Employer Identity Question Still ‘Moot’ Following Full Federal Court Decision

Last month, I reported on a recent decision of Mortimer J in the Federal Court of Australia, which highlighted 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.[i] The Full Court has now addressed the employer identity question in another case, Revill v John Holland Group Pty Ltd,[ii] and it appears that the employer identity question, as well as the means of deciding it, are still moot.

Revill v John Holland concerned a claim that one entity in the Holland Group, John Holland Group Pty Ltd (JH Group) was bound, as the “true employer”, by an enterprise agreement in which it was neither named as a party nor mentioned. The employer respondent to the enterprise agreement was a different company in the Group, John Holland Pty Ltd (JHPL). 

Although JHPL was a wholly owned subsidiary of JH Group, that was not enough to pierce the corporate veil or to hold JH Group liable, under principles of agency, to an enterprise agreement to which it was not a party. The claim failed for that reason.[iii]

The Agency Question

It’s important to keep in mind that the type of agency that the Full Court considered in this case was not the ordinary type of commercial agency that might arise between a principal and its agent operating at arm’s length. It was, instead, the implied agency that can arise in a corporate group, where a holding company operates as the “head and brain” of its subsidiary such that the subsidiary can be treated as the agent of its holding company.[iv]

The Employer Identity Question

Hitherto, the employer identity question was determined on the basis of the “practical realities” test applied after considering a wide range of relevant factors that could extend well beyond the strict terms of the written agreement.[v]

In Revill v John Holland,  Bromberg J. and Feutrill J., in separate judgments, queried whether this was still the correct approach in light of the High Court’s decisions in the Golden Trio of cases[vi] which dealt with the different question of employment status. Neither Judge found it necessary to depart from the “practical realities” approach; but both suggested that there appeared now to be a need to revisit that approach in view of the Hight Court’s decisions.[vii]

It’s hard to know what the effect of this will be until the approach to the determining the employer identity question is authoritatively settled by the High Court.

Diverging approaches

Earlier, this year, the NSW Supreme Court[viii] declined to follow the High Court’s lead, while single instance decisions in the Federal Court[ix] and FWC decisions[x] appeared to demonstrate greater willingness to limit the scope of their inquiries to the terms of the written contract when dealing with employer identity issues.  

Although these earlier decisions were not referred to in his judgment, Feutrill J., with whom both Bromberg and Banks-Smith JJ agreed, displayed a cautious and conservative preference against abandoning the established practical realities line of authority, stating at [153]:

“I do not regard the recent High Court authorities as precluding a party from advancing a claim, based upon the facts of that party’s particular case, to the effect that the ‘true’ employer within a corporate group is not the company identified in the group’s corporate records as the nominal employer. Nor do I regard the recent authorities as precluding a claim, in accordance with established legal principles, that the ‘corporate veil’ of the group should be disregarded because the relevant corporate group arrangement is a sham or that the nominal group employer is employer, as agent, for another company within the group, as principal.”

per Feutrill J at para [153]

For the moment, even at appellate level, it seems that the practical realities approach may continue to hold some sway.

But what about the facts?

Ultimately, however, Mr. Revill’s attempt to hold JH Group bound to the enterprise agreement failed on the facts.

JH Group was not a party to the enterprise agreement or even named in it;  and, despite the control which it exercised over its subsidiary, there was no evidence to “support an inference or submission that, through ownership and common directors, JH Group ‘[was] the head and brain’ of JHPL or that the business of JHPL [was] not a separate business of that company.”[xi]

Different Settings

Revill v John Holland Group was a case that raised questions of employer identity within a corporate group in the context of a claim that an entity which was neither a party nor named in an enterprise agreement could somehow be bound by that agreement. The principle of implied agency was argued as grounds for piercing the corporate veil; but was not supported by the facts.

