Employer of Record Arrangements: Not the panacea you were hoping for?

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Recently, I was asked to comment on how an employer-of-record (EoR) arrangement might affect an on-hire firm’s employment and labour hire licensing responsibilities. It seems that there’s a bit of a view circulating to the effect that, if you put in place one of these EoR arrangements with a payroll company, you can avoid both sets of responsibilities. Frankly, I doubt that you can.

And if you try to do so, I think you could end up with egg on your face… or worse still, with residual employment obligations (for tax, super, redundancy, unfair dismissal and the like), as well as leaving yourself open to a range of claims for anything from involvement in misleading conduct in respect of an offer of employment[i] all the way through to sham contracting and labour hire licence avoidance.

Employer of Record (EoR)

Firstly, let’s clarify what I mean by an EoR.

Corporate Groupings

An EoR is a third party that appears “on the record” as the employer of your workers. It’s a common arrangement within corporate groups of related entities. One entity in the group will go “on record” as employer for workers in the group.  It will handle payroll and will probably be the named employer in the employment contract. It will issue pay slips and pay summaries and remit tax and super.  These arrangements are often unravelled in insolvency proceedings, where group entities that thought they were shielded from employer responsibilities can be left having to pay up.

Payroll Services Providers

It’s also a common feature of many arrangements made by on-hire firms for the appointment of a payroll services provider. The contract of appointment might even include the individual worker as a party and might go to considerable lengths to insist that the payroll company must employ the individual. I’ll talk some more about those contracts (and some of their common flaws) in a later post on the topic.

Incorporated Worker Entities (IWEs)

You can also encounter aspects of employer-of-record issues when you’re dealing with a worker owned and controlled through which the worker operates. 

We’re talking, here, about those entities that are effectively the alter ego of the individual who actually performs the work.  Usually, the entity is engaged to provide the required services (e.g., ITC services) and it is left to the entity to employ or engage the individual worker.

If that’s the arrangement you’re working with, you’d want to make pretty sure that the IWE has employed the individual and that the terms of the employment are comprehensively set out in a written contract between the IWE and the worker. Otherwise, you might find that any looseness or uncertainty, or any mistake about the form of contract used, opens the door to an inquiry about whether you, in fact, might be the employer.

We’ve now looked briefly at three different arrangements under which a third party might be identified as the EoR, and we’ve looked at the sort of things that the EoR might be doing.

But, for present purposes, none of that means that the EoR is necessarily the true employer.

The True Employer and How To Find It

The true employer will be the entity which, on an examination of the totality of the relationship, actually controls the work relationship. 

Now, you’re probably going to say that the Golden Trio of recent High Court Cases[ii] put an end to the multi-factor/ totality of the relationship test, and that we can only now have regard to the terms of the contract. 

Well, that is mostly true … if we’re trying to decide if a worker is an employee or an independent contractor – that is to say, if were trying to decide the work status question.  

But it seems it may not be true if we’re trying to answer the different question of who is the employer – the employer identity question.  At least, that’s what the NSW Supreme Court recently said in Spitfire Corp.[iii]

And it seems that the FWC is now finding reasons to distinguish the Golden Trio Cases – even on the work status question.[iv] So, unless your contract is wholly in writing, pretty tight, not a sham, and not unsuited to the use to which you’ve put it, you might still find yourself having to answer some embarrassing questions about how your relationship actually works.

A Panacea?

Taking all this into account, can we be confident that entering into an EoR arrangement with a related entity, a payroll provider, or an Incorporated Worker Entity will relieve an on-hire provider from its employer or labour hire responsibilities.

I don’t think we can. That’s my take on it.

But you can make your own mind up about that!

Andrew C. Wood


[i] Australian Consumer Law s. 31.

[ii] WorkPac Pty Ltd v Rossato (2021) 95 ALJR 681; [2021] HCA 23 (“Workpac”); Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (“Personnel Contracting”); ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (“ZG Operations”).

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

[iv] See Waring v Hage Retail Pty Ltd [2022] FWC 540, where, at paras [52] to [56] Deputy President Anderson summarized the principles in the High Court’s decisions in Personnel Contracting and ZG Operations. DP Anderson’s summary was subsequently cited with approval by the Full Bench in Azad v Hammond Park Family Practice Pty Ltd T/A Jupiter Health Warnbro [2022] FWCFB 66 at para [14]. Hage Retail is noteworthy because of the way in which DP Anderson applied the legal principles to the facts of that case in order to find scope to conduct an inquiry which extended well beyond the strict terms of what purported to be the employment contract.

Labour Hire Licensing & Payroll Providers: A simplified or simplistic explanation?

A female temp desk consultant looking over some documents, whilst discussing an assignment with her labour hire worker.The worker is wearing hi vis jacket , and their safety clothing is scattered about the office.

Discussion of the topic, “Who needs a labour hire licence” often gets diverted by red herring issues about whether a payroll provider is the employer, or at least the employer-of-record, and whether the worker is an employee or not.

My simplified or perhaps simplistic explanation of the licensing schemes is that, regardless of whether you are an on-hire firm or a payroll provider, you’ll need a licence if:

  • you have an arrangement with an individual to supply the individual perform work for someone else;
  • the individual qualifies as one of your “workers” (as defined); AND
  • your arrangement with the individual includes an obligation to pay the worker for the work.

This is what we call having a labour hire “supply arrangement”.

There are some subtle variations between the four existing state and territory schemes. There are also additional circumstances in which you might need a licence in Victoria.

Now, some payroll providers do have such an arrangement; others don’t.

Payroll providers which do have such an arrangement with a worker would seem to need a licence.

Those which don’t would not seem to require a licence. Indeed, I’m aware that this is a view that has been confirmed by at least one scheme regulator and that some payroll providers may be in a position to provide regulator confirmation that they do not require a licence. Of course, it’s always important to make sure that you fully understand the facts and circumstances on which that confirmation is given. Don’t assume that one-size-fits-all in this space.

The fact that a payroll provider, which has such an arrangement, requires a licence will not necessarily relieve the on-hire firm that appoints the payroll provider from having a licence as well.

It won’t matter whether the individual is an employee of the person who has the arrangement or not.

The supply of the worker can be direct or indirect; and it needn’t be contractual.

And if the arrangement needn’t be contractual, then it would seem to follow that the payment obligation needn’t be contractual either. Perhaps a moral or equitable obligation, arising from representations or a loose understanding, would suffice.

So, it would seem to make no difference to the licensing requirement whether the payroll provider is the employer or not.

The focus of the inquiry is always on identifying the presence of the labour hire supply arrangement/s. The involvement of multiple parties: typically, on-hire firms, payroll providers, and incorporated worker entities (IWEs) just makes the inquiry that little bit more difficult.

I’ll say something more about contracts with IWEs in a later post. That’s a whole other story!

Andrew C. Wood

Emancipated Labour Contracting: Could it be a thing?

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.

Let’s talk!

Andrew C. Wood


When your “contractors” turn out to be your employees (#10) …

  • 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 sort of control is that, anyway?
  • 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.

Let’s talk!

When your “contractors” turn out to be your employees (#9) …

What will your regulators do?

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.

Let’s talk!

“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

Constructing the ratio of CFMMEU v Personnel Contracting

I opened a book today – one that I’ve not needed to look at since 1973.  In fact, I don’t think I could have looked at it too much, even back then. The pages were in pretty good condition…

The book is Maher, Waller & Derham (1971) Cases and Materials on the Legal Process (2 ed).  I opened it because I needed to refresh my memory (now fading) about the relationship between the binding rule of a case (its “ratio decidendi”) and its material facts. I wanted to do that because several aspects of the High Court’s recent decision in CFMMEU v Contracting Personnel were causing some panic in the labour hire industry, and I wanted to see if it was justified.

The aspects that were proving especially troublesome were those passages in the judgments that seemed to be suggesting that, as a matter of binding principle, the mere making of a promise to work through a labour hire firm might be enough to make a person that firm’s employee – if the promise were used by the labour hire firm in running its business, as of course it is. 

