On 9 February 2020 the High Court held that an individual was the employee of a labour hire company (not a contractor, as described in his contract with that company). However the High Court did this on a basis that could be described as seismic, when it comes to the ’employee’ v’s ‘independent contractor’ definition (see related TT article), as they looked at the substance of the contractual position, without regard to subsequent conduct (in other words, this is another case reinforcing the primacy of the contractual terms). This action was about recovering the balance of award conditions (dependent on the employment relationship) but tax law is full of situations that depend on this distinction, starting with PAYGw and SGC.
CONSTRUCTION, FORESTRY, MARITIME, MINING AND ENERGY UNION & ANOR v PERSONNEL CONTRACTING PTY LTD – [2022] HCA 1
Today, the High Court allowed an appeal from a judgment of the Full Court of the Federal Court of Australia. The appeal concerned whether a labourer was engaged by a labour-hire company as an employee or an independent contractor. [By majority the High Court held he was an ’employee’ – overturning the Full Federal Court, which held he was an independent contractor.]
The second appellant (“Mr McCourt”) was a 22-year-old British backpacker with limited work experience who had travelled to Australia on a working holiday visa. He sought work from the respondent, a labour-hire company (trading as “Construct”). He was offered a role and signed an Administrative Services Agreement (“ASA”) with Construct. The ASA described Mr McCourt as a “self-employed contractor”. Construct assigned Mr McCourt to work on two construction sites run by Construct’s client, Hanssen Pty Ltd (“Hanssen”). Mr McCourt performed basic labouring tasks under the supervision and direction of supervisors employed by Hanssen. The relationship between Construct and Hanssen was governed by a Labour Hire Agreement. There was no contract between Mