I can’t begin to recall the number of times I’ve heard contracting parties (or their advisors) discussing “problem” clauses and someone says, “Let’s just put it in anyway. It’ll give us something to argue!” By any measure, it’s a lazy approach to drafting. It’s all very well to have the argument, but if you lose, you’ll end up with egg on your face … as well as costs orders against you; and potentially negligence claims – to say nothing of the damage you might have done to your commercial relationships whilst you have that argument. And now it’s got a whole lot worse…
That’s because New Zealand (in August 2022) and Australia (from November 2023) have amended their Fair Trading and Consumer Protection laws to prohibit the inclusion of unfair terms in standard-form, small business (or small trade) contracts.
And the consequences for ignoring the prohibition? In New Zealand, $600,000 per contravention. In Australia, $50 million per contravention, or three times the value of the benefit derived from the unfair term, or 30% of adjusted turnover during the offence period. And there are fines for the individuals who were involved in their inclusion, as well.
Over the last few weeks, as we’ve been exploring the topic of Fair Trading & Consumer Protection for Australian & New Zealand Recruitrers, I’ve been posting some discussion primers on social media in preparation for our Tuesday TalkAbout Live! masterclasses.I’ve now gathered them here in one place so you can find them more easily.
Do any of them strike a chord with you; or ring alarm bells? If so, which ones stand out?
Person talking with online meeting participants via mobile device. Photo by Canva.
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…
A recent decision of Mortimer J in the Federal Court of Australia[i] highlights just how difficult it can be to determine which, amongst several entities within a corporate group, is the actual employer of the employees who work within the group.
However, several lessons appear to be emerging:
The Federal Court (and the Fair Work Commission so it seems[ii]) are displaying a preference to determine employer identity questions using the same approach that the High Court used in Personnel Contracting[iii] and Jamsek[iv] earlier this year to determine employment status questions.
But not everyone agrees with that approach. The NSW Supreme Court in Spitfire Corporation[v] held that, in corporate group cases – at least where the provisions and policy of Part 5.6, Div. 6 of the Corporations Act 2001 are engaged[vi] – there may still be scope to inquire into the totality of the relationship rather than to restrict the inquiry to the legal rights and obligations of the parties as set out in the contract.
Nevertheless, Spitfire Corporation could be limited to insolvency cases.[vii] It may take another appeal to the High Court to resolve that question.
Meanwhile, sham transactions are still susceptible to being unravelled by an examination of the circumstances beyond what is merely set out in the contract. That proposition is consistent with Personnel Contracting[viii].
But the courts may take a fairly narrow view of what amounts to a sham transaction – the essence of a sham being an attempt to disguise a transaction as something that it is not. That is to say, it involves “some kind of deception”.[ix]
That may be difficult to establish if the entities in the group share the same “controlling minds and officers”. In such a case, there may be considerable freedom to choose which of several corporate vehicles within the group should act as employer.[x]
Neither will the courts move too quickly to “pierce the corporate veil”. Unless “the corporate form is being abused for an improper purpose, such as to perpetrate fraud and avoid extant legal duties”,[xi] a court is unlikely to ignore the separate legal personality and limited liability of legal corporations.
However, liability may still be sheeted home to a principal within a corporate group as the result of agency if there is “a real [legal?] relationship of agency between parent and subsidiary not one said to arise [merely?] from the existence of control and identity of interest in two separate corporate forms”.[xii]
The intersection between employment law and consumer (fair trading) law is, at last, beginning to be explored in the context of employer identity issues.
In this case, misleading and deceptive conduct claims[xiii] and misrepresentation in connection with offers of employment claims[xiv] were pursued against the putative employer and its director. They failed because the employee brought them against a company that was not his employer[xv] and could not establish that they were made.xvi
Future exploration of the intersection between employment law and the Australian Consumer Law might eventually see the terms of the comprehensive written contract (or contracts), upon which the court would rely in determining the employer identity issue according to the approach in Personnel Contracting, thoroughly scrutinised for misleading conduct, unfairness (other than purely in respect of employment terms) and even estoppel[xvii] or mistake – all with a view to having the web of contractual rights and obligations “put in order” so that the court may have a reliable guide that will enable it to place all its eggs in the contractual basket.
