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

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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

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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

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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.

Employer of Record (EoR) Arrangements and On-Hire Contracts with Incorporated Workers

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James Wood interviews the author.

TRANSCRIPT:

ANDREW:      Over the past few days, I’ve been invited to provide further commentary on my recent post about Employer of Record (EoR) arrangements and on-hire contracts with incorporated workers. Some of the questions raised by readers have been very insightful. So, I’ve asked James to compile them and pass them through to me in this podcast. 

OK. James, what’s our first question?

JAMES:          In your post Employer of Record Arrangements: Not the panacea you were hoping for? you spoke about contracting with Incorporated Worker Entities (IWEs). Could you clarify what you mean by an Incorporated Worker Entity?

ANDREW:       Sure. An Incorporated Worker Entity, or IWE, is typically a proprietary limited company through which a worker conducts a small business. So, for example, a person might incorporate a company to supply, say, ITC or project management services, with the person performing the actual ITC or project management work on behalf of the IWE – the Incorporated Worker Entity.

JAMES:          So, are the individual workers the employees of the Incorporated Worker Entity?

ANDREW:       Not always. They can be the employees of their IWEs. But they can work in other capacities as well. For example, they could be engaged as independent contractor consultants to their IWE. Or they might be a working director and be remunerated via directors’ fees. Or they could even be a shareholder in a family run business and be remunerated through dividends on their shareholdings. There are probably other methods as well, involving various types of trusts and partnerships. 

JAMES:          So, the Worker Entity supplies the services and the individual worker performs the work, right?

ANDREW:       Yes.

JAMES:          How does that work in an on-hire situation where the on-hire firm and its client might be a bit fussy about who is actually going to do the work?

ANDREW:       It’s common in that setting for the contract between the Worker Entity and the on-hire firm to include a nominated worker clause. It’s a bit like the sort of nominated sub-contractor provision you might find in some commercial and works contracts.

JAMES:          Could you include the nominated worker as a party to the contract between the Worker Entity and the on-hire firm?

ANDREW:       You could do that. In fact, I used to draft on-hire IWE contracts that way back in the 1990s. The thinking back then was that it was a good way to tie up loose ends and keep control of the worker and of the IWE’s right of delegation.

But I stopped doing it around 2010, around the time of the commencement of the Fair Work Act, when I was asked to design an on-hire IWE template that framed the relationship as a genuine commercial relationship.

It seemed (well, it seemed to me at least) that it would be important to leave the engagement of the worker to the IWE – because the worker might have been remunerated by the Worker Enterprise as a working director, an independent contractor, employee, or a dividend receiving share holder.

Most on-hire IWE contracts of that period, which included the individual as a nominated party, ignored those distinctions and imposed obligations on the individual that could easily have been construed as the type of obligations typically owed by employees. I suspect that many still do.

JAMES:          Would that be a problem?

ANDREW:       Yes. I think so. The problem, of course, is that, where those obligations are owed to the on-hire firm, the arrangement is susceptible of being construed as one by which the on-hire provider, regardless of its arrangement with the Worker Entity, may have become the employer the nominated worker.

And since the High Court’s decision this year in Personnel Contracting, an on-hire IWE contract that includes the nominated worker might be even more susceptible to that construction if the obligations owed by the individual to the on-hire provider are treated as a “core asset” of the on-hire provider’s business that’s necessary to enable it to supply “compliant labour”to its clients.

So, my take on this is that it might be better, now, to leave the individual workers out of it.

It would still be possible to exercise proper control over the right to delegate. It’d simply be a matter of ensuring that the IWE could only delegate to approved workers, and establishing rigorous procedures for giving or withholding approval.

JAMES:          OK. So, there could be some problems there. In your posts, you’ve spoken about “Employers of Record”. Could you clarify what you mean by an Employer of Record?

ANDREW:       Of course. Well, an employer-of-record is simply someone who appears “on the record” as the employer of your workers, though they’re not the true employer. That’s to say, they don’t control the employment relationship in the same way that the true employer does; and the work which the employee performs is not dependent upon or subservient to them in the same way in which it is to the true employer. In this situation, the employee’s obligation to perform work will most likely be a core asset of the true employer rather than of the employer-of-record.

