For years, we thought that we were “astute”, using one-sided professional on-hire contracts that were stacked in the agencies’ favour. Clients wanted compliant professional labour without the costs of employment; and on-hire agencies developed business models that met, and continue to meet, that demand – despite the inherent risks.
It should have changed as the professional contracting sector came under increasing competition from contracting platforms such as UpWork and Fiverr. It should have changed; but it didn’t.
It should have changed in 2016, when the Australian Consumer Law was amended to prohibit the use of unfair terms in standard form, small business contracts, because the independent contractors were supposedly in business on their own account. It should have changed; but it didn’t.
It should have changed in June 2021, when the ACCC granted a class exemption to allow small businesses, including professional contractors, to bargain collectively on price, terms and conditions without breaching competition law. It should have changed; but it didn’t. Though there are some encouraging signs that the bargaining exemption is being adopted by health and medical professionals and by IT professionals.
It should have changed in February 2022, when the High Court said that if you’ve set yourself up as a mere purveyor of subservient, dependent, and compliant labour, and your contractor’s promise to perform work is a “core asset” of your business, then you’re looking a lot like an employer.[i] It should have changed; but it didn’t.
In New Zealand, it should have changed in August 2022, when amendments to the Fair Trading Act, which prohibited the use of unfair terms in standard form, small business contracts, commenced. It should have changed; but it didn’t.
It should be changing as the professional contracting sector is increasingly impacted by AI-driven technologies. Ask any recruiter about the ace-up-their-sleeve against being superseded by AI-driven technology, and they’ll tell you that it has something to do with their human touch and their contractor care programs. Well, if that’s right, it should be reflected in their contracts. It should be changing; but it isn’t.
Perhaps it will change in November this year, when the Australian Consumer Law will once again be amended to increase penalties for having unfair terms in standard form, small business contracts to $50 million.
Perhaps it will change; but my guess is that, unless the professional contracting on-hire agencies wake up to the changes that have taken place in their sector over the past decade, and stop using engagement and supply models developed in the 1980s, it probably won’t … at least not until their clients and contractors also wake up to the political, economic, social, and technological environment in which they’re now operating.
Post Script: Throughout February 2023, I was privileged to conduct a sustained Tuesday TalkAbout Live!masterclass exploration of issues facing professional contracting on-hire agencies. In March, I will be extending that exploration by taking a deeper dive into the Consumer Protection & Fair Trading regulation of the sector in Australia & New Zealand. One of the outcomes of our March masterclasses will be the development of a methodology for conducting a Consumer Protection & Fair Trading self-assessment. In April, we will shift the focus of our exploration into the field of competition regulation and explore ways to take advantage of exemptions and authorisations that facilitate the development of innovative supply models.
I hope you’ll take time to follow our exploration and participate in one of the sessions.
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.
It’s about time we had a serious conversation about some of the nonsense that’s been creeping in to so-called “payroll services” supply contracts.
Consider this common contractual formula:
Labour Hire Firm has sourced Individual to work as an on-hired physiotherapist for its Client.
Individual means Jo Physio.
Client means the Department of Health.
Payroll Provider must employ Jo Physio.
Payroll Provider must provide Services of Jo Physio to Client.
Services means physiotherapy services.
What do you make of it?
Has the Payroll Provider contracted a primary obligation to supply physiotherapy services to the Department of Health? If so, what authority did Labour Hire Provider have to make the bargain? Is it an obligation owed only to Labour Hire Provider, which Labour Hire Provider holds on some sort of trust for the Department?
Has Payroll Provider accepted a sub-contracted obligation from Labour Hire Firm to supply physiotherapy services to the Department of Health? What if Labour Hire Firm never had a contractual obligation to supply physiotherapy services to the department in the first place; but merely an obligation to supply a physiotherapy worker? Was there ever an obligation to supply physiotherapy services that could have been sub-contracted? Does the contract not mean what it appears to say?