Lastly, it seems fair to observe that the arguments for the employee were complex, sophisticated and elegantly assembled. But arguments do not make a case; and, in this instance, the arguments could fare no better than the facts on which they were based – the court finding that: “[the employee] has failed to prove any of his claims on the balance of probabilities.”xviii
This can all seem difficult enough – even in a relatively simple corporate grouping consisting of no more than an operating entity and an administrative entity. However, as the network of contractual relationships expands to include labour hire firms, outsourced payroll providers and incorporated worker entities, the difficulty of identifying the true employer of a worker as between the person who pays them and the person who controls the supply of their labour increases dramatically. Some of those dramas are already being played out in the Fair Work Commission. Hopefully we will get some more clarification before too long.
Andrew C. Wood
[i]Robinson v BMF Pty Ltd (in liq) (No 2)[2022] FCA 1191 7 October 2022.
[ii]Peter John Chambers Jennifer O’Brien v Broadway Homes Pty Ltd t/a Broadway Homes [2022] FWCFB 129 (13 July 2022).
[iii]Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd[2022] HCA 1.
[x] At para [174] distinguishing Fair Work Ombudsman v Ramsey Food Processing Pty Ltd [2011] FCA 1176; 198 FCR 174 – a labour hire case about whether the host or labour hire firm was the true employer.
[xii] At para [212], citing Alsop CJ speaking extra-judicially in “Piercing the Corporate Veil: Recent International Developments” (Paper presented to the 38th Annual Conference of the Banking & Financial Services Law Association, 26 August 2022). My inserts.
Six months on from the High Court’s decisions in Personnel Contracting[i] and Jamsek,[ii] the dust is beginning to settle and we’re getting a clearer look at how those decisions may be affecting the labour hire landscape. In that time, I’ve seen many things written about the High Court’s new approach to determining whether a work relationship is one of employment or independent contracting. But one of the clearest and most helpful explanations of the new approach that I’ve seen so far, comes from the recent Federal Court decision in JMC Pty Limited v Commissioner of Taxation.[iii]
Background
The case concerned JMC’s liability as an employer to pay superannuation to a worker whom it engaged to provide it with “teaching services”. Those teaching services comprised delivering lectures to JMC’s students at its Melbourne campus and marking student examinations or assignments.[iv] JMC contended that the worker was an independent contractor and that it was therefore not required to make superannuation contributions on his behalf. The Commissioner for Taxation disagreed.
Six Key Principles
In the course of holding that the worker was an employee, Wigney J outlined six key principles that can be extracted from Personnel Contracting; Jamsek and related cases. I’ve set them out in “digest” form below, without their references and additional elaboration.
The decision from paragraphs [16] to [27] is worth reading in full. It should only take you about five to ten minutes. But if you’re pressed for time, here are the six key principles in digest form:
Where the rights and duties of the parties are comprehensively committed to a written contract, the legal rights and obligations established by the contract are decisive of the character of the relationship provided that the validity of the contract has not been challenged as a sham, or that the terms of the contract have not been varied, waived or are subject to an estoppel.
In order to ascertain the relevant legal rights and obligations, the contract of employment must be construed in accordance with the established principles of contractual interpretation. …regard may be had to the circumstances surrounding the making of the contract, as well as to events and circumstances external to the contract which are objective, known to the parties at the time of contracting and which assist in identifying the purpose or object of the contract.
…the characterisation of the relationship between the parties is not affected by circumstances, facts or occurrences arising between the parties that have no bearing on their legal rights.
The contractual provisions that may be relevant in determining the nature of the relationship include, but are not limited to, those that deal with the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax, the delegation of work and the right to exercise direction and control.
Characterisation of the relationship …, often hinges on two considerations. The first consideration is the extent to which the putative employer has the right to control how, where and when the putative employee performs the work. The second is the extent to which the putative employee can be seen to work in his or her own business, as distinct from the business of the putative employer. Neither of those considerations are determinative and both involve questions of degree
A “label” which the parties may have chosen to describe their relationship is not determinative of the nature of the relationship and will rarely assist the court in characterising the relationship by reference to the contractual rights and duties of the parties. The characterisation of a relationship…, is ultimately an evaluative judgment that takes into account the totality of the parties’ contractual rights and obligations.
My emphasis
A common mistake
One common mistake that I’ve observed, both in commentary about the High Court’s new approach and in attempts to apply it in drafting contracts, is that there is often a failure to distinguish between what the contract says, on the one hand; and the legal rights and obligations that it creates, on the other.
