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

“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

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

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

Photo by Andrea Piacquadio on Pexels.com

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!

Photo by Pixabay on Pexels.com

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

A Duck Is Still a Duck

Photo by Samuel Sweet on Pexels.com

Yesterday, the High Court handed down its decision in the long-awaited case of CFMMEU v Personnel Contracting. It was a win for the Union. The worker turned out to be an employee, and not an Odco contractor. Over the next few days, the judgment will be pulled apart and more detailed lessons taken from it.  But, for now, here is a quick summary.

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” was characterised, at first instance, as an independent contractor on an application of the multi-factor test and Odco principles.

First 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. 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.

High Court – A duck is still duck, call it what you will

The High Court allowed the appeal and held that the worker was an employee.

The essence of the High Court’s decision appears at paras [89] and [90] of the joint judgment of Kiefel CJ, Keane and Edelman JJ.

“[89] … Mr McCourt promised Construct to work as directed by Construct and by Construct’s customer, Hanssen. Mr McCourt was entitled to be paid by Construct in return for the work he performed pursuant to that promise. That promise to work for Construct’s customer, and his entitlement to be paid for that work, were at the core of Construct’s business of providing labour to its customers. The right to control the provision of Mr McCourt’s labour was an essential asset of that business. Mr McCourt’s performance of work for, and at the direction of, Hanssen was a direct result of the deployment by Construct of this asset in the course of its ongoing relationship with its customer.

90 In these circumstances, it is impossible to conclude other than that Mr McCourt’s work was dependent upon, and subservient to, Construct’s business. That being so, Mr McCourt’s relationship with Construct is rightly characterised as a contract of service rather than a contract for services. Mr McCourt was Construct’s employee.”

ZG Operations Australia Pty Ltd v Jamsek & Ors

The Court also delivered judgment in  the companion case of ZG Operations Australia Pty Ltd v Jamsek & Ors.

The case concerned the various entitlements of truck drivers, who derived their sole income by working for the 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 raised similar characterisation questions about the role of the business test in determining whether workers are employees or independent contractors.

The workers were held to be contractors but some aspects of the case have been remitted to the Full Court of the Federal Court for Further determination.

We’ll also pull this case apart over the next few days and see what lessons can be taken from it for the recruitment & staffing industry.

Andrew C. Wood

Vic Labour Hire Authority’s Guide to Engaging Workers as Independent Contractors: Wise men and women following a wandering star?

I was disappointed to read the Victorian Labour Hire Authority’s newly published Guide to Engaging Workers as Independent Contractors.

You can read a copy of the Guide here. But I’m not sure I’d bother.

Remote road with sign post directing traveller into a clump of cactus.

The Guide, though referencing the FWO’s and ATO’s more extensive material, selectively lists only six of the ten key characterisation factors identified by the FWO as necessary to distinguish employment from independent contracting. Significantly, the Guide makes no mention whatsoever of the importance of the intention of the parties.

It fails to mention the fact that the very tests that it does indicate, together with the multi-factorial approach, are presently the subject of two appeals which have been heard by the High Court and are awaiting judgment.

It fails to mention that the Full Bench of the FWC, cognisant of those two appeals and of the approach adopted by the High Court in Rossato, considered that the traditional approach to characterising independent contracting relationships is now clouded by such uncertainty that it put the important case of Deliveroo Australia Pty Ltd v Diego Franco on hold until the High Court decisions are handed down.

It’s worth noting what the Full Bench had to say about that:

[5] We have decided that the appropriate course is to defer the determination of this appeal until the High Court has heard and determined the appeals in Jamsek and Personnel Contracting. This appeal is a matter of some importance, given that it is likely to have significance for the whole of Deliveroo’s workforce and perhaps also for the “gig” sector of the economy more broadly. We agree with Deliveroo that the decision in Rossato (particularly at [101]) has, intentionally or otherwise, called into question what principles are to be applied in determining whether a relationship is one of employment or independent contracting and the status of Hollis v Vabu in that respect. In all likelihood, the High Court’s decisions in Jamsek and Personnel Contracting will provide authoritative guidance as to these issues.

Nevertheless, the Victorian Labour Hire Authority, confident of the authority of its own view, presses ahead with what it claims is a guide to ensure that, when engaging workers as independent contractors, you:

  • comply with your legal obligations
  • do not engage in sham contracting
  • keep your labour hire licence.

You can make your own mind up about how much guidance it provides… and in what direction it is steering you.

The best that can be said about it is that it errs on the side of caution. 

But it errs, nonetheless.

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].