What contracts and arrangements would you need to see if you were asked to untangle this mess – say, in order to identify the “true employer“; or to identify whether Jo Physio is an employee or an independent contractor; or to establish who needs a labour hire licence, or an employment agent’s licence; or to untangle indemnity and liability insurance obligations.
Sadly, I see a lot of “half-smart” contracts that create more problems than they solve because they ignore the basics and seem to be thrown together without too much in the way of legal analysis.
That’s why we need to get talking. And that’s what we’re going to do over the next three weeks as we dedicate a series of Tuesday TalkAbout Live sessions to this topic.
Check the details and make sure you don’t miss out.
I would like to acknowledge the 18 August 2022 LinkedIn post by Anthony Wood, Partner at Herbert Smith Freehills, Lawyers (and no relation of mine, so far as I know). Anthony brought to the attention of the LinkedIn community an important decision of the Full Bench of the Fair Work Commission this week, which sheds further light on the way in which Australian courts and commissions are likely to applyrecent decisions of the High Court that have changed the rules about how we distinguish between employees and independent contractors. He concludes his insightful post as follows:
“With job security one of the themes underpinning Labor’s 2022 election platform, it’s now likely to become a political and legislative issue before the new federal parliament”.
Please be sure to read Anthony’s post and engage in the conversation. You can find Anthony’s post on LinkedIn here.
“…as winds of change blow shrilly round my poor abode.” [i]
FWC Full Bench decision
Earlier this week, the Full Bench of the Fair Work Commission finally handed down its delayed decision in Deliveroo Australia Pty Ltd v Diego Franco.[ii]The case was an appeal from a finding of unfair dismissal in relation to a food delivery worker.
The decision was delayed whilst the case was put on hold to give time for the High Court to consider the appeals in Personnel Contracting[iii] and Jamsek;[iv] and then to allow the Full Bench to consider the effect which those decisions were to have on disposal of the matter before it.
Distinguishing between casual employment and independent contracting
Platform-based work, or gig-economy work, often presents as either casual employment or independent contracting. Sometimes it can be difficult to distinguish between them. That was certainly so in this case.
However, feeling constrained by the recent High Court’s decisions to limit its consideration to an analysis of the contractual rights and obligations of the parties, the Full Bench reversed the finding at first instance and determined ultimately that Mr Franco was an independent contractor. Consequently, his unfair dismissal claim was beyond the Commission’s jurisdiction.
Equivocal and weak factors
The following factors, though somewhat equivocal, were considered by the Full Bench to be not inconsistent with conventional understandings of casual employment:
that Mr Franco was not obliged to do any work for Deliveroo and that Deliveroo was not obliged to make any work available to Mr Franco (clause 2.2)[v]
that Mr Franco could accept or reject any work offered to him when logged into the Deliveroo Rider App (clause 2.4)[vi]
that Mr Franco was free to work for any other party including competitors of Deliveroo (also clause 2.2)[vii]
The following factors, though difficult to reconcile with conventional understandings of casual employment and weighing somewhat against a finding that Mr Franco was an employee, were still not determinative by themselves:
that Mr Franco had the right to elect not only when but where he chose to work, and that Deliveroo was restricted to offering work within the parameters thus determined by Mr Franco (clause 2.3)[viii]
that Mr Franco, even once he had accepted an order, was allowed to subsequently “unassign” himself from that order, in which case he was not obliged to perform it (clause 2.5.1)[ix]
The lesson, here, is that these factors are not decisive either of themselves or in aggregate.
Weightier factors
However, the Full Bench considered that four aspects of the work contract did weigh decisively in favour of the conclusion that Mr Franco was in an independent contracting relationship with Deliveroo.
Keep in mind that the factors might weigh differently in other cases. This was a case involving food delivery work. In a case involving construction or horticultural labour or academic work, the factors might not carry the same weight.
