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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Andrew C. Wood


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

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

Labouring the Point: “Workers” and the obligation to pay

A female agent sits at a desk whilst discussing an assignment with a labour hire worker.The workeris wearing hi vis jacket.

One of the more intriguing features of the Australian labour hire licensing schemes concerns the definition of a “worker” and the requirement that a person is only a worker for another person (the provider) if the provider is obliged to pay the worker, in whole or part, for the work.[1] Whether such an obligation exists should be relatively easy to determine in most cases. But it will not always be so; and the issue may sometimes be clouded by the involvement of intermediaries.

Take the case of a labour hire agency’s worker who is engaged through a payroll company that provides outsourced “employer-of-record” services. Where does the obligation to pay the worker lie? Is it with the agency or the payroll company? Does a statutory obligation to pay perhaps rest with the agency as the “true employer”[2], whilst a contractual obligation lies with the payroll company?  

You can already see that we are now having to distinguish between contractual and statutory obligations.

If the payroll company is found to be the “true employer”, is the agency necessarily off the hook? What happens if the payroll company fails to pay – perhaps because of insolvency? Could a restitutionary claim against the agency, as someone who has benefited from the work to the extent that it was paid by the host for supplying the worker – give rise to an equitable obligation on the part of the agency to pay the worker? Would the obligation be to pay “in whole or in part for the work”? What questions of characterisation arise? And to what extent are those questions resolved by the express legislative provisions in South Australia, Victoria and the ACT, but not in Queensland, that the obligation may arise “directly or indirectly”?

So far, we have distinguished between contractual, statutory, and equitable obligations to pay.

Next, take the case of an agency worker who operates through a family company that is the trustee of a discretionary trust which receives payment for the supply of the worker. The trustee may be under no obligation at all to pay the worker; and any distribution under the trust, being an exercise of discretion, might not be able to be characterised as being “in whole or in part for the work”.

As I say, these are intriguing questions – at least for some! They were not answered when the legislation was being drafted. And whilst they may seem highly technical, success and failure in prosecutions and civil actions may well depend upon the answers that the courts will eventually have to provide.  

Andrew C. Wood


[1] Labour Hire Licensing Act 2017 (Qld) s. 8(1)(b), Labour Hire Licensing Act 2017 (SA). s. 8(1)(b), Labour Hire Licensing Act 2018 (Vic) s. 9(1)(b), Labour Hire Licensing Act 2020 (ACT) s. 8(1)(b).

[2] For discussion of the distinction between an “employer-of-record” the “true employer” see Gothard (recs & mgrs of AFG Pty Ltd) (in liq) v Davey [2010] FCA 1163; Re Plutus Payroll Australia Pty Ltd (in liq) [2019] NSWSC 1171;and In the matter of Branded Media Holdings Pty Limited (in liquidation); In the matter of Brand New Media Pty Limited (subject to a Deed of Company Arrangement) [2020] NSWSC 557.

Labouring the Point: Advertising Labour Hire Services

Businessman reading legislation with magnifying glass checking details for compliance

If you’re advertising your ability to provide labour hire services throughout Australia – as many agencies do – please take a moment to consider whether you could be committing an offence in Queensland, South Australia, or Victoria if you don’t hold a licence in those States.

It’s not enough to hold a licence in just one State. That appears to be so regardless of where your business is located, because all three States have a provision that says it’s an offence to advertise your willingness to provide labour hire services unless you hold their licence[1]. They’ve also bestowed inter-state operation on their labour hire licensing laws.[2]

The Australian Capital Territory’s scheme, which has not commenced yet, does not appear to have a similar provision. However, whether advertising the ability to supply labour hire services in the Territory without holding a licence could be prosecuted as an attempt to commit an offence may be a question that warrants careful consideration.

So, have a look at what you claim, on your websites and in your marketing materials, to be able to do, and get it checked out.

Andrew C. Wood


[1] Qld s, 10(2); SA s. 11(2); Vic s, 14.

[2] Qld s. 5; SA s. 4; Vic s. 6.

The Labour Hire Licensing Act 2020 (ACT) – More variations on a theme

The Australian Capital Territory has made good its intention to enact labour hire licensing legislation. This is the fourth Australian jurisdiction to enact a licensing scheme – if you count South Australia, which has just started to wind the coverage of its scheme back to imit its application tohigh-risk sectors.

So, what’s the deal in the ACT? You can spend hours on this stuff and still not know what it all means until the courts start to interpret it. But here are a few features you might want to note that give the ACT scheme its own unique character.

Status

Early days. We still need to see the regulations and application forms, which will add layers of detail.

Commencement

Probably 1 January 2021, with a 6-month transition period.

