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.

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

When your “contractors” turn out to be your employees (#10) …

  • Is it possible to free or emancipate contractors from the type of control that the Court now regards as indicative of employment in a labour hire context? What sort of control is that, anyway?
  • What would emancipation involve? How would you present it in a contract – given that the court will focus on the terms of the contract to determine the nature of the legal relationship.   
  • Could an on-hire engagement and supply model that doesn’t promise “compliant” or “controlled” labour really work? Is it marketable? Are the on-demand platforms already doing something similar?
  • Why would anyone NOT want to be an employee?  Is it possible to point to any intelligible business purpose that could underpin an emancipated labour contracting model?

Join the Conversation

I hope you’ll start to ask some questions of your own and either bring them along to WorkAccord’s Tuesday TalkAbout on 29 March 2022, or engage in the extended discussion via the Labour Hire Licensing & Regulation (Aust. & N.Z.) LinkedIn Group? We’d love to hear from you.

Let’s talk!

“Odco” Contracting: Where to from here?

You’ve probably heard enough about the Personnel Contracting Case and the supposed demise of “Odco” contracting by now …

… to be asking some questions of your own. At least you should have, if you’ve been running or working in an on-hire contractor services model and are now seeking to disentangle yourself from it.

Some of the questions you might be asking could be:

  • Must you reclassify your workers? If so, how?
  • What are your best guides now that the multi-factor test has been restricted to what’s in the contract, and the courts won’t give much weight to how you’ve described your relationship?
  • What might a contract include to preserve the independence of the contractor?
  • What penalties might employers now be facing?  After all, the Personnel Contracting Case involved an application for penalties for breach of the Award and the High Court has sent it back to the trial judge to be decided on the basis that the worker was an employee after all?
  • What about claims for past entitlements, like leave? Will there be double dipping? Are the “off set” provisions in your contracts any good?
  • If you’re left to pick up the bill, can you pass on additional costs to your client?
  • What happens to your client contracts, if you’ve agreed to supply on-hire contractor services but your workers are not contractors?
  • What are the FWO and Labour Hire Licencing regulators doing about this?
  • Should you be stepping away from supplying on-hire contracting services altogether? What other engagement and supply models are viable?
  • Could an on-hire engagement and supply model that didn’t promise “compliant” or “controlled” labour really work?
  • What does “compliant” or “control” really mean now anyway?
  • What about your staff consultants who may be engaged as independent contractors?
  • What happens to other provisions in your contracts – like your restraint of trade provisions – if your workers were engaged on the basis that they were independent contractors but now turn out to be your employees? Are those provisions still any good?
  • What happens if the contractor is working through their own company?
  • What about your contractors whom you’ve put out to be engaged by a payroll provider?
  • Where is the line drawn between sham contracting and simply getting it wrong?
  • What happens if your contract is NOT wholly in writing? Or if what is written is pretty light on?

Why not bring your questions along to WorkAccord’s Tuesday TalkAbout on 29 March 2022, and engage in the extended discussion via the Labour Hire Licensing & Regulation (Aust. & N.Z.) LinkedIn Group?

You can register for the session via the Eventbrite portal here.

We’d love to hear from you.

Let’s talk!

Andrew C. Wood

Tuesday TalkAbout is Returning

Hooray! The veil has been lifted on the keenly anticipated autumn collection of Tuesday TalkAbout, which features four webinars on essential topics for recruitment and staffing professionals.

New Inclusions for Extended Discussion

We’ve updated the engagement design to include an extended Q&A session, when you can ask the questions that you’ve been wanting to ask and we’ll see if we can put you on the right path to getting the information you need.

We’ll also be providing prep materials to registrants on the Friday before the webinar so that you can join in, already having a basic understanding of the topic we’re discussing and so that you can formulate questions specifically tailored to your interests.

You can even join in discussion, before or after the webinar, via one of our two moderated LinkedIn forums so that you can follow through on questions that are of particular interest to you.

Finally, for webinar attendees, we’re including a post-webinar 15 minute complimentary phone chat, when you can raise those “quick questions” that you weren’t able to raise in the public session. Appointments do need to be made via the WorkAccord website, and the booking “window” will be open only in the week of the webinar (Mon to Fri) whilst appointments are available.

Autumn Collection:

Independent Contracting On-Hire: Where to from here? (29 March 2022)

The Australian High Court’s recent decisions in CFMMEU v Personnel Contracting and ZG Operations Australia Pty Ltd v Jamsek have certainly NOT made life easier for on-hire agencies who, overnight, may have discovered that workers whom they thought were their contractors are, in fact, their employees.

