Employer of Record v. True Employer: Distinguishing the High Court’s “Golden Trio” Cases

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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


[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].

Constructing the ratio of CFMMEU v Personnel Contracting

I opened a book today – one that I’ve not needed to look at since 1973.  In fact, I don’t think I could have looked at it too much, even back then. The pages were in pretty good condition…

The book is Maher, Waller & Derham (1971) Cases and Materials on the Legal Process (2 ed).  I opened it because I needed to refresh my memory (now fading) about the relationship between the binding rule of a case (its “ratio decidendi”) and its material facts. I wanted to do that because several aspects of the High Court’s recent decision in CFMMEU v Contracting Personnel were causing some panic in the labour hire industry, and I wanted to see if it was justified.

The aspects that were proving especially troublesome were those passages in the judgments that seemed to be suggesting that, as a matter of binding principle, the mere making of a promise to work through a labour hire firm might be enough to make a person that firm’s employee – if the promise were used by the labour hire firm in running its business, as of course it is. 

Such a principle, if indeed it were the correct principle to extract from the case, seemed to conflate the “control test” with the “integration” or “organizational test”, applying selected elements of the “multi-factorial test” (though only to the terms of the written contract – mostly), whilst viewing all through the “prism” of the “own business test”, or something not entirely unlike it.

Heaven help us if we’re teaching employment law this semester!

But there, on pages 113-114 of my cherished copy of Maher, Waller & Derham, purchased at the exorbitant price of $8.50, was what I was looking for – a lucid but barely remembered account of the relationship between the binding rule of a case and its facts, showing how the material facts of Donoghue v Stevenson (the famed “snail-in-the-ginger-beer-case”) could be divided into fact families, the members of which could be “stated at various levels of generality”.

Applying the method recommended by those esteemed authors, I was able to discern four families of important facts that might go some way towards explaining what the High Court really said, and which might allay some of the alarm currently circulating through the labour hire industry.   

I’ll set them out, and then see if I can combine them into a workable statement of principle.

  1. Facts as to the worker’s identity & capacity: The worker was an individual, not in his own business.
  2. Facts as to the contract: The contract with the labour hire firm was wholly in writing.
  3. Facts as to preservation of independence: the worker’s promise to perform work for the labour hire firm’s clients as directed was not subject to a sufficient reservation of independence – eg. as to what work he would do or how he would do it.
  4. Facts as to the labour hire firm’s control and use of the worker’s promise: The labour hire firm controlled and used the worker’s promise as an asset in its business.

It’s going to be difficult for labour hire firms to avoid #2 and #4.  But #1 and #3 might suggest there is some scope to fashion a different outcome in some cases.

So, here’s a first attempt to extract the principle in CFMMEU v Personnel Contracting:

Where A, being an individual not in business for themselves, makes a promise to B, in a wholly written contract without sufficient reservation of independence, to perform work for C, which promise B controls and uses in its business, then A may be characterized as B’s employee.

Don’t hold me to that. I’ll need time to refine it. In fact, it might not be settled until later courts tell us what the High Court really meant. But might it work?  Might it keep the doors of a few locum agencies and professional on-hire firms open a bit longer?

Here’s hoping a court that needs to consider the issue in a different occupational context might think so!

Andrew C. Wood

CFMMEU v Personnel Contracting: What did the High Court really say about the “own business” test?

This is the first of The Recruiters’ Casebook’s micro-analyses of the recent Australian High Court’s decision in CFMMEU v Personnel Contracting

The case is important to the recruitment and on-hire community because it challenges established workforce services business models, and because it may leave some suppliers of on-hire contractor services exposed to employment claims.

Context

The case concerned the status of a young UK backpacker, who was engaged and on-hired, as an independent contractor, to work as a labourer on a construction site. The Court, held that he was not an independent contractor, but was, instead, an employee.

Issue: The “Own Business Test”

The case is about how the court decides if a person is an employee, when the contract is wholly in writing. Different principles might possibly apply to a contract that is not wholly in writing.

At issue was a question about the extent to which a court should consider whether independent contractors must necessarily be in business on their own account.