Objects

  • Protect workers from exploitation by providers of labour hire services; and
  • Ensure labour hire service providers meet their workplace obligations and responsibilities to the workers they supply; and
  • Promote the integrity of the labour hire services industry; and
  • Promote responsible practices in the labour hire services industry.

Coverage

You’re a labour hire provider if, in the course of carrying on a business, you supply to another person (the hirer) a worker to do work.

The definition is closer to the very wide Queensland model. There’s no attempt to give meaning to what “supply” means and no use of the complex integration test (to perform work in and as part of the hirer’s business or undertaking) adopted in South Australia and Victoria.

Neither is there any attempt to exclude licensed private employment (placement) agencies (PEAs) as there is in Queensland and South Australia, even though the ACT has a separate PEA licensing scheme.

This will mean that the requirement to hold a licence will often come down to whether the person supplied to do the work is a worker within the meaning of the Act. We’ll look at that in a moment.

Unlike Victoria, there’s no explicit extension of the scheme to PEAs who provide accommodation, or to Contractor Management Services providers. Although, that might be unnecessary in view of the width of the coverage.

The “Regardlesses”

Not an Indie band – but a set of provisions that say you’re a labour hire provider no matter what (regardless).  So, you would need a licence regardless of whether:

  • the worker is employed by you; or
  • there is a contract for the worker to do the work; or
  • the worker is supplied by you directly or indirectly; or
  • the work completed by the worker is under the control of you or the hirer.

All four State and Territory licensing schemes use some version of the regardlesses. They’re designed to extend coverage to tiered supply and contracting chains. They are capable of producing a lot of unintended consequences. You need to do a few worked examples to see what they lead to. But, basically, you can be a labour hire provider even though you’re not engaging the worker. That might cause a few headaches for payroll companies.

Regulations can exempt a stated person from coverage meaning that they would not have to have a licence. That’s not as good as it looks. It relates to “stated persons” rather than to classes of persons and it falls well short of anything you might have heard to the contrary about the Minister or the Commissioner having a power to declare exemptions.

Who is a “worker”?

Only an individual can be a worker. An individual is a worker for a provider if the individual enters into an arrangement with the provider under which—

  • the provider may supply, to another person, the individual to do work; and
  • the provider is obliged to pay the worker for the work—
    • in whole or part; or
    • directly or indirectly.

This definition is also pretty standard across the four licensing schemes. But it’s riddled with problems because there’s no clarity about the nature of the “obligation”. It’s easy enough if the obligation arises directly from a work/wages bargain.

But things get complicated if the obligation arises from an escrow obligation such as you might see with some of the freelancing platforms, or if the worker is not paid for the work but receives distributions from a trust or is remunerated in some other manner.

Also, keep in mind that a person can be your worker, even though you’ve not engaged them. Again, this could cause some headaches for payroll companies and contractor management services providers.

The Minister can declare that a person is or is not a worker. This is a bit easier than the power to exempt a provider by regulation. Still, it’s not an easy path and I doubt that we’ll see anything like the liberal application of the similar power to exempt by gazettal, which we saw in South Australia before the Act there was changed.

The Offences

  • Supplying a worker without having a labour hire licence – huge fine 3,000 penalty units for a corporation; 800 penalty units for an individual
  • False representation that a licence is held – 200 penalty units
  • Breach of licence condition – 300 penalty units
  • Entering into an arrangement to acquire services from an unlicensed provider – huge fine 3,000 penalty units for a corporation; 800 for an individual

Ignorance might actually be an excuse in the ACT – Consider “Kevin”.

If you’re a hirer (host) you won’t commit the offence of entering into an arrangement with an unlicensed provider if you had a reasonable excuse. Consider this example of a reasonable excuse included in the Act:

Kevin decides that he needs a cleaner for his house. He sees an advertisement on a social media site by a company offering domestic cleaning services. Kevin did not know that the company was an unlicensed labour hire services provider nor was there anything in the advertisement or otherwise to make him aware that he should check that the company was licensed.

That’s going to raise a lot of questions about what you should and shouldn’t know about the scheme. You might get away with it if you’re a householder, like “Kevin”; but my guess is that you wouldn’t want to be putting your eggs in that particular basket if you’re a business acquirer of labour hire services.

Where is the anti-avoidance measure?

It seems like a curious omission, but I can’t I can’t find an express anti-avoidance measure. I’d be interested to learn why, if anyone knows the reason. The last thing you’d want is a scheme that is tolerant of a certain degree of contrived ignorance! Maybe there’ll be some attempt to fix it in the regulations.

Fit and proper person test

A version of the now familiar fit and proper person test applies to all “influential” people for a provider. Influential people for a corporation include a person who can exercise a power to:

  • take part in a directorial, managerial or executive decision for the corporation; or
  • elect or appoint a person as an executive officer in the corporation; or
  • significantly influence the conduct of the corporation.

