the bargain? Is it an obligation owed only to Labour Hire Provider, which Labour Hire Provider holds on some sort of trust for the Department?
Has Payroll Provider accepted a sub-contracted obligation from Labour Hire Firm to supply physiotherapy services to the Department of Health? What if Labour Hire Firm never had a contractual obligation to supply physiotherapy services to the department in the first place; but merely an obligation to supply a physiotherapy worker? Was there ever an obligation to supply physiotherapy services that could have been sub-contracted? Does the contract not mean what it appears to say?
What contracts and arrangements would you need to see if you were asked to untangle this mess – say, in order to identify the “true employer“; or to identify whether Jo Physio is an employee or an independent contractor; or to establish who needs a labour hire licence, or an employment agent’s licence; or to untangle indemnity and liability insurance obligations.
Sadly, I see a lot of “half-smart” contracts that create more problems than they solve because they ignore the basics and seem to be thrown together without too much in the way of legal analysis.
That’s why we need to get talking. And that’s what we’re going to do over the next three weeks as we dedicate a series of Tuesday TalkAbout Live sessions to this topic.
Check the details and make sure you don’t miss out.
A recent decision of Mortimer J in the Federal Court of Australia[i] highlights just how difficult it can be to determine which, amongst several entities within a corporate group, is the actual employer of the employees who work within the group.
However, several lessons appear to be emerging:
The Federal Court (and the Fair Work Commission so it seems[ii]) are displaying a preference to determine employer identity questions using the same approach that the High Court used in Personnel Contracting[iii] and Jamsek[iv] earlier this year to determine employment status questions.
But not everyone agrees with that approach. The NSW Supreme Court in Spitfire Corporation[v] held that, in corporate group cases – at least where the provisions and policy of Part 5.6, Div. 6 of the Corporations Act 2001 are engaged[vi] – there may still be scope to inquire into the totality of the relationship rather than to restrict the inquiry to the legal rights and obligations of the parties as set out in the contract.
Nevertheless, Spitfire Corporation could be limited to insolvency cases.[vii] It may take another appeal to the High Court to resolve that question.
Meanwhile, sham transactions are still susceptible to being unravelled by an examination of the circumstances beyond what is merely set out in the contract. That proposition is consistent with Personnel Contracting[viii].
But the courts may take a fairly narrow view of what amounts to a sham transaction – the essence of a sham being an attempt to disguise a transaction as something that it is not. That is to say, it involves “some kind of deception”.[ix]
That may be difficult to establish if the entities in the group share the same “controlling minds and officers”. In such a case, there may be considerable freedom to choose which of several corporate vehicles within the group should act as employer.[x]
Neither will the courts move too quickly to “pierce the corporate veil”. Unless “the corporate form is being abused for an improper purpose, such as to perpetrate fraud and avoid extant legal duties”,[xi] a court is unlikely to ignore the separate legal personality and limited liability of legal corporations.
However, liability may still be sheeted home to a principal within a corporate group as the result of agency if there is “a real [legal?] relationship of agency between parent and subsidiary not one said to arise [merely?] from the existence of control and identity of interest in two separate corporate forms”.[xii]
The intersection between employment law and consumer (fair trading) law is, at last, beginning to be explored in the context of employer identity issues.
In this case, misleading and deceptive conduct claims[xiii] and misrepresentation in connection with offers of employment claims[xiv] were pursued against the putative employer and its director. They failed because the employee brought them against a company that was not his employer[xv] and could not establish that they were made.xvi
Future exploration of the intersection between employment law and the Australian Consumer Law might eventually see the terms of the comprehensive written contract (or contracts), upon which the court would rely in determining the employer identity issue according to the approach in Personnel Contracting, thoroughly scrutinised for misleading conduct, unfairness (other than purely in respect of employment terms) and even estoppel[xvii] or mistake – all with a view to having the web of contractual rights and obligations “put in order” so that the court may have a reliable guide that will enable it to place all its eggs in the contractual basket.
Lastly, it seems fair to observe that the arguments for the employee were complex, sophisticated and elegantly assembled. But arguments do not make a case; and, in this instance, the arguments could fare no better than the facts on which they were based – the court finding that: “[the employee] has failed to prove any of his claims on the balance of probabilities.”xviii
This can all seem difficult enough – even in a relatively simple corporate grouping consisting of no more than an operating entity and an administrative entity. However, as the network of contractual relationships expands to include labour hire firms, outsourced payroll providers and incorporated worker entities, the difficulty of identifying the true employer of a worker as between the person who pays them and the person who controls the supply of their labour increases dramatically. Some of those dramas are already being played out in the Fair Work Commission. Hopefully we will get some more clarification before too long.
[x] At para  distinguishing Fair Work Ombudsman v Ramsey Food Processing Pty Ltd  FCA 1176; 198 FCR 174 – a labour hire case about whether the host or labour hire firm was the true employer.
[xii] At para , citing Alsop CJ speaking extra-judicially in “Piercing the Corporate Veil: Recent International Developments” (Paper presented to the 38th Annual Conference of the Banking & Financial Services Law Association, 26 August 2022). My inserts.