1.Deliveroo lacked control over the manner of performance of the work which Mr Franco agreed to undertake.[x]
Mr Franco was able to determine the route and what type of vehicle he would use to carry out his deliveries.
The Full Bench considered that the requirement for timely delivery was typical for independent contracting arrangements in the road transport industry and constitutes a performance standard rather than a right of control.
Similarly, broadly stated contractual obligations “to deal with others professionally” when performing delivery services and to “provide the services with due care, skill and ability” were interpreted by the Full Bench as merely establishing performance standards rather than a contractual right to control the manner in which the work was performed.
2.Mr Franco was obliged by clause 4.1 of the contract to provide, at his own expense, the vehicle used to carry out his deliveries.[xi]
Drawing upon the language of Gageler & Gleeson JJ in Jamsek, the Full Bench considered that the contract required Mr Franco to provide a “substantial item of mechanical equipment” such that “the personal is overshadowed by the mechanical”.
3. The contract did not require personal service on the part of Mr Franco.[xii]
Clause 9 of the contract provided that Mr Franco had the right, without the need for prior approval from Deliveroo, to arrange for someone else to perform delivery services on his behalf.
Many contracts provide for delegation. What was significant about this contract was that Deliveroo did not try by its contract to control Mr Franco’s right to delegate performance of the work to others. Whether or not it did so by other means was not relevant to the task of characterising the relationship.[xiii]
4. Although the method of remuneration (payment by results) was not inconsistent with an employment relationship, and would not have been determinative by itself, Mr Franco was required to pay an administrative fee of 4% of the amount earned by him.[xiv]
The fee was charged for access to Deliveroo’s software and for Deliveroo’s providing invoices and other administrative services. The Full Bench considered that this was not consistent with an employment relationship.
A word of caution, however. Reliance on this factor can quickly lead you into error if the weight of factors points to the relationship being one of employment. In those circumstances, charging an “administration fee” might amount to nothing more than making unlawful deductions from a worker’s wages.
Alternative redress and remedial frameworks
From a reading of paragraphs [53] to ]55] of the decision, one gets that the Full Bench reached its conclusion with a deep sense of regret. Anthony Wood, in his recent LinkedIn post,[xv]which I again encourage you to read, foreshadowed the need for a legislative solution when he wrote:
“With job security one of the themes underpinning Labor’s 2022 election platform, it’s now likely to become a political and legislative issue before the new federal parliament.”
Anthony Wood ,18 August 2022
He may well be right; and a legislative solution might eventually look something like the UK extension of employment entitlements to certain classes of dependent contractors defined as “workers” under the Employment Rights Act 1996 (UK). But I fear that such a solution will take time to develop, and that the complexities of applying a characterization tri-chotomy to the wide range of situations in which the distinction between employees and independent contracting is important under federal, state and territory legislation[xvi]may add an extra layer of complexity and confusion. That is not to say that it should not be attempted.
Commercial rather than industrial remedies?
For now, workers who find themselves in the position of Mr Franco may need to consider what alternative remedies may be available to them under the Independent Contractors Act 2006 (C’th) and the unfair-terms-in-small-business-standard-form-contracts of the Australian Consumer Law. They (and their representatives) may need to consider how to take advantage of the small business collective bargaining class exemption under the Competition and Consumer Act 2010 (C’th) if they seek to redress bargaining imbalances[xvii] and seek commercial, rather than industrial remedies.
A group of Boral concrete carters in Western Australia obtained protection under the ACCC’s class exemption earlier this year to collectively bargain with Boral Limited over “terms of agreement for the provision of cartage services including payment for carting concrete including using own vehicles, and other related terms”.
Whilst the outcome may not be as satisfactory as extending employment-like entitlements or providing legislative clarification of their worker status, there would be no reason in principle why Deliveroo independent contractors (and others in the same position) could not do likewise were someone to step forward to assist them with organization and representation.