JAMES:          So, what does an employer of record actually do?

ANDREW:       Typically, it will handle payroll and will probably be the named employer in the employment contract. It will issue pay slips and pay summaries and remit tax and super. It might arrange for insurance and handle a range of administrative tasks for the true employer. It might, for example, perform those tasks as an agent for the true employer or employers in a group of related entities trading as a corporate group. That would be quite a common arrangement.

JAMES:          But you say it’s not the true employer?

ANDREW:       That’s right. In Australia, we don’t have a concept of joint employment or co-employment. There’s only one employer in any employment relationship.  So, we can understand the employer-of-record as being just the nominee “on the record” for the true employer.

JAMES:          How do you tell the difference between the employer of record and the true employer?

ANDREW:       You look at the totality of the legal rights and obligations that exist between the parties. Whilst your contract (if you’ve got one) will usually be the primary focus of your inquiry, the New South Wales Supreme Court recently said, in March this year, that you don’t necessarily confine yourself to a consideration of the terms of the contract – even if it’s wholly in writing. The case was Spitfire Corporation v Aspirio.  It seems to be a different approach from the way the High Court has said you go about determining whether a work relationship is one of employment or whether it’s one of independent contracting.

JAMES:          You mentioned “payroll arrangements”.  I wonder if we could now turn to the situation where a labour hire firm is appointing a payroll services provider…

What could go wrong when a labour hire provider engages a payroll services provider to pay its employee on the condition that the payroll services provider “must employ the individual,”

ANDREW:       The first and obvious problem is that a contract that only says, “You must employ worker X” is not a contract that actually employs worker X. It’s only an agreement for you to do something. If you do employ worker X, then presumably there must be a contract somewhere that does that. And it would be that contract that’d be the chief guide in answering both the worker status question and the employer identity question.

JAMES:          …and the labour hire provider’s worker is required to sign the agreement acknowledging that they are to be employee of the payroll provider?

ANDREW:       If the worker is included merely to get signed up to various acknowledgements (such as of employment status or employer identity) then there’s the obvious problem that those acknowledgments might be nothing more than “labelling”. They may have little weight … except to the extent that they could evidence an attempt to avoid or to disguise aspects of the true work relationship.

And then because the worker’s obligations under such a contract (which we’ve already identified as not being the actual employment contract) are likely to be owed to the party that appoints the payroll services provider, rather than to the payroll provider itself, there’s a further risk that the obligations may be interpreted as signalling control by the appointing party (such as a labour-hire provider) that would be consistent with an employment relationship between the worker and the labour hire firm.

JAMES:          Wow! Well, in the same situation what could go wrong if the worker was operating through their own Incorporated Worker Entity as a nominated person?

ANDREW:       OK. So that type of contract contemplates that there would be four parties.

  1. the on-hire firm that appoints the payroll provider;
  2. the payroll provider itself;
  3. the Worker Entity; and
  4. the individual worker

Now what can go wrong … horribly wrong … is that a contract gets confused about who is doing what.

I’ve actually seen examples of contracts that confuse the payroll provider with the Worker Entity. The payroll provider supplies payroll and administration services, The Worker Entity provides the services that the on-hire firm’s client actually wants: like ITC services, project management services, engineering services, design services. That sort of thing.

The result can be an absurd arrangement by which the payroll provider apparently assumes the obligation to supply the services that the Worker Entity or the worker should provide.

Once you’ve got those sorts of problems, you can no longer rely on the contract as any sort of reliable guide to questions about who is the employer, or whether the work relationship is one of employment or independent contracting. And serious questions then arise about its enforceability.

JAMES:          Well, that’s all the questions we have so far.

ANDREW:       James, thank you for fielding those questions for us. I hope the answers have helped to clear up some of the confusion around this topic. If they have, be sure to drop us a line, and don’t forget to head across to the Australian & New Zealand Labour Hire Licensing & Regulation LinkedIn Group, where we can continue the conversation.

I’m Andrew Wood

Let’s talk again soon!

Employer of Record Arrangements: Not the panacea you were hoping for?