Kiefel CJ, Keane & Edelman JJ said the own business requirement, though not essential, was still useful when checking whether the terms of the work contract preserved the worker’s legal right to perform the contracted work, independently in their own business.[39] They said that the legal relationship had to be determined from the terms of the contract, and that the absence of a contractual right to carry on business highlighted the subordinate or subservient nature of the relationship, [39] leading to a conclusion that the worker, in this case, was an employee. [73]

Gageler & Gleeson JJ thought that the “own business ” test really only posed the ultimate question of whether the worker was an employee in a different way.[114] They departed from current orthodoxy in holding that the court should go beyond the terms of the contract to consider the manner in which it was performed[143] and its interaction with performance of the labour hire agreement between the labour hire provider and its client. [144]

They said that it was legitimate for a court to consider the extent to which the worker can be seen to work in his or her own business as distinct from the business of the putative employer [113].

For that purpose, regard could be had to whether the work was performed under a labour hire arrangement involving back-to-back contracts between a labour hire provider and a host, [152] which they considered to be a strong indicator that the work was for the benefit of the labour hire business and that the worker, in this case, “was not in any meaningful sense in business for himself.”[158]

They used the “own business” test as a sort of intuitive cross-check against a conclusion, which they reached on an application of what was, in reality, a version of teh “control test” or “integration test”. [113]

Gordon J thought that the Court was “not assisted by seeing the question as involving a binary choice between employment and own business”. [162] She thought that it was “not necessary to ask whether the purported employee conducts their own business” [180] and that it “may not always be a suitable inquiry for modern working relationships, [181] because that inquiry will “ordinarily direct attention to matters which are not recorded in the contract”. [182]

The “better question to ask”, according to her Honour, is “whether, by construction of the terms of the contract, the person is contracted to work in the business or enterprise of the purported employer” [183]

Construing the terms of the work contract, Gordon J found that the worker had agreed to perform his work so as to enable the respondent to carry on its labour hire business, [198] in consequence of which he had agreed to work in its business or enterprise and was therefore its employee. [200]

Steward J agreed with Gordon J’s statement of the test to determine whether a person is an employee;[203]  but was not prepared to overrule the long line of authorities on which the legitimacy of the on-hire contractor services (Odco) model was based.

Fall Out    

The attention given by the judges to the interaction between the work contract and the labour hire contract seems problematic. In a later post, I’ll discuss whether it indicates that the control test and the integration test have merged, in a labour hire setting, into a new “subservience test”, the application of which will, in nearly every case, produce the result that the contracted worker is the employee of the labour hire firm.

In the meantime, it’s worth recalling the context in which the question of the worker’s status arose.

The union and the worker sought compensation from the on-hire firm for contraventions of the FW Act and modern award.  The union also sought compensation from the on-hire firm’s client on the basis that it was accessorily liable for the on-hire firm’s alleged breaches.

The appeal has not resolved the claims for compensation. Those claims will now go back to the primary judge to be determined on the basis that the worker was an employee. The claim against the host is likely to raise fresh questions about the circumstances in which a host can be liable as an accessory to an on-hire firm’s contraventions of the FWA and award. Those questions were not considered at first instance, or on appeal.

The shouting is not over yet.

Andrew C. Wood

On-hire contracting after CFMMEU v Personnel Contracting: Has labour become a commodity?

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The Conference reaffirms the fundamental principles on which the Organization is based and, in particular, that:

(a) labour is not a commodity;

ILO Declaration of Philadelphia 10th May, 1944

Whilst the outcome seems intuitively sound – a young UK backpacker, working as a casual labourer on someone’s building site, is surely an employee – on looking a bit more deeply into the High Court’s reasoning in CFMMEU v Personnel Contracting, I’m beginning to wonder whether the Court’s approach to the back-to-back contracts accords with the reality of the on-hire business model, and whether the decision shows signs of treating labour as a commodity. 

It’s always risky to paraphrase what the High Court says, but basically, what it appears to have said in this case is that, if you’ve got a contract with a labour hire firm to perform work for its clients, then you’re its employee because, through that contract, it controls the provision of your labour. (Kiefel CJ and Keane & Edelman JJ at para [89]).

Abstracting their honours’ reasoning at para [90], you discover that if your work is “dependent upon, and subservient to” someone else’s business through back-to-back contracts, then you must be that person’s employee – you’re working under a contract of service.