[xiii] At para [54] the Full Bench observed, with regard to the workplace reality (as distinct from the legal character of the parties’ relationship): “As a matter of reality, Deliveroo exercised a degree of control over Mr Franco’s performance of the work, Mr Franco presented himself to the world with Deliveroo’s encouragement as part of Deliveroo’s business, his provision of the means of delivery involved no substantial capital outlay, and the relationship was one of personal service. These matters, taken together, would tip the balance in favour of a conclusion that Mr Franco was an employee of Deliveroo. However, as a result ofPersonnel Contracting, we must close our eyes to these matters.”
A recent Fair Work Commission decision might be worth a read if you’re scanning the labour hire horizon for signs of squalls ahead. It was an unfair dismissal case in which the applicant claimed she had been dismissed by Hays from her labour hire engagement as a project manager. However, it was not a typical tri-partite labour hire scenario.
Contractual Arrangements
Here’s how the Commission, described the multi-party contractual arrangements that underpinned the work relationship:
[13] It is necessary to briefly mention the contractual arrangements that were applicable to the work performed by [the applicant]. [The applicant] had entered a contract with a company called PayMe in May 2017 to provide what is in effect a payroll service to her …
[14] In November 2020 [the applicant] contracted through PayMe to provide her services to a client of Hays… Hays made weekly payments to PayMe in relation to the hours worked by [the applicant] while she was on the assignment.
per Deputy President Dean
Jurisdictional Contest
Although it was not included as a respondent to the application, the interposition of PayMe, in the arrangement for the supply of the applicant’s labour to Hays’ client, raised a question about the identity of her true employer (as distinct from her employer-of-record). Was it Hays, or was it PayMe?
Hays contested jurisdiction[i]on the grounds that:
the applicant was not an employee of Hays;
the applicant was not dismissed;
Her application was out of time; and
She earned more than the high-income threshold.
The parties agreed to contest the high-income threshold point as a preliminary issue on the basis that, if the application was knocked out on that ground, there was no need to argue the other points.[ii]
The Commission held that the applicant earned above the high-income threshold and that she was not an Award covered employee. It appears that only three awards were contended by her to apply to her employment:[iii]
Australian Government Industry Award 2016;
Clerks Private Sector Award 2020; or
Miscellaneous Award 2020.
Coverage under the Professional Employees Award 2020, which might also have been a contender, was not argued.
In view of its findings on income and Award coverage, the FWC determined that the applicant was an excluded employee and that her unfair dismissal claim was beyond its jurisdiction.[iv]
A “Missed Opportunity” or a “Near Miss”?
Consequently, the question of who was the true employer did not need to be decided.
There was no examination of Hays’ back-to-back contract with its client, as there was in Personnel Contracting[v]; and therefore, no core asset analysis of the type that might have determined whether Hays or PayMe controlled the provision of the worker’s labour[vi], or rendered the work performed by her dependent upon and subservient to[vii] either Hays or PayMe.
An answer to those questions may have provided further clarification of how the approach adopted by the High Court in Personnel Contracting and Jamsek[viii] should be applied in cases, where the contest is not merely about whether a worker is an employee or an independent contractor, but concerns the need to identify the true employer when there is more than one contender for that honour.
Whilst those questions remain unanswered, workers will continue to bear the cost and uncertainty of having to decide who, as between the person who pays them and the person who controls the supply of their labour to its clients, should respond to matters such as their worker entitlements, casual conversion and unfair dismissal claims, and their applications for anti-bullying orders. In harsh cases, they may be left without timely, reliable and effective remedies.
So, we will have to wait for answers to those questions.
[v]Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd(2022) 96 ALJR 89; [2022] HCA 1. See in the judgments of Kiefel CJ, Keane & Edelman JJ at paras [11]-[13], despite the view taken by their Honours that it was not necessary to refer to the LHA “in detail”. See also in the judgments of Gageler & Gleeson JJ at paras [144] and [158]; and Gordon J at para [168].