Think about that last point for a moment. Who could that include? Your significant shareholders? Your financiers? Your industry association? Your suppliers? Your clients? Your spiritual advisors?

It’s a pretty wide category and it’s going to take a fair bit of common sense to know where to draw the boundaries. And, of course, there’ll be outliers.

The rest of it

As to the rest of it, there’s a lot of administrative provisions about applications, licence onditions, enforcement, inspectors, appeals, the establishment of a Commission and an Advisory Committee.

You can read a copy of the Act for yourself here.

Treat it as a broad framework and expect more detail  – including information about fees – in the regulations when they become available. There’s still a bit of work to be done before we know how this scheme will actually work.

Andrew C. Wood

 

 

 

 

 

 

Last Chance before Victorian Labour Hire Licencing Barrier Goes Up

LAsd day keep outWith almost 4,000 unprocessed licence applications back-logged in the system and the Victorian Labour Hire Authority processing them at a rate of no more than about 300 per month, it’s going to be a long time before there are any new entrants to the Victorian labour hire market!

So, if you’re planning on operating within the Victorian licensing catchment (and it’s not restricted to the state of Victoria!) any time in the next 18 months, it might be prudent to get your application lodged before midnight on 31 December 2019.

it looks like plenty of providers are taking advantage of the Authority’s extended grace period.

A couple of chores before 2020 arrives…

Time is ticking

Before you knock off to blow the party whistles for the arrival of 2020… please do take a moment to check if you need to have a Corporations Act whistleblower policy in place, and if you (or your labour hire suppliers) need to have lodged an application for a Victorian labour hire licence within the extended grace period.

With that out of the way, may we wish you a happy and safe new year and a fabulous 2020!

Industry Certification Schemes – Regulatory Alternatives?

TT_8 Cwertification Full

Can industry certification schemes be viable alternatives to statutory licensing schemes?

In WorkAccord’s next free Tuesday TalkAbout I’ll discuss different types of certification schemes and consider their pros and cons as regulatory alternatives. In doing so, I’ll also look at Regulatory Impact Statement that supported the Victorian licensing scheme to see how it worked. What assumptions were made? Were they correct? How might a federal RIS and outcome differ?

I hope you’ll join me.

Andrew C. Wood

 

Labour Hire Licensing Laws: Do they apply outside their home states?

ExtraterritorialityQueensland, South Australia, and Victoria have now all passed separate labour hire licensing laws[1].

All three acts contain provisions that attempt to extend their application beyond state boundaries.[2] The exact wording in each case is different but basically, they attempt to extend the laws to the maximum extent of the legislative power of their respective Parliaments. No one knows for sure exactly what that is because it hasn’t been tested in this context. But it seems generally correct to say that, provided there is some real connection (or nexus), with the home state, the laws are capable of applying in some other state (or country). Continue reading

Do Victoria’s Christmas Talent Agencies and Incorporated Christmas Talent Need Labour Hire Licences?

This Article May Contain Sensitive Material

For any youthful readers of this piece, let me start by saying that we all know that the real Father Christmas lives at the North Pole with Mother Christmas, the Pixies, Rudolph and the other reindeer.

And we all know that all the friendly people who run around in costume – the Santas, Mothers Christmas (I hope that’s the correct plural), the Pixies, the Wise Persons, Shepherds, Angels, and pantomime camels – let’s call them the Christmas Talent – are just helping out. It could be a franchise, I’m not sure. I haven’t looked at it.

At least, I hope we all know that Christmas Talent is mostly pretend. Nevertheless, it’s always fun to see them because we know that when they start popping up in the stores, Christmas is not too far away.

I’m Concerned

Now here’s my concern.

Up until now, a lot of the Christmas Talent have been sourced through talent agencies. Up until now, that’s not been a problem in Victoria – but now it might be.

It might be a problem because if you’re supplying workers (let’s say Christmas Talent) to another person (let’s say a department store) to perform work in and as part of the store’s business or undertaking (seems likely), then you might need a labour hire licence.

This test is sometimes called an “integration test”. It’s not easy to apply, and it can depend on subtle, fact-sensitive inquiries that can only be determined authoritatively by a court. It can also have some pretty unexpected results.

Queensland & South Australia

Queensland and South Australia got this right because in those States talent agencies are subject to private employment agency regulation in addition to labour hire licensing.

So, Queensland and South Australia both created an exemption from the need to have a labour hire licence if you are acting solely as a private employment agency.[1]

Victoria

But there’s no similar exemption in Victoria. So, if you’re supplying a worker to do work in and as part of another person’s business or undertaking, you’ll possibly need a licence (unless you can bring yourself within one of the other exceptions).

Also in Victoria, if you’re sourcing and placing workers (let’s say Christmas Talent) with clients who are engaging them directly as independent contractors, and you continue to handle payroll or other aspects of the placement administration, you’ll possibly need a licence (unless you can bring yourself within one of the other exceptions).