Gaegler and Gleeson JJ appear to have adopted much the same approach saying, at para [158]:

…by supplying his labour to Hanssen [the host], Mr McCourt was at the same time supplying his labour to Construct [the labour hire firm] for the purposes of Construct’s business.

You could almost see how that is intuitively sound in the case of a young UK backpacker supplied to work as a construction labourer.  But, to be sound in principle, it has to be capable of wider application. And it’s at that point that the approach adopted by the High Court warrants closer scrutiny.

To test it, take the key passage from the joint judgment of Kiefel CJ and Keane & Edelman JJ at para [89], and simply swap the names and context around to apply to a medical locum agency. Then ask yourselves whether the result is still intuitively sound.

Here it is in translation. The names of the agency and the client are, of course, fictitious:

89  Under the Locum Agreement, Dr McCourt promised LocumsNow to work as directed by LocumsNow and by LocumNow’s customer, Whiteacre Health Service District. Dr McCourt was entitled to be paid by LocumsNow in return for the work he performed pursuant to that promise. That promise to work for LocumsNow’s customer, and his entitlement to be paid for that work, were at the core of LocumsNow’s business of providing [medical] labour to its customers. The right to control the provision of Dr McCourt’s labour was an essential asset of that business. Dr McCourt’s performance of work for, and at the direction of, Whiteacre HSD was a direct result of the deployment by LocumsNow of this asset in the course of its ongoing relationship with its customer.

We can do the same thing with the corresponding passage from the judgment of Gaegler and Gleeson JJ at para [158]:

158 …by supplying his labour to Whiteacre HSD, Dr McCourt was at the same time supplying his labour to LocumsNow for the purposes of LocumsNow’s business.

This sounds dangerously like the heresy of treating labour as a commodity.

What patients were treated at the office of the labour hire firm? A locum agency doesn’t provide, supply, or perform medical labour or services. It arranges for its locums to attend hospitals and health practices to supply the medical services required by the hospital or health practice.  That does not make the locum’s work “dependent upon, and subservient to” the agency’s business in any way that compromises the independence of the locum such as to make them the agency’s employee. It does not place them in service of the locum agency.

Neither does a locum agency’s business model involve the acquisition of medical labour or services; it merely involves the acquisition of contractual rights, freely bargained for, which it utilises to discharge its contractual agreement to provide workforce services to facilitate the marshalling of its client’s workforce.

Its workforce services comprise, not the supply of medical services, or the performance of medical services; but rather, the making of arrangements for their supply.

What, I suspect, will now become critical in distinguishing between on-hire employment and on-hire (independent) contracting will be the extent to which those arrangements compromise, or preserve, the capacity for the locum to work independently in the performance of his or her work – including in the absence of needing to demonstrate the exercise of entrepreneurial skill on his or her own account.

The same would be true for any professional locum agency and its locums.

And it is true, at a conceptual level, for on-hire providers in any sector – horticulture, engineering, logistics, teaching, cleaning, aged care etc.  

What the decision seems to require is a reappraisal of the Court’s understanding of “control” as it was laid down in Zuijs (1955) and in Stevens v Brodribb (1986). And perhaps that’s the direction in which a legislative solution now needs to be found.

It’s sometimes said that, “hard cases make bad law”.  This case may prove the saying true.

Andrew C. Wood

Review your “Odco” arrangements…NOW!

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On Wednesday, the High Court of Australia delivered its decision in CFMMEU v Personnel Contracting, holding that a UK backpacker, who was engaged and supplied by Perth-based Labour Hire firm, Personnel Contracting, as an independent contractor under the “Odco” system was, in fact, an employee. As a result, you should review your “Odco” arrangements … now!

The majority decisions

Three of the seven High Court judges, Kiefel CJ, Keane and Edelman JJ, considered that the original Odco Case, and subsequent cases that relied on it, contained “an error”, which represented “a departure from principle which should not be perpetuated” (para 59).

Two of the judges, Gageler and Gleeson JJ, thought that the present case differed from Odco because:

  1. the subject-matter of the contracts in Odco was not unambiguously hourly labour;
  2. the contracts between the workers and the labour hire company in the Odco cases did not oblige the workers to supply labour in a “safe, competent and diligent manner” (as they did in this case), but simply to “carry out all work” which the workers agreed with the clients of the labour hire company to do and which the workers “guaranteed against faulty workmanship”; and
  3. most importantly, unlike the terms of business used by Personnel Contracting in this case, nothing in the terms of business between the labour hire firm in the Odco cases and Odco’s clients placed Odco’s workers under the direction and control of the clients.