[vi]Personnel Contracting per Kiefel CJ, Keane & Edelman JJ at para [89].
[vii]Personnel Contracting per Kiefel CJ, Keane & Edelman JJ at para [90].
Photo by Pixabay on Pexels.comJames Wood interviews the author.
TRANSCRIPT:
ANDREW: Over the past few days, I’ve been invited to provide further commentary on my recent post about Employer of Record (EoR) arrangements and on-hire contracts with incorporated workers. Some of the questions raised by readers have been very insightful. So, I’ve asked James to compile them and pass them through to me in this podcast.
ANDREW: Sure. An Incorporated Worker Entity, or IWE, is typically a proprietary limited company through which a worker conducts a small business. So, for example, a person might incorporate a company to supply, say, ITC or project management services, with the person performing the actual ITC or project management work on behalf of the IWE – the Incorporated Worker Entity.
JAMES: So, are the individual workers the employees of the Incorporated Worker Entity?
ANDREW: Not always. They can be the employees of their IWEs. But they can work in other capacities as well. For example, they could be engaged as independent contractor consultants to their IWE. Or they might be a working director and be remunerated via directors’ fees. Or they could even be a shareholder in a family run business and be remunerated through dividends on their shareholdings. There are probably other methods as well, involving various types of trusts and partnerships.
JAMES: So, the Worker Entity supplies the services and the individual worker performs the work, right?
ANDREW: Yes.
JAMES: How does that work in an on-hire situation where the on-hire firm and its client might be a bit fussy about who is actually going to do the work?
ANDREW: It’s common in that setting for the contract between the Worker Entity and the on-hire firm to include a nominated worker clause. It’s a bit like the sort of nominated sub-contractor provision you might find in some commercial and works contracts.
JAMES: Could you include the nominated worker as a party to the contract between the Worker Entity and the on-hire firm?
ANDREW: You could do that. In fact, I used to draft on-hire IWE contracts that way back in the 1990s. The thinking back then was that it was a good way to tie up loose ends and keep control of the worker and of the IWE’s right of delegation.
But I stopped doing it around 2010, around the time of the commencement of the Fair Work Act, when I was asked to design an on-hire IWE template that framed the relationship as a genuine commercial relationship.
It seemed (well, it seemed to me at least) that it would be important to leave the engagement of the worker to the IWE – because the worker might have been remunerated by the Worker Enterprise as a working director, an independent contractor, employee, or a dividend receiving share holder.
Most on-hire IWE contracts of that period, which included the individual as a nominated party, ignored those distinctions and imposed obligations on the individual that could easily have been construed as the type of obligations typically owed by employees. I suspect that many still do.
JAMES: Would that be a problem?
ANDREW: Yes. I think so. The problem, of course, is that, where those obligations are owed to the on-hire firm, the arrangement is susceptible of being construed as one by which the on-hire provider, regardless of its arrangement with the Worker Entity, may have become the employer the nominated worker.
And since the High Court’s decision this year in Personnel Contracting, an on-hire IWE contract that includes the nominated worker might be even more susceptible to that construction if the obligations owed by the individual to the on-hire provider are treated as a “core asset” of the on-hire provider’s business that’s necessary to enable it to supply “compliant labour”to its clients.
So, my take on this is that it might be better, now, to leave the individual workers out of it.
It would still be possible to exercise proper control over the right to delegate. It’d simply be a matter of ensuring that the IWE could only delegate to approved workers, and establishing rigorous procedures for giving or withholding approval.
JAMES: OK. So, there could be some problems there. In your posts, you’ve spoken about “Employers of Record”. Could you clarify what you mean by an Employer of Record?
ANDREW: Of course. Well, an employer-of-record is simply someone who appears “on the record” as the employer of your workers, though they’re not the true employer. That’s to say, they don’t control the employment relationship in the same way that the true employer does; and the work which the employee performs is not dependent upon or subservient to them in the same way in which it is to the true employer. In this situation, the employee’s obligation to perform work will most likely be a core asset of the true employer rather than of the employer-of-record.