So, you get the situation where employers are still going to great lengths to include and rely on acknowledgements that the relationship is one of independent contract.
Then they say something like: “Well, the High Court decided that you can only look at what the contract says. And look, see, it says right here that our relationship is one of independent contract. So, it can’t be anything else.”
They’re entirely wrong, of course. What they’ve missed is that the High Court was really saying that you look to contract to find “the totality of the parties’ rights and obligations”, and proceed from there. Look, again, at points 1, 2, 4, 5 and 6 of the principles summarised so comprehensively by Wigney J in JMC.
Don’t confuse mere acknowledgments with legal rights or obligations. You can acknowledge, in your contract if you want to, that the world is flat, or that a duck is a rooster; but it doesn’t make it so. Neither does it give you the legal right to make it so; or to oblige someone else to make it so for you.
Some emerging issues
There are also several emerging issues that it may be important to note in labour hire arrangements that do not conform to the traditional tripartite model.
Loose and uncertain arrangements
Personnel Contracting and Jamsek apply in cases where the parties’ rights and obligations are “comprehensively committed to a written contract”. But in cases where there is some uncertainty or looseness in the arrangement, the courts may still undertake a more wide-ranging examination of the totality of the relationship.
At least, that was the view of the Fair Work Commission in Waring v Hage Retail,[v]where the specific terms under which the work was to be performed were found not to be the subject of any express agreement, oral or written arrangements between the parties;[vi]and their arrangements, whatever they were, were described as “vague, opaque and amorphous”.[vii]
The issue should not arise where carefully drafted contracts that are used in traditional labour hire tri-partite settings. However, it may crop up in non-standard arrangements involving additional parties as supply or payment intermediaries, including where payroll services providers are appointed as employer-of-record, or where “pyramid” or tiered supply arrangements are used – especially if the written contracts used to support those arrangements are misaligned.
Where arrangement not contractual; or alternatives not limited to employment and independent contracting
Personnel Contracting and Jamsek both “start from the position that there is a contract between the worker and the organisation”.[viii] However that may not be so in all cases.
For example, various unpaid work trial, work experience, internship and volunteer arrangements might not be underpinned by an identifiable “work contract”. In those cases, it may be difficult to identify what the terms of the arrangement were, and a court or commission might still embark on a wider inquiry.
That is what happened in the Victorian Supreme Court case of O’Connor v Comensoli, where a question arose concerning the vicarious liability of the Catholic Archdiocese of Melbourne for alleged conduct of one of its priests.
After observing that the relationship between the Archdiocese and its priests is not contractual and that the employee/ independent contractor dichotomy, which permits only two alternatives neither of which applied in the circumstances of the case, Keogh J held that High Court’s decision in Personnel Contracting did not authoritatively dispose of the vicarious liability issue.[ix]
The case highlights that there may still be situations that were not addressed by the High Court’s new approach and that parties will need to be on their guard to identify situations in which that approach will not apply.
In a labour hire setting, the issue could arise between a labour hire provider and its temps, noting that a person can still be a “worker” for a labour hire provider even in the absence of a contractual arrangement between them[x] – especially where non-standard arrangements that involve additional parties as supply or payment intermediaries are used.
Parties to such arrangements will need to exercise special care to identify where the legal rights and obligations fall, how they control the provision of the worker’s labour, and who is responsible for them.
Employer identity question
Whilst Rossato,[xi]Personnel Contracting, and Jamsek clarified the approach to determining employment status questions, they did not deal with the separate employer identity question – that is to say: who, amongst more than one contender, is the true employer.
In Spitfire Corporation[xii], the NSW Supreme Court carefully distinguished the High Court decisions, saying that they did not apply to a determination of the employer identity question, in the circumstances of that case.
Conclusion
Whilst the High Court’s decisions in Personnel Contracting and Jamsek have clarified the approach that the courts will adopt in classifying a work relationship as either employment or independent contracting, a number of issues regularly encountered in the labour hire setting were not addressed. Moreover, the approach can be difficult to apply for anyone who is not familiar with the categorisation of legal rights and obligations. Those difficulties can be exacerbated in cases where the parties’ arrangements are loose and uncertain, or where they are misaligned.
Labour hire providers and their intermediaries (as well as their advisors) will therefore need to exercise considerable care in applying the approach adopted by the High Court in Personnel Contracting and Jamsek and remain alert to identify those situations in which it might not apply at all.