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Recently, I was asked to comment on how an employer-of-record (EoR) arrangement might affect an on-hire firm’s employment and labour hire licensing responsibilities. It seems that there’s a bit of a view circulating to the effect that, if you put in place one of these EoR arrangements with a payroll company, you can avoid both sets of responsibilities. Frankly, I doubt that you can.

And if you try to do so, I think you could end up with egg on your face… or worse still, with residual employment obligations (for tax, super, redundancy, unfair dismissal and the like), as well as leaving yourself open to a range of claims for anything from involvement in misleading conduct in respect of an offer of employment[i] all the way through to sham contracting and labour hire licence avoidance.

Employer of Record (EoR)

Firstly, let’s clarify what I mean by an EoR.

Corporate Groupings

An EoR is a third party that appears “on the record” as the employer of your workers. It’s a common arrangement within corporate groups of related entities. One entity in the group will go “on record” as employer for workers in the group.  It will handle payroll and will probably be the named employer in the employment contract. It will issue pay slips and pay summaries and remit tax and super.  These arrangements are often unravelled in insolvency proceedings, where group entities that thought they were shielded from employer responsibilities can be left having to pay up.

Payroll Services Providers

It’s also a common feature of many arrangements made by on-hire firms for the appointment of a payroll services provider. The contract of appointment might even include the individual worker as a party and might go to considerable lengths to insist that the payroll company must employ the individual. I’ll talk some more about those contracts (and some of their common flaws) in a later post on the topic.

Incorporated Worker Entities (IWEs)

You can also encounter aspects of employer-of-record issues when you’re dealing with a worker owned and controlled company through which the worker operates. 

We’re talking, here, about those entities that are effectively the alter ego of the individual who actually performs the work.  Usually, the entity is engaged to provide the required services (e.g., ITC services) and it is left to the entity to employ or engage the individual worker.

If that’s the arrangement you’re working with, you’d want to make pretty sure that the IWE has employed the individual and that the terms of the employment are comprehensively set out in a written contract between the IWE and the worker. Otherwise, you might find that any looseness or uncertainty, or any mistake about the form of contract used, opens the door to an inquiry about whether you, in fact, might be the employer.

We’ve now looked briefly at three different arrangements under which a third party might be identified as the EoR, and we’ve looked at the sort of things that the EoR might be doing.

But, for present purposes, none of that means that the EoR is necessarily the true employer.

The True Employer and How To Find It

The true employer will be the entity which, on an examination of the totality of the relationship, actually controls the work relationship. 

Now, you’re probably going to say that the Golden Trio of recent High Court Cases[ii] put an end to the multi-factor/ totality of the relationship test, and that we can only now have regard to the terms of the contract. 

Well, that is mostly true … if we’re trying to decide if a worker is an employee or an independent contractor – that is to say, if were trying to decide the work status question.  

But it seems it may not be true if we’re trying to answer the different question of who is the employer – the employer identity question.  At least, that’s what the NSW Supreme Court recently said in Spitfire Corp.[iii]

And it seems that the FWC is now finding reasons to distinguish the Golden Trio Cases – even on the work status question.[iv] So, unless your contract is wholly in writing, pretty tight, not a sham, and not unsuited to the use to which you’ve put it, you might still find yourself having to answer some embarrassing questions about how your relationship actually works.

A Panacea?

Taking all this into account, can we be confident that entering into an EoR arrangement with a related entity, a payroll provider, or an Incorporated Worker Entity will relieve an on-hire provider from its employer or labour hire responsibilities.

I don’t think we can. That’s my take on it.

But you can make your own mind up about that!

Andrew C. Wood


[i] Australian Consumer Law s. 31.

[ii] 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”).

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

[iv] See Waring v Hage Retail Pty Ltd [2022] FWC 540, where, at paras [52] to [56] Deputy President Anderson summarized the principles in the High Court’s decisions in Personnel Contracting and ZG Operations. DP Anderson’s summary was subsequently cited with approval by the Full Bench in Azad v Hammond Park Family Practice Pty Ltd T/A Jupiter Health Warnbro [2022] FWCFB 66 at para [14]. Hage Retail is noteworthy because of the way in which DP Anderson applied the legal principles to the facts of that case in order to find scope to conduct an inquiry which extended well beyond the strict terms of what purported to be the employment contract.

Labour Hire Licensing & Payroll Providers: A simplified or simplistic explanation?