JAMES: So, what does an employer of record actually do?
ANDREW: Typically, 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. It might arrange for insurance and handle a range of administrative tasks for the true employer. It might, for example, perform those tasks as an agent for the true employer or employers in a group of related entities trading as a corporate group. That would be quite a common arrangement.
JAMES: But you say it’s not the true employer?
ANDREW: That’s right. In Australia, we don’t have a concept of joint employment or co-employment. There’s only one employer in any employment relationship. So, we can understand the employer-of-record as being just the nominee “on the record” for the true employer.
JAMES: How do you tell the difference between the employer of record and the true employer?
ANDREW: You look at the totality of the legal rights and obligations that exist between the parties. Whilst your contract (if you’ve got one) will usually be the primary focus of your inquiry, the New South Wales Supreme Court recently said, in March this year, that you don’t necessarily confine yourself to a consideration of the terms of the contract – even if it’s wholly in writing. The case was Spitfire Corporation v Aspirio. It seems to be a different approach from the way the High Court has said you go about determining whether a work relationship is one of employment or whether it’s one of independent contracting.
JAMES: You mentioned “payroll arrangements”. I wonder if we could now turn to the situation where a labour hire firm is appointing a payroll services provider…
What could go wrong when a labour hire provider engages a payroll services provider to pay its employee on the condition that the payroll services provider “must employ the individual,”
ANDREW: The first and obvious problem is that a contract that only says, “You must employ worker X” is not a contract that actually employs worker X. It’s only an agreement for you to do something. If you do employ worker X, then presumably there must be a contract somewhere that does that. And it would be that contract that’d be the chief guide in answering both the worker status question and the employer identity question.
JAMES: …and the labour hire provider’s worker is required to sign the agreement acknowledging that they are to be employee of the payroll provider?
ANDREW: If the worker is included merely to get signed up to various acknowledgements (such as of employment status or employer identity) then there’s the obvious problem that those acknowledgments might be nothing more than “labelling”. They may have little weight … except to the extent that they could evidence an attempt to avoid or to disguise aspects of the true work relationship.
And then because the worker’s obligations under such a contract (which we’ve already identified as not being the actual employment contract) are likely to be owed to the party that appoints the payroll services provider, rather than to the payroll provider itself, there’s a further risk that the obligations may be interpreted as signalling control by the appointing party (such as a labour-hire provider) that would be consistent with an employment relationship between the worker and the labour hire firm.
JAMES: Wow! Well, in the same situation what could go wrong if the worker was operating through their own Incorporated Worker Entity as a nominated person?
ANDREW: OK. So that type of contract contemplates that there would be four parties.
the on-hire firm that appoints the payroll provider;
the payroll provider itself;
the Worker Entity; and
the individual worker
Now what can go wrong … horribly wrong … is that a contract gets confused about who is doing what.
I’ve actually seen examples of contracts that confuse the payroll provider with the Worker Entity. The payroll provider supplies payroll and administration services, The Worker Entity provides the services that the on-hire firm’s client actually wants: like ITC services, project management services, engineering services, design services. That sort of thing.
The result can be an absurd arrangement by which the payroll provider apparently assumes the obligation to supply the services that the Worker Entity or the worker should provide.
Once you’ve got those sorts of problems, you can no longer rely on the contract as any sort of reliable guide to questions about who is the employer, or whether the work relationship is one of employment or independent contracting. And serious questions then arise about its enforceability.
JAMES: Well, that’s all the questions we have so far.
ANDREW: James, thank you for fielding those questions for us. I hope the answers have helped to clear up some of the confusion around this topic. If they have, be sure to drop us a line, and don’t forget to head across to the Australian & New Zealand Labour Hire Licensing & Regulation LinkedIn Group, where we can continue the conversation.
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 company 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 thework 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.
[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.
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!
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.
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