In this short video, I introduce some changes to the Tuesday TalkAbout Live! format which have been designed to enhance professional learning & development outcomes for staffing & recruitment professionals. I’m currently using the new format with our February topic, Professional Contracting … One Year On (from the HCA decision in CFMMEU v Personnel Contracting).
Contracting
Professional Contracting: Serendipitous Timing!
Amongst the professional contracting issues, which we’ll be discussing in our first Tuesday TalkAbout Live! masterclass for 2023, is the issue of how one interprets and applies the Professional Employees Award 2020. You’ll be interested to learn that last Friday, 20 January 2023, the Full Bench of the Fair Work Commission, on its own motion, varied the coverage provisions of that Award to remove difficulties caused by the “principal purpose test”, which the Commission considered had led to excessive litigation.
You can read the full decision here. However, the gist of the decision to vary the coverage provision can be found at paras [80]-[84], where the Commission said:
[80] … the classifications have the function of determining in what grade an employee covered by the Award will fall rather than whether an employee is covered by the Award in the first place…
…
[82] … We think that a better approach would be to add a provision to Schedule A which makes it clear that the classifications will apply in the way identified above — that is, that they apply to all employees who perform professional engineering duties, professional scientific duties, professional information technology duties or quality auditing unless the person holds a position which is principally managerial in nature…
[83] We conclude … that Schedule A of the Award should be varied by deleting the sentence appearing immediately under the heading and inserting in lieu thereof the following provision:
An employee performing professional engineering duties, professional scientific duties, professional information technology duties or quality auditing must be classified in one of the following classifications provided that the employee is not employed in a wholly or principally managerial position.
[84] The effect of the above variation will be to remove the need to apply the “principal purpose” test and thus resolve the difficulty identified in Zheng. For the reasons earlier outlined, and contrary to the submissions of the APESMA, we do not consider that the express exclusion of managerial employees will narrow the coverage of the Award and thus engage s 163(1) because no classification in Schedule A currently applies to a manager. Nor do we consider that the variation will expand the coverage of the Award, since its purpose is clarificatory and consistent with the current classification definitions. The variation is necessary, we consider, to achieve the modern awards objective in s 134(1) of the FW Act. In reaching this conclusion, we regard the consideration in s 134(1)(g) as having determinative weight, with the other identified considerations being neutral.
The Commission has published a draft determination and the parties now have until Parties may file submissions in response to the draft determination by 4:00 pm (AEDT) on Friday, 10 February 2023 to file submissions in response to the draft determination.
To find out what else we’ll be covering in our Tuesday Talkabout Live! livestream masterclass, and to reserve your place, check out the Eventbrite online event page here.
Let’s talk again soon!
Andrew C. Wood
Tuesday TalkAbout Live! 2023
It’s been almost 12 months since the High Court delivered its decision in the landmark case, CFMMEU v Personnel Contracting and that’s the perfect opportuinity for Tuesday Talkabout Live! to kick off its 2023 program with an exploration of the topic, Professional Contracting …One Year On. You can check out what we’ll be convering via the Eventbrite registration page here.
Throughout 2023, WorkAccord will be presenting monthly masterclasses for recruitment, staffing and HR professionals on the following topics:
February: Professional Contracting.
March: Fair Trading
April: Fair Competition
May: Privacy
June: Human Rights
July: Reference Checking
August: Licensing & Regulation
September: Ethics & Professional Conduct
October: Care & Support Sector
November: Sustainable Employability.
Tuesday TalkAbout Live!
Tuesday TalkAbout Live! masterclasses are small group, interactive livestream discussions. We’ve strictly limited registrations to 15 for each session to give all participants an opportunity to join in, ask questions and have their say. However, to make sure nobody misses out, you have a choice of multiple sessions that you can register for. *
So that discussion can occur freely, we don’t record the live sessions. If, for some reason, you can’t attend the live session you’ve registered for, you’ll be able to access a pre-recorded session and have an opportunity to raise your questions with our presenter by email, or else book a short (10 minute) private call to raise your question by phone or video conference.
Continue the Conversation
Tuesday TalkAbouts Live! are carefully designed to create significant learning experiences and provide a grounding that allows you to carry on the conversation confidently in other forums, where you can learn with and from your peers. That’s where the action really happens! So, after you’ve completed your live masterclass, you can head across to the RCSA-hosted Labour Hire Licensing & Regulation (Aust. & N.Z.) LinkedIn Group, where you’ll be able to continue your exploration and deepen your understanding of our topic.
You don’t need to be an RCSA member to join the LinkedIn Group.
NEW for 2023 … Mobile Microlearning!
And for the first time in 2023, we’ll be supporting your learning with short, accompanying mobile microlearning courses that you can access on your mobile device! There will be a modest charge for these courses, but masterclass registrants will be able to take advantage of atrtractive concessional pricing.
So, make sure you register for one of the sessions, head across to our LinkedIn discussion area and…
…LET’S TALK AGAIN SOON!
Andrew C. Wood
* Subject to availability
CFMMEU v Personnel Contracting Back in Court
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.
- 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!
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?
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!
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?
Andrew C. Wood
Recruiters' Casebook 