[x] See for example, Labour Hire Licensing Act 2017 (Qld) s. 7(2)(b); Labour Hire Licensing Act 2018 (Vic) s. 9(3)(b), Labour Hire Licensing Act 2020 (ACT) s. 7(3)(b).
Over the past couple of weeks, I’ve been talking about the unintended consequences of the recent High Court decisions that have led to the supposed demise of the Odco model of labour hire contracting. I’ve been writing about and discussing the legal significance of those cases and what they really mean. You can find most of what I’ve been writing here. on the Recruiters’ Casebook.
Today, and in the lead up to WorkAccord’s Tuesday TalkAbout on 29 March, when we’ll be discussing the topic: Independent Contracting On-Hire: Where to from here? I want to shift direction and plant the seeds for a forward-looking discussion about something that I’ll call, emancipated labour contracting.
Emancipated Labour Contracting
Emancipated labour contracting is simply labour contracting that is freed from the type of contractual dependency, subservience, and control which led the High Court to find that the Odco contractors in CFMMEU v Personnel Contracting were employees.
In Personnel Contracting, Kiefel CJ and Keane & Edelman JJ said that the labour hire firm:
“…was exercising, and commercialising, its right to control the work that [the worker] would do and how he would do it. The marketability of … a labour‑hire agency turned on its ability to supply compliant labour; without that subservience, that labour would be of no use to [its] clients. That right of control was therefore the key asset of [its] business.”
para [76]
That largely untested understanding of the nature of a labour hire business led those three judges to conclude:
“[the worker’s] work was dependent upon, and subservient to, [the labour hire firm’s] business. That being so, [the worker’s] relationship with [the labour hire firm] is rightly characterised as a contract of service rather than a contract for services. [The worker] was [the labour hire firm’s] employee.” [89]– [90]
paras [89] – [90]
Gageler & Gleeson JJ said much the same thing
…by supplying his labour to [the Host], [the worker] was at the same time supplying his labour to [the labour hire firm] for the purposes of [the labour hire firm’s] business. He was not in any meaningful sense in business for himself”
para [158]
Gordon J similarly said that:
“[the worker] agreed to work in the business or enterprise of [the labour hire firm] promising he would work at its direction for the benefit of [the labour hire firm’s] business of supplying labour to [its] customers and, in return, he was paid by [the labour hire firm].”
para [200]
Control + Integration = Subservience
Can you see what is happening here; how the court has commodified the labour hire firm’s control of the worker (and the work opportunity) to make it appear that the worker is working in the labour hire firm’s business so as to reject any notion that the worker might have retained a measure of independence?
Although the judges are using the language of “control”, they really appear to be applying a version of the integration test.
New Questions
So, the questions that we might now ask begin to look like this:
Is it possible to free or emancipate contractors from the type of control that the Court now regards as indicative of employment in a labour hire context?
What would emancipation involve? How would you present it in a contract – given that the court will focus on the terms of the contract to determine the nature of the legal relationship?
Could an on-hire engagement and supply model that doesn’t promise “compliant” or “controlled” labour really work? Is it marketable? Are the on-demand platforms already doing something similar?
Why would anyone NOT want to be an employee? Is it possible to point to any intelligible business purpose that could underpin an emancipated labour contracting model?
Join the Conversation
I hope you’ll start to ask some questions of your own and either bring them along to WorkAccord’s Tuesday TalkAbout on 29 March 2022, or engage in the extended discussion via the Labour Hire Licensing & Regulation (Aust. & N.Z.) LinkedIn Group? We’d love to hear from you.
It’s not only your relationship with your workers that’s been affected by the High Court’s recent decisions about how we should be deciding if a worker is a “contractor” or an employee.
What about all those regulatory and revenue authorities – tax, super, workers compensation, payroll tax, WHS , labour hire licensing etc – that have published guidelines and “contractor tools” that apply the multi-factor test as it was used before the High Court restricted its operation?
You’re cordially invited to 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? We’d love to hear from you.
What about your staff consultants whom you’ve engaged as independent contractors?
Does the High Court’s dependent-on-and-subservient-to test in Personnel Contracting apply equally to your internal consultants as well as to your on-hire workers? What is that test anyway? How do you apply it in different settings?
You’re cordially invited to 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? We’d love to hear from you.
Recruiters' Casebook 