That was enough to allow the two judges to say that Odco should not be followed in the present case (paras 157 – 158).

Gordon J did not expressly deal with the Odco Case but decided, after considering the “totality of the relationship” as evidenced by the work contract, that the relationship was one of employment, not one of independent contract (para 200). The issue was not so much whether the worker was “in business for himself”; but whether his work was performed in the business or enterprise of Personnel Contracting.

It’s a very subtle distinction to make; but an important one, because (as explained at paras. 182-183) it enables the Court to focus solely on the legal rights and obligations set out in the contract, avoiding any inquiry into “subsequent conduct” of the parties or into whether the worker’s set up demonstrates “the hallmarks of a business”. In this respect, it is consistent with the approach adopted by the High Court in WorkPac Pty Ltd v Rossato.

A sole dissenting voice

Steward J, delivering the only dissenting judgment, was not prepared to stray from Odco. Drawing on a 2005 Parliamentary Report, his Honour pointed out (at para. 210) that:

‘Odco’ arrangements operate in a range of industries. Independent contractors working under this system include farm hands, doctors, secretaries, personal assistants, family day‑care workers, fishermen, salespeople, cleaners, security guards and building workers.

Serious challenges now face labour hire firms using the “Odco” method

His Honour’s explanation for not departing from the Odco Cases will be seen by many as forecasting the serious challenges that labour hire firms, who have relied on the Odco system, now face. At para. 222 his Honour stated:

Whilst this is not a criminal law case, overturning the Full Court’s decision in Odco would expose the respondent to significant penalties on a retrospective basis. That is unfair. It will also… greatly damage the respondent’s business and the businesses of many others. That is undesirable. It will also potentially deny to workers a choice they may wish to make to supply their labour as independent contractors, thus possibly undermining one of the objects of the Independent Contractors Act. Given the severity of these potential consequences, which will apply retrospectively, the fate of the Full Court’s decision in Odco should be a matter left for the legislative branch of government to consider.

Fallout

His dire warnings, may have many scrambling to undo their Odco arrangements in the fallout, and to put in place “compliance partnerships” with the FWO … unless the legislative branch of the government intervenes.

Though I can’t see that happening quickly … can you?

Andrew C. Wood

Independent Contracting: Back in the Spotlight

Photo by tyler hendy on Pexels.com two spotlights.

Labour hire providers should note that there are currently two appeals before the High Court, which challenge accepted approaches to the characterisation of independent contractors. The outcomes could upset independent contracting arrangements that are overly dependent on the technicalities and “deep entrenchment” of the Odco system and may lead staffing agencies to a fresh need to review their use of independent contractors.

CFMMEU v Personnel Contracting[1]

Trial

A young UK backpacker, who “had no aspect of a business or intended business, no expressed desire to act in any capacity other than as a builder’s labourer, and merely sought remuneration for the deployment of his labour on a building site supervised, directed and controlled by the builder”[2] was characterised, at first instance,[3] as an independent contractor on an application of the multi-factor test and Odco principles.

Appeal

The Full Court of the Federal Court of Australia upheld the finding despite the absence of any business clearly having been carried on by the worker.[4] However, in doing so, the Chief Justice expressed a preference for a different outcome though feeling constrained by intermediate appellate decisions which had previously supported Odco contracting arrangements.[5]

Special Leave

The High Court granted special leave to appeal in February this year. The Appellant’s submissions were filed last Friday (16 April 2021).

At issue is a question of whether the multi-factor test was correctly applied in a labour-hire context. There is a related question about the need for workers to be carrying on their own independent businesses in order to be independent contractors.

ZG Operations Australia Pty Ltd v Jamsek & Ors[6]

Trial

The case concerned the various entitlements of truck drivers, who derived their sole income by working for same business for nearly 40 years – and the corresponding obligations of the company for which they worked. It’s not a labour hire case, but it raises similar characterisation questions about the role of the business test in determining whether workers are employees or independent contractors.