So, what can you do about that? You plan your service model restructure – that’s what you do. But there are plenty of questions to be answered as you set about doing that.

You can find out more about the webinar and register via the Eventbrite portal here.

Labour Hire Licensing Five Years On: What we know and still need to know. (26 April 2022)

Since 2017, we’ve been learning to live with four separate licensing schemes. What have we learnt and what do we still need to know?

Join us as we examine the performance of the four state and territory schemes and examine some of their more difficult aspects – taking a closer look at difference at the difference between labour providers who need a licence and mere “intermediaries” who don’t.

We’ll talk about:

  • the Victorian extensions
  • the worker exemptions
  • the data on licence conditions, refusals and cancellations
  • the prosecution cases so far – who is getting prosecuted and why
  • the challenges of regulatory over-reach in a federal system

We’ll talk about avoidance; how you might detect it; and what you need to do about it.

You can find out more about the webinar and register via the Eventbrite portal here.

Talking Privacy: What recruiters need to know (3 May 2022)

It’s Privacy Awareness Week. So what better time to schedule a privacy refresher for recruiters, whose day-to-day work involves the handling of large amounts of personal information ?

In this session we’ll be looking at the different privacy frameworks that apply to recruitment operations – especially those using cloud-based technologies, artificial intelligence, and offshore processing or sourcing.

We’ll talk about:

  • what is really “necessary” and how necessity operates to limit the type of information you can collect, use or disclose
  • ID scanning
  • data breach notification
  • what case determinations are telling us
  • responsibilities as a contracted service provider to government agencies
  • privacy impact assessments – when and why you need to conduct them

You can find out more about the webinar and register via the Eventbrite portal here.

Care & Support Sector Workforce & Governance Reform: What it means for recruitment & staffing agencies (31 May 2022)

The Care & Support Sector (Aged Care, NDIS & Veterans Support) is undergoing significant workforce and governance reform. What is going on and what does it mean for recruitment & staffing agencies? Will it be business as usual, or will the changes affect the way you need to operate?

In this webinar, we’ll be reporting on the state of the reforms and examining the role of recruitment & staffing agencies as “facilitators of care”.

We’ll ask whether there still scope for “all care, no responsibility” service models, and start to explore the changes you may need to be making to your agency’s operations and networks.

You can find out more about the webinar and register via the Eventbrite portal here.

A Free Spirit’s Guide to Saying “No” to Employment; and “Yes” to Independent Contracting

Do the common law tests used to distinguish employment from independent contracting, override my decision to work for someone but not be their employee; to work for them, but not have them as my master?

We all know that there’s no longer any point in trying to define work relationships in our contracts.  We can set out our respective rights and obligations; but only a court can say what the legal effect of that will be.[i]  Everything else is just opinion. And, whilst some opinions are better than others, a court won’t give much weight to the label we have ascribed to our relationship – at least, not in Australia.

Is it a matter of consent rather than “labelling”?

Let’s accept, for argument’s sake, that the contract, which the court is going to interpret in order to define our work relationship, can never be any better than the consent that underpins it.  So, what if, instead of “labelling” our relationship as one of “independent contract”, we were to insert a clause that made it clear that we did not consent to be an employee?

We’re talking, here, about a genuine refusal of consent to accepting the status of an employee. There’s no room for sham contracting or equivocation in this.

But, assuming that the withholding of consent is genuine, could a court, limiting its consideration of the relationship to an examination of the express terms of the contract (as it now says it must do), ignore an express withholding of consent, coupled with an interpretation provision along the lines of:

“Parties acknowledge and accept that the contractor does not consent to be an employee or to enter into any relationship of employment and reserves full capacity to perform the work required by this contract as an independent contractor (the contractor’s reservation).

The parties agree that any provision of this contract that contradicts the contractor’s reservation must be read down or severed to the extent necessary to uphold the contractor’s reservation.”

[Experimental drafting for discussion purposes only]

A bit dramatic, perhaps. But would it work? Might it tip a court’s interpretation of an obligation to “co-operate”, say, from one of “control” (importing employment)[ii] in favour of one that recognises that “the parties intended to reserve to [the worker] a degree of independence and wished to avoid a relationship of subservience”.[iii] 

But who wouldn’t want to be an employee?