A female temp desk consultant looking over some documents, whilst discussing an assignment with her labour hire worker.The worker is wearing hi vis jacket , and their safety clothing is scattered about the office.

Discussion of the topic, “Who needs a labour hire licence” often gets diverted by red herring issues about whether a payroll provider is the employer, or at least the employer-of-record, and whether the worker is an employee or not.

My simplified or perhaps simplistic explanation of the licensing schemes is that, regardless of whether you are an on-hire firm or a payroll provider, you’ll need a licence if:

  • you have an arrangement with an individual to supply the individual perform work for someone else;
  • the individual qualifies as one of your “workers” (as defined); AND
  • your arrangement with the individual includes an obligation to pay the worker for the work.

This is what we call having a labour hire “supply arrangement”.

There are some subtle variations between the four existing state and territory schemes. There are also additional circumstances in which you might need a licence in Victoria.

Now, some payroll providers do have such an arrangement; others don’t.

Payroll providers which do have such an arrangement with a worker would seem to need a licence.

Those which don’t would not seem to require a licence. Indeed, I’m aware that this is a view that has been confirmed by at least one scheme regulator and that some payroll providers may be in a position to provide regulator confirmation that they do not require a licence. Of course, it’s always important to make sure that you fully understand the facts and circumstances on which that confirmation is given. Don’t assume that one-size-fits-all in this space.

The fact that a payroll provider, which has such an arrangement, requires a licence will not necessarily relieve the on-hire firm that appoints the payroll provider from having a licence as well.

It won’t matter whether the individual is an employee of the person who has the arrangement or not.

The supply of the worker can be direct or indirect; and it needn’t be contractual.

And if the arrangement needn’t be contractual, then it would seem to follow that the payment obligation needn’t be contractual either. Perhaps a moral or equitable obligation, arising from representations or a loose understanding, would suffice.

So, it would seem to make no difference to the licensing requirement whether the payroll provider is the employer or not.

The focus of the inquiry is always on identifying the presence of the labour hire supply arrangement/s. The involvement of multiple parties: typically, on-hire firms, payroll providers, and incorporated worker entities (IWEs) just makes the inquiry that little bit more difficult.

I’ll say something more about contracts with IWEs in a later post. That’s a whole other story!

Andrew C. Wood

A National Labour Hire Scheme … Really?

If anyone is talking to you about a national labour hire licensing scheme, just ask them what they would do with the four current state and territory schemes.

Perhaps the only justification for visiting the regulatory burden of a another licensing scheme on the Australian labour market would be that it might pave the way to dismantle the four existing schemes – at least in part. One set of regulatory burdens in place of four. Maybe that could be justified. But can you see anyone actually doing it?

And even if it could be achieved, what would stop the states and territories from retaining local schemes to licence labour hire supply to their own public sectors, which are substantial users of labour hire services – though some of them might not like to admit it.

Those with longer memories might recall the measures that were included in the intergovernmental Competition Principles Agreement to encourage the dismantling of anti-competitive state licensing schemes during the Hilmer reform era. Perhaps that’s a history that should be revisited.

Andrew C. Wood

Professional Applicant Screening: Always Check for Conditions

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A recent NCAT decision in the Health Care Complaints Commission’s proceedings against an Enrolled Nurse (2021/00171685) should serve as a reminder to staffing and recruitment professionals of the importance of conducting thorough inquiries into nurse registration conditions when screening job applicants.

Background

A candidate, who completed a qualification as an Enrolled Nurse in South Africa in 2004, was first registered in South Australia as an Enrolled Nurse in 2009. In 2016, she moved from South Australia to New South Wales, where her registration under the National Law was subjected to conditions imposed by the Nursing and Midwifery Council of NSW (“the NSW Council”).

The Conditions

In summary, the relevant conditions were:

  1. Administer medications only under direct supervision.
  2. Must be supervised by a Nurse Manager who has been informed of conditions.
  3. Must inform all current and future employers of conditions.
  4. Must only be employed in circumstances where the employer has agreed to notify the Council of any breach of conditions.

The Private Hospital Placements

The candidate obtained a position as an Enrolled Nurse at a private hospital, which provided sub-acute healthcare services, having previously worked there as a temp agency nurse. The evidence suggested that the private hospital was not aware of the conditions when it employed her; or, if it was aware, did not follow through.

The candidate gave evidence that she was approached by the private hospital manager to join the hospital because the manager saw her performance at work while she was working as an agency nurse. She never went through any interview, except to be asked to bring relevant documents which she did. She said that she never said anything about her registration because she was aware that companies were not employing nurses whose registration was subject to conditions.

Her employment was subsequently terminated after the hospital became aware of the conditions.

The Respite Facility Placement

The candidate thereafter applied, through a different recruitment agency, for a position as a Medically Enrolled Nurse with a facility, which offered short term accommodation and respite for people with an intellectual disability, high physical support and/or complex health needs.

The evidence indicated that she did not disclose the registration conditions to either the new recruitment agency or to the respite facility, neither of whom seem to have been aware of them.  

Having successfully obtained the position, she undertook various duties unsupervised, including performance of tracheostomy management.

The Tribunal Proceedings

In proceedings against her by the NSW Council for unsatisfactory professional conduct and professional misconduct arising from breach of conditions, the Tribunal held that her conduct constituted “a flagrant disregard for [her] obligations … and a serious risk to the public”.

The Tribunal ordered that the EN’s registration be cancelled, and that she not be permitted to apply for review of the cancellation for a period of two years.

Observations

The outcome, of course, was a very unhappy outcome for the EN.  

However, what is of equal concern is that the staffing and recruitment agencies, the private hospital, and the respite facility all seem to have been unaware of the conditions that attached to the EN’s registration. It would surely have been easy enough to have checked. They were fortunate, perhaps, to have escaped adverse comment.

The case highlights the importance of developing and monitoring rigorous and reliable controls to ensure that applicants and candidates are thoroughly screened – not only in terms of their having current vaccinations and work entitlements; but also in terms of ascertaining any limiting or disqualifying aspects that could adversely impact the candidate’s suitability. It also higlights the need to follow through if your inquiries do reveal the presence of conditions.

It is no longer satisfactory (if it ever was), in this writer’s opinion, for staffing and recruitment professionals to occupy an all-care-no-responsibility stance, when the care fails to identify what may prove to be “a flagrant disregard for [the candidate’s] obligations … and a serious risk to the public”.

But you can make your own mind up about that.

Andrew C. Wood

CFMMEU v Personnel Contracting Back in Court

Judges running to the bar by The British Library is licensed under CC-CC0 1.0

If you’ve been following the CFMMEU v Personnel Contracting saga, you may be interested to know that the case is back in the Federal Court, with the HCA Remittal Order having been filed on 30 March 2022.

What that means, is that the FCA will now have to decide if Personnel Contracting breached award terms and conditions when it engaged, supplied, and paid its labour hire worker as though he were an independent contractor, when in reality, he was its employee.

This story still has a way to go, and the shouting is not over yet.

Andrew C. Wood

Recruiter Privacy: Can You Tick The Boxes?

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The Office of the Australian Information Commissioner’s insights from its 2021-22 Assessment Program, recently published in Information Matters through its Privacy Professionals’ Network (29/04/2022), lists the following four steps that you should be taking.

  1. clearly document and regularly review your practices and procedures to ensure you outline the measures that are in place to manage privacy risks;
  2. implement regular and mandatory refresher privacy training for staff. This is an important part of entities’ privacy programs. Best practice is annual refresher training for all staff (including contractors and short-term staff);
  3. regularly review and test data breach response plans to ensure their plans are up to date and staff know what actions they are expected to take in the event of a data breach. It is also important that entities proactively monitor audit logs to help identify unauthorised access and disclosure of personal information;
  4. clearly document the operational relationship between your privacy and cyber security teams, as well as the roles and responsibilities of each business area. This will facilitate a coordinated response in the event of a suspected or actual cyber security incident or an eligible data breach.

How many can you tick off?

I especially like No #2. When did you last conduct refresher training for your staff? If you’ve not done it recently, you might like to register for the WorkAccord/ The Recruiters’ Casebook webinar on 3 May 2022, when we’ll be Talking Privacy and What Recruiters Need to Know.

Let’s talk!

Andrew C. Wood