The drivers were required to purchase a truck to retain work and contracted with the company through their family partnerships, which owned the trucks.  The drivers were required to be available to work during set hours. The company logo was displayed on drivers’ trucks and company branding appeared on the drivers’ clothing. Although the drivers theoretically may have had the ability of sell their goodwill, they had no practical capacity to generate any goodwill of their own.

On an application of the multi-factor test the drivers were held to be independent contractors.[7] A deciding factor was that the workers were held to be running businesses of their own.[8]

Appeal

The Full Federal Court reversed the decision on appeal.[9]  Wigney J’s judgment highlights the problems facing those who rely too much on cleverly crafted documents and overly sophisticated or artificial arrangements.

To my mind, the primary judge concluded as he did by giving primacy and excessive weight to contractual labels and theoretical possibilities and insufficient weight to the reality and totality of the working relationship between the parties, as demonstrated by the way they actually conducted themselves over many years.”[10]

Although the drivers’ arrangements displayed some of the trappings of carrying on their own businesses, that was not sufficient to displace the reality, observed after consideration of the whole work relationship, that they were employees.[11]

Special Leave

The case is to be heard together with CFMMEU v Personnel Contracting. The Appellant’s submissions were filed last Friday (16 April 2021). At issue are questions about whether the drivers were “employees” for purposes of Fair Work Act 2009 (Cth), Superannuation Guarantee (Administration) Act 1992 (Cth) and “workers” for purpose of Long Service Leave Act 1955 (NSW).

What next?

Respondents’ submissions in both cases are due to be filed in May, and any replies in early June. After that, the matters will be listed for hearing.

In light of these developments, it might be prudent for staffing agencies to review their independent contracting arrangements, and make contingency plans for managing any that could unravel should the High Court hand down a decision that indicates that they may no longer be sustainable.

Andrew C. Wood


[1] Construction, Forestry, Maritime and Energy Union & Anor v Personnel Contracting Pty Ltd [2021] HCATrans 30 (12 February 2021).

[2] As described by Alsopp CJ on appeal. see fn.5 below.

[3] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2019] FCA 1806 at paras [171] to [181].

[4] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] FCAFC 122

[5] At para [31].

[6] ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors [2021] HCATrans 27 (12 February 2021).

[7] Whitby v ZG Operations Australia Pty Ltd [2018] FCA 1934.

[8] At para [213].

[9] Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119.

[10] At para [19].

[11] At para [248].

“Employer-of-Record” vs “True Employer”

The recent NSW Supreme Court decision in Branded Media Holdings[1] holds some important lessons for recruiters and others who are considering the use of outsourced employer-of-record (EoR) services – especially if they imagine that using EoR services will protect them, in all cases, from liability as the “true employer”.  That’s because statutory and common law liabilities generally rest with the true employer, irrespective of where formal documents might be trying to direct them

In Branded Media, liquidators and deed administrators of two related companies sought directions from the court as to the identity of the employer of specified employees within the Branded Media Group.

The companies were Branded Media Holdings Pty Ltd (in liq) (Holdings) and Brand New Media Pty Ltd (subject to a deed of arrangement) (BNM). The liquidators and deed administrators’ position was that Holdings was the employer.

The Commonwealth intervened to contend that BNM was the employer. The Commonwealth had advanced more than $1 million in respect of the employees’ unpaid entitlements under the Fair Entitlements Guarantee Act 2012  and stood to recover a substantially higher amount if BNM was held to be the true employer.

The contest was clouded by uncertainty because, whilst the formal documents recorded Holdings as the employer, day-to-day management of the work relationship was conducted by BNM.

The court held that the true employer was BNM. Some telling factors included:

  • Holdings did not conduct any business by which it generated income;
  • Holdings was not the recipient of the services of the employees;
  • the employees provided their services to BNM;
  • Holdings was wholly dependent upon BNM to meet its financial obligations;
  • Holdings did not operate any bank accounts;
  • Holdings did not in fact pay the employees;
  • BNM in fact paid the salaries and wages of the employees;
  • BNM had its logo on some employment forms;
  • business cards used by the employees bore the logo of BNM;
  • the sign-off section of emails sent by the employees referenced BNM;
  • the website referencing the Employees referenced BNM.