Different outcomes may still be possible in different settings, as where:

  • the putative employer is expressly named or described in the enterprise agreement, even though not a party to it;
  • there is a written services agreement between the subsidiary and the holding company sufficient to raise a question of whether the subsidiary is acting as an agent of the holding company according to principles of commercial agency;
  • there may be representations or conduct that may give rise to legal or equitable estoppels, rendering it unconscionable for the putative employer to deny its employer identity or responsibilities;
  • the parties are at arms’ length, as where the Employer of Record (EoR) is merely supplying payroll services to the “true employer”;
  • under, a Payroll (EoR) services arrangement, the EoR is constituted as the agent of the putative employer;
  • under, a Payroll (EoR) services arrangement, the EoR, the putative employer, and the worker or contractor are all parties to the arrangement and the worker or contractor owes obligations of some sort to the putative employer;
  • in an insolvency situation, the provisions and policy of Part 5.6, Div. 6 of the Corporations Act 2001 (priority of creditors) are engaged.

With a little imagination, you may be able to think of other scenarios, where the outcome may not be as certain as it was in Revill v John Holland Group.

The important lesson for now is that the employer identity question raises complex legal issues that must be approached with care and with a thorough knowledge of the facts.

Afterthought: Multi-Employer Bargaining

As an afterthought, parties negotiating multi-employer agreements under the Labor’s industrial reforms should take note of the decision and may need to make sure to include all respondent employers by name, being aware of the added complexities that may arise when bargaining with corporate groups.

Andrew C. Wood

[i] Robinson v BMF Pty Ltd (in liq) (No 2) [2022] FCA 1191 7 October 2022.

[ii] Revill v John Holland Group Pty Ltd [2022] FCAFC 178 8 November 2022.

[iii] Per Bromberg J at para [15]; Banks-Smith J at para [20]; and Feutrill J at paras [144] – [147].

[iv]  Smith, Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116;

[v]  Per Bromberg J at para [14] and per Feutrill J at paras [144] – [147].

[vi] Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) v Personnel Contracting Pty Ltd [2022] HCA 1(2022) 398 ALR 404 at [59] (Kiefel CJ, Keane and Edelman JJ), at [172]-[173] (Gordon J); ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2(2022) 398 ALR 603 at [8] (Kiefel CJ, Keane and Edelman JJ); and Workpac Pty Ltd v Rossato [2021] HCA 23(2021) 271 CLR 456 at [97] (Kiefel CJ, Keane, Gordon, Edelman, Steward and Gleeson JJ).

[vii] Per Bromberg J at para [14] and per Feutrill J at para [152].

[viii]  In the matter of Spitfire Corporation Limited (in liq.) and Aspirio Pty Ltd (in liq) [2022] NSWSC 340.

[ix] Robinson v BMF Pty Ltd (in liq) (No 2) [2022] FCA 1191 7 October 2022.

[x] Peter John Chambers Jennifer O’Brien v Broadway Homes Pty Ltd t/a Broadway Homes [2022] FWCFB 129 (13 July 2022).

[xi] Per Feutrill J at para [159].

Employer Identity: Still an unsettled question

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:

  1. 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.
  2. 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.
  3. Nevertheless, Spitfire Corporation could be limited to insolvency cases.[vii] It may take another appeal to the High Court to resolve that question.
  4. 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].
  5. 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]
  6.  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]
  7. 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.
  8. 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]
  9. The intersection between employment law and consumer (fair trading) law is, at last, beginning to be explored in the context of employer identity issues.
  10. 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
  11. 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.
  12. 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

[iv]    ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2

[v]     In the matter of Spitfire Corporation Limited (in liq.) and Aspirio Pty Ltd (in liq) [2022] NSWSC 340.

[vi]    Priority of creditors.

[vii]    At para [192].

[viii]   At para [196].

[ix]    At para. [195].

[x]     At para [174] distinguishing Fair Work Ombudsman v Ramsey Food Processing Pty Ltd [2011] FCA 1176198 FCR 174 – a labour hire case about whether the host or labour hire firm was the true employer.

[xi]    At para [212].

[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.

[xiii]   ACL s 18.

[xiv]   ACL s. 31.

[xv]    At para [248].

[xvi]   At para [265].

[xvii] At paras [267] – [268].

[xviii] At para [270].