Such a principle, if indeed it were the correct principle to extract from the case, seemed to conflate the “control test” with the “integration” or “organizational test”, applying selected elements of the “multi-factorial test” (though only to the terms of the written contract – mostly), whilst viewing all through the “prism” of the “own business test”, or something not entirely unlike it.

Heaven help us if we’re teaching employment law this semester!

But there, on pages 113-114 of my cherished copy of Maher, Waller & Derham, purchased at the exorbitant price of $8.50, was what I was looking for – a lucid but barely remembered account of the relationship between the binding rule of a case and its facts, showing how the material facts of Donoghue v Stevenson (the famed “snail-in-the-ginger-beer-case”) could be divided into fact families, the members of which could be “stated at various levels of generality”.

Applying the method recommended by those esteemed authors, I was able to discern four families of important facts that might go some way towards explaining what the High Court really said, and which might allay some of the alarm currently circulating through the labour hire industry.   

I’ll set them out, and then see if I can combine them into a workable statement of principle.

  1. Facts as to the worker’s identity & capacity: The worker was an individual, not in his own business.
  2. Facts as to the contract: The contract with the labour hire firm was wholly in writing.
  3. Facts as to preservation of independence: the worker’s promise to perform work for the labour hire firm’s clients as directed was not subject to a sufficient reservation of independence – eg. as to what work he would do or how he would do it.
  4. Facts as to the labour hire firm’s control and use of the worker’s promise: The labour hire firm controlled and used the worker’s promise as an asset in its business.

It’s going to be difficult for labour hire firms to avoid #2 and #4.  But #1 and #3 might suggest there is some scope to fashion a different outcome in some cases.

So, here’s a first attempt to extract the principle in CFMMEU v Personnel Contracting:

Where A, being an individual not in business for themselves, makes a promise to B, in a wholly written contract without sufficient reservation of independence, to perform work for C, which promise B controls and uses in its business, then A may be characterized as B’s employee.

Don’t hold me to that. I’ll need time to refine it. In fact, it might not be settled until later courts tell us what the High Court really meant. But might it work?  Might it keep the doors of a few locum agencies and professional on-hire firms open a bit longer?

Here’s hoping a court that needs to consider the issue in a different occupational context might think so!

Andrew C. Wood

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

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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

Why a “moral” payment obligation might indicate the need for a labour hire licence

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As you know, a payment obligation has to be part of the arrangement between the provider and the individual who performs the work if the individual is to be regarded as the provider’s worker (as that term is defined).

Throughout the “Lachie & Martin” series of videos , I’ve been suggesting that, even where a temping agency arranges for a payroll company to go “on record” as the employer of its temps, the agency can be left with a residual payment obligation sufficient to constitute the temps as its “workers” for the purposes of the labour hire licensing Acts. Why is that?

It’s because that Acts are clear that the arrangement between a labour hire provider and the individual who performs the work needn’t be contractual.

Now, if the arrangement needn’t be contractual, it follows that the payment obligation needn’t be contractual either. So what sort of obligations could those be? I can think of several different sources for such an obligation. Perhaps you can too.

Keep in mind that an arrangement, as distinct from a contract, is essentially a plan of action that the parties intend to put into effect with a sense of (moral) committment to it even though it may not be legally enforceable.

What temping agency, when it is setting its temps up to be employed by a payroll company, doesn’t enter into such an arrangement? It’s the arrangement, rather than the employment contract, that can leave the temp agency with the residual obligation… and, hence, the need to obtain a licence.

We’ll take a closer look at some typical arrangements next month, when we examine the “employer-of-record” phenomenon as well as some of the myths surrounding it.

Andrew C. Wood

Lachie & Martin examine their consultancy project team for labour hire licensing supply arrangements: Part 3 – Temp Agencies & Payroll Providers

In thisa third and final part of the series, Fictional characters, Lachie & Martin are back to examine the staffing arrangements for their consulting project team. This time, they’re focusing on the Interstate Temp Agency and Payroll (Employer of Record) Providers. Does anyone need a licence? Let’s find out.