Why might a person not consent to be an employee? Here are some reasons that reflect the unattractive status of employment under current Australian employment laws:

  • I might not wish to be bound to my employer by a wide-ranging legal duty of fidelity and loyalty…
  • especially as I might not wish to work under a legal relationship in respect of which the common law does not recognize an implied duty of mutual trust and confidence…[iv]
  • … and is equivocal about whether my employer owes me any duty of good faith.

How are we doing so far? We might consider that we’d do better relying on a duty of good faith to the extent to which it has received some recognition in Australian commercial law. But let’s keep going…

  • I might not wish to subject myself to an employer’s vaccination and other health mandates that are based on its power to command and my duty to obey what a court considers to be the employer’s reasonable and lawful directions. [Please note: I am not advocating an anti-vax position. Do I need to say that?]
  • I might not wish the privacy of my personal information to be denied under the so-called “employee record exemption” in the Privacy Act.[v]
  • I might not wish to be subjected to an employer’s power of control over my conduct outside the workplace.
  • I might not agree with my employer’s position on matters of sustainability, politics, human rights, gender etc.
  • I might have a philosophical, ideological or religious objection to being the employee of my boss.

And now, some more positive reasons…

  • I might wish to maintain a greater measure of control over what work I do and how I do it.
  • I might wish to maintain a measure of control over where I work (eg. from home) and when I do it.
  • I might wish to preserve my intellectual property and not have it automatically vest in my employer.
  • I might wish to have the assurance of small business standard form contract fairness protections in the Australian Consumer Law.
  • I might wish to have the Independent Contractors Act assurance of protection against harsh and unfair terms.
  • I might wish to collectively negotiate terms for the supply of my services under small business class exemption protections of the Competition & Consumer Act.
  • I might want a labour hire agency to help find work for me with its clients, without being subservient to it merely because it has agreed to help me.[vi]

You might be able to think of some more. But perhaps there’s enough there to at least fairly ask the question.

It’s a shame, really…

It’s a shame that one would need to go to these lengths and raise these objections to avoid becoming an employee against one’s wishes.

In his dissenting judgment, Steward J in Personnel Contracting pointed out:

In 2005, the House of Representatives Standing Committee on Employment, Workplace Relations and Workforce Participation published the result of its inquiry into “independent contracting and labour hire arrangements”. The Standing Committee noted that the growth in “independent contracting and labour hire employment” had “clearly” indicated that it had “become a preferred employment choice for many Australians”. It also observed that “over 10 per cent of the workforce” at that time identified themselves as being “independent contractors across a wide variety of industries”.[vii]

That percentage has likely increased significantly by 2022 with the growth of the gig economy.

His Honour went on to trace the history of the development of the Independent Contractors Act 2006 (C’th), observing:

Section 3 of the Independent Contractors Act states that the objects of the Act include protecting “the freedom of independent contractors to enter into services contracts”; the recognition of “independent contracting as a legitimate form of work arrangement that is primarily commercial”; and the prevention of “interference with the terms of genuine independent contracting arrangements.”[viii]

Steward J, critical of the overturning of precedent which recognised the worker’s choice of status of an independent contractor, concluded that it will:

…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.[ix]

In his Honour’s view, it was properly a matter for the legislative branch of government to consider. [x] And perhaps it is.

If nothing else, the government will at least have to deal with the spate of “double dipping” and award breach claims that will inevitably surface, now that a model for engaging workers that has stood for 30 years has been overturned.

Andrew C. Wood


[i] CFMMEU v Contracting Personnel [2022] HCA 1 per Kiefel CJ and Keane & Edelman JJ at paras [58] and [63]; Gageler & Gleeson JJ at para [127].

[ii] Interpreted in CFMMEU v Contracting Personnel to indicate employment by a combination of control and integration tests. See: Kiefel CJ, Keane & Edelman LL at paras [71] and [75]; Gordon J at paras [195], [196], [200] and [201].

[iii] Per Steward J (dissenting) in Contracting Personnel at para [204].

[iv] Commonwealth Bank of Australia v Barker [2014] 253 CLR 169.

[v] Privacy Act 1988 (C’th) section 7B(3).

[vi] See discussion of the evolving “labour hire subservience test” in related posts: Wood AC (2022) CFMMEU v Personnel Contracting: What did the High Court really say about the “own business” test; and Wood AC (2022) Constructing the ratio of CFMMEU v Personnel Contracting.  

[vii] Personnel Contracting at para [210].

[viii] At para [212].

[ix] At para [222].

[x] At para [222].

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