In our TuesdayTalkAbout Live! masterclass this week, we looked at some experimental drafting of a clause, which might be adopted by recruitment & staffing agencies who were looking to stand out from the pack in terms of demonstrating that, for them at least, respect for Fair Trading & Consumer Protection matters.
Here’s the draft we discussed:
“The Agency warrants that its internal staff, whohandle recruitment briefs for the Client orrepresent Workseekers, have satisfactorily completed relevant Consumer Protection and Fair Trading compliance training in the last two years.”
Experimental drafting 20/03/2023. Not to be used without legal advice.
Would you be willing to have a clause like that in your terms of business? How would you respond to a client, who asked for its inclusion? What would a refusal convey to your client (or to your candidates or contractors)?
What challenges would compliance with such a clause present for recruitment & staffing agencies?
Let’s talk it through…
The draft clause assumes that agency staff, who carry out recruitment tasks, need to know something about fair trading & consumer protection. There’s nothing novel about that. So much is expressly stated in the Qld regulatory scheme for private employment agents, where it first appeared in 2003.[i]
It also assumes that workseekers, as well as clients, have the benefit of fair trading & consumer protections. Again, there’s nothing novel about that. Agencies claim to “represent” their workseekers. They supply their representation services. That can be a consumer supply, even though the workseekers don’t pay.
Consistently with most industry association codes for professional conduct, the clause recognizes that respect for fair trading begins with gaining some knowledge about it, and that it is an agency responsibility to do something about it.
In the experimental draft, I described the training as “compliance” training. I’m not sure that would be my preferred description. I think I’d prefer to use a term such as, “professional development” training. That would convey more to me about the significance of this training (and of its absence) in shaping professional identity and competence.
What do you think?
Let’s talk…
Andrew C. Wood
[i] See, currently, Private Employment Agents (Code of Conduct) Regulation, 2015 (Qld).
It’s about time we had a serious conversation about some of the nonsense that’s been creeping in to so-called “payroll services” supply contracts.
Consider this common contractual formula:
Labour Hire Firm has sourced Individual to work as an on-hired physiotherapist for its Client.
Individual means Jo Physio.
Client means the Department of Health.
Payroll Provider must employ Jo Physio.
Payroll Provider must provide Services of Jo Physio to Client.
Services means physiotherapy services.
What do you make of it?
Has the Payroll Provider contracted a primary obligation to supply physiotherapy services to the Department of Health? If so, what authority did Labour Hire Provider have to make the bargain? Is it an obligation owed only to Labour Hire Provider, which Labour Hire Provider holds on some sort of trust for the Department?
Has Payroll Provider accepted a sub-contracted obligation from Labour Hire Firm to supply physiotherapy services to the Department of Health? What if Labour Hire Firm never had a contractual obligation to supply physiotherapy services to the department in the first place; but merely an obligation to supply a physiotherapy worker? Was there ever an obligation to supply physiotherapy services that could have been sub-contracted? Does the contract not mean what it appears to say?
What contracts and arrangements would you need to see if you were asked to untangle this mess – say, in order to identify the “true employer“; or to identify whether Jo Physio is an employee or an independent contractor; or to establish who needs a labour hire licence, or an employment agent’s licence; or to untangle indemnity and liability insurance obligations.
Sadly, I see a lot of “half-smart” contracts that create more problems than they solve because they ignore the basics and seem to be thrown together without too much in the way of legal analysis.
That’s why we need to get talking. And that’s what we’re going to do over the next three weeks as we dedicate a series of Tuesday TalkAbout Live sessions to this topic.
Check the details and make sure you don’t miss out.
Photo by Pixabay on Pexels.comJames 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.
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.
the on-hire firm that appoints the payroll provider;
the payroll provider itself;
the Worker Entity; and
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 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.
Facts as to the worker’s identity & capacity: The worker was an individual, not in his own business.
Facts as to the contract: The contract with the labour hire firm was wholly in writing.
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.
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!
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.
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:
the subject-matter of the contracts in Odco was not unambiguously hourly labour;
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
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?
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.
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.
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
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.
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.
Temp-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.
Temp-to-Perm Fees, Agency-Switching Fees, Introduction Fees and Release Fees.
Recruiters' Casebook 