Incorporated Christmas Talent

It gets even more complicated if your Christmas Talent is self-incorporated – i.e. they’re working through their own small company. That’s because their own small company is supplying the individuals who perform the work and therefore needs to hold a licence in its own right (unless it can bring itself within one of the exceptions).

Fortunately, there is an exception for small companies that have no more than two directors and only supply their directors who participate in management or share in the profits.

But that exception will only go so far. An exempt company couldn’t supply say, Three Wise Men – apart from whatever difficulties they might have in sourcing three wise men (old joke). Two would be OK provided they were both directors who participated in management or shared in the profits.

Likewise, a pantomime camel needs two people (front end and back end). That would be OK provided both ends were directors who participated in management or shared in the profits. But if one end gets sick – they’re going to end up with a two-legged camel unless they’ve got a labour hire licence. That’s because substitution requires a third person.

Same deal with Rudolph. And if you’re thinking of hiring the Von Trapp Family Carol Singers – better check their labour hire licence unless they’re incorporated and you’re only wanting two of them!

Although there’s an exemption for incorporated workers, it doesn’t extend to family partnerships or other unincorporated business structures.[2]

Call Me a Grinch!

I could go on… But you’ll have the gist of it by now, and you can perhaps see the problem that arises when labour-hire licensing is introduced on a universal coverage basis without being targeted to the sectors where it’s really needed.

Did anyone think this would be an outcome when the scheme was proposed? Of course, they didn’t. The States were urged to adopt targeted schemes. The Victorian Forsyth Inquiry even recommended it.  But those urgings and recommendations were mostly ignored.

So if you’re hiring Christmas Talent in Victoria this year or if you’re working as Incorporated Christmas Talent, whatever other checks you do, be sure to check that any necessary labour hire licence issues are covered.

Boy Riding Camel

 

 

 

Andrew C. Wood

 

 

[1] It can get tricky if you’re doing more than acting purely as a private employment agency – say handling payroll or administration.

[2] South Australia fixed this up by Gazettal on 26 September 2019. Although the exemption is still limited to a maximum of two workers.

 

Victorian Labour Hire Scheme: Mopping Up

Close up 0370Victoria’s labour hire licensing scheme is fully up and running – though perhaps stumbling forwards might be a better description.

After 6 months only about 380 licences have been granted, with another 50 or so granted subject to payment of fees.

There are more than 3,700 unprocessed applications. They are still coming in despite missing the cut-off date. If you’re in that long queue – or having to join it because you’ve decided you’d like to extend your labour hire business to Victoria – it could be as much as 12 months before you hear the outcome of your application.

Near-Misses

One of the things that did surprise me was the fact that 200 or so applicants missed the cut-off last week by only a matter of days – even hours in some cases.

Cleaning firms seemed to be strongly represented amongst the near-misses, perhaps because of uncertainty about how the complex integration test and deemed worker provisions applied. Though there were others as well, including general labour hire providers, interstate providers, and at least one legal recruiter.

Misses will hurt

Those near-misses are going to hurt because, unless the applicants can fix something up quickly with the Authority, a miss is as good as a mile.

It’s now an offence under Victorian labour hire licensing laws:

  • to provide labour hire services without a licence
  • to advertise willingness to provide labour hire services if you don’t hold a licence
  • to acquire labour hire services from an unlicensed provider
  • to be involved in avoidance arrangements.

Reaction

So, what’s likely to be happening now?

I suspect that there may be more than a few who have obtained their licences, or got their applications in ahead of the cut-off, who’ll be looking closely at the near-misses and perhaps giving their competitors, or their clients, a cordial “heads up”.

The regulator may be looking as well. If you’ve provided details of your clients and their workplaces, the regulator will know where to find them and might consider giving your clients a cordial reminder that the prohibitions are now in effect.

I suspect that there’ll be a few in the near-miss category, who’ll need to look at their supply arrangements to decide how quickly they can get out of them and if they can get out of them now without penalty.

Clients are likely to be looking at the registers to see which side of the cut-off their suppliers fall on. You might find that they are terminating contracts with unlicensed providers and thinking about what action they can take to recover the cost of entering into new or alternative supply arrangements.

There’ll be workers (and their unions) who’ll be wondering whether they still have jobs, and more than a few clients might be wondering how they can transition supplier arrangements.

There’ll also be more than a few who’ll have to fix up their websites and marketing so that they’re no longer advertising a willingness to provide labour hire services.

Maybe it will settle down eventually, but until then it’s a bit of a mess.  Who knows, perhaps a federal scheme that prevails over state laws with a concerted move to dismantle the systems in the three states that now have labour hire licensing will be all that can clean it up.

 

Andrew C. Wood