You might already be getting a sense of how some of those factors might play out in a case where a staffing agency supplies workers to one of its clients, managing their shifts, providing them with agency uniforms, and binding them to agency policies; but arranging for those workers to be employed “on-the-record” by an outsourced payroll company.  

The Branded Media case is important because the Court clarified the principles that are used to determine which of the two companies was the actual employer. In doing so, it made clear that:

The Court must look to the “substance and reality” in identifying the true employer in these circumstances and would look beyond contractual documentation and to the reality of the manner in which the parties conducted themselves in order to do so.[1]

[The Court may also] have regard to whether the suggested arrangement had an “intelligible business objective” which is “consistent with the financial and administrative organisation of the business”.[2]

The case is also helpful to the extent to which it clarifies that employment-of-record is not a distinct category of employment, but nothing more than an expression to describe an arrangement by which certain of the true employer’s statutory or contractual responsibilities are performed by someone else.

Such an arrangement will not necessarily relieve the true employer of those responsibilities if the EoR fails in performance. And some liabilities, such as the employer’s vicarious liability at common law, may continue to rest with the true employer to the extent to which they derive from the true employer’s notional control of its employees.

The need to identify the true employer will also arise in the context of labour hire licensing prosecutions to the extent to which it may be necessary to determine whether workers of an unlicensed provider who has sought to outsource the obligation to pay its workers to an EoR payroll company may be left with the residue of the statutory obligation to pay sufficient to necessitate the holding of a licence -despite having passed to the EoR a contractual obligation to pay the workers.

Andrew C. Wood


[1] In the matter of Branded Media Holdings Pty Limited (in liquidation); In the matter of Brand New Media Pty Limited (subject to a Deed of Company Arrangement) [2020] NSWSC 557 at [14] adopting Counsel’s submission to that effect.

[2] At [26], developing a further dimension to the test which may be effective to challenge sham arrangements directed at avoidance.

“Tuesday TalkAbout” Summer 2020 Program to Address Recruitment & Staffing Sector “Waypoints”

Tuesday TalkAbout takes a new direction for its Summer 2020 Program of free, short webinars, as we discuss some larger themes at work in the recruitment and staffing sector.

Now, I certainly don’t claim to be a seer or a futurist. I observe and interpret. So, I’m not going to attempt to predict the course of the decade or anything like that.

Instead, I’ll describe the “waypoints”, which I think the recruitment & staffing sector in Australia and New Zealand has reached in eight key areas. ‘

A “waypoint” can be understood as a place on a route or pathway, a stopping point, or a point at which one’s course can be changed.

What the future holds from that point forward largely flows from the decisions and commitments which recruitment & staffing professionals make for their own organisations and professional lives – either intentionally or by default.

The observations and insights that I hope to share reflect experience gained over four decades in legal and workforce consulting practice and in recent work done with RCSA, designing its new Code for Professional Conduct, its grievance intervention guidelines & protocols, its StaffSure certification program, and many of its key resources and templates.

The eight key areas we’ll be discussing are:

1. Professional Conduct (21st January)

RCSA’s new Code for Professional Conduct has been authorised by the ACCC to commence on 8 August 2020. How is it different from previous codes or other industry codes? Why is it different? What statement does it make about emerging professionalism? How might recruitment & staffing professionals respond to it? How is it enforced and administered?

This webinar has now been archived. Please contact me if you would like a link.

2. Quality Management (28th January)

What does “quality” mean in the context of the work undertaken by recruitment & staffing professionals as labour market enablers and intermediaries. Does the ISO 9001 definition of “quality” say it all? How well does the “customer focus” requirement stand up to the professional conduct responsibilities of recruitment & staffing professionals? Is quality perceived as outcome or experience? Is it even an either/or question?

This webinar has now been archived. Please contact me if you would like a link.

3. Risk Management (4th February)

We know (at least I hope we do) that risk is defined for the purposes of risk management and quality management standards as the “effect of uncertainty on objectives”. But how might risk be categorised to be more manageable for recruitment & staffing professionals? What sorts of risk do recruitment & staffing professionals face in 2020? At what points does risk intersect with professionalism and quality? How can risk be managed to minimise its effects on professional and quality objectives?

This webinar has now been archived. Please contact me if you would like a link.

4. Collaboration (11th February)

What is “collaboration”, really? Why is it important for recruitment & staffing professionals in 2020? Is collaboration possible with customers and clients? Candidates? Competitors? Consultants? If so, how is achieved? How is it managed and maintained?

This webinar has now been archived. Please contact me if you would like a link.

5. Doing Business (18th February)

Something is wrong if you’re not upgrading your terms of business at least as frequently as your mobile phone! Wonder why you’re getting pushback from clients who won’t pay you that “introduction fee”, or who won’t sign up to your “all-care-no-responsibility” conditions? Terms of business modelled on 1980s recruitment & staffing practices and 1980s legal culture are no longer viable. In this session, we explain why and talk about what you can do about that.

This webinar has now been archived. Please contact me if you would like a link.

6. Conflict & Dispute Resolution (25th February)

Even for those who might be energised by conflict, there comes a point when stocks of energy and finances to meet the crushing cost of feeding conflict, run low. What is your conflict/ dispute profile? Do you still handle business disputes like it’s the 1980s and you’re a bank? Or have you found a better way? What are your options in 2020? What distinguishes the way you handle conflict and disputes as “professional”?

View the recorded Conflict & Dispute Resolution “Waypoint” webinar here

7. Employment Shaping (3rd March)

What is the difference between legitimate employment shaping and sham contracting or avoidance? How much flexibility is there to shape an employment relationship to suit labour market conditions in 2020? What are the limits? How do you know if you are approaching or transgressing them? Are there any “golden rules”. If so, what are they and how do you apply them?

View the recorded Employment Shaping “Waypoint” webinar here

8. Independent contractor on-hire (10th March)

What are the main challenges to independent contractor on-hire in 2020? Is the business integration test still reliable? What investigations should a recruitment & staffing professional undertake to ensure that independent contractor engagement and on-hire models are compliant with a wide range of regulatory requirements and are not exploitative?

Register for the Independent Contractor On-Hire “Waypoint” webinar here

I do hope you’ll join me when WorkAccord’s Tuesday TalkAbout Summer Program returns at 8:30 am AEDT on Tuesday 21 January 2020 and I’d love to learn of any questions you might have in advance.

 

Andrew C. Wood

Let’s Shed Light on Recruitment Fees!

 

Slide1Temp-to-Perm Fees, Agency-Switching Fees, Introduction Fees and Release Fees.

I hope you’ll join me when we shed light on the topic of Recruitment Fees in two separate webinars planned for Thursday 22nd November and Thursday 29th November at 10:30 am AEDT.

In our first webinar, you’ll learn how to make binding and enforceable recruitment fee agreements.

In our second webinar, you’ll learn how to manage fee recruitment disputes ethically and professionally.

You can find out more about the webinars in my Recruiters’ Casebook blog here.

 

Andrew C. Wood, Hon FRCSA (Life)

Two Webinars about Recruitment Fees

I’m looking forward to presenting two webinars on recruitment fee topics later this month. I’m looking forward to it because it’s a topic that I’m constantly asked about and one that needs to be mastered in the interests of promoting and maintaining professional standards in the recruitment and staffing industry.

Slide1Webinar #1: Make Binding & Effective Agreements (22nd Nov. 2019 )

In the first session, we will discuss how to make binding and effective recruitment fee agreements that will reduce the cost of disputes and help get your fees paid.

You’ll learn about:

  • basics of contract
  • the battle of forms – Does the client’s purchase order trump your standard terms?
  • traps when using standard form terms of business
  • State and Territory employment agent regulation
  • what happens if your terms of business are not signed?
  • terms of business that need special treatment.

 

RF2Webinar #2: Handle Disputes Ethically & Professionally (29th Nov. 2019)

In the second session, you will learn how to handle recruitment fee disputes professionally and ethically to preserve goodwill, reputation, and to improve payment outcomes.

You’ll learn about:

  • common causes of recruitment fee disputes
  • common defences to recruitment fee claims
  • traps to avoid when involved in disputes
  • RCSA Code of Conduct and Grievance Intervention Guidelines
  • pathways to resolution
  • the benefit of early intervention.

 

I hope you’ll join me. And if you have questions about the topic, please feel free to send them to me ahead of the event.

 

Andrew C. Wood, Hon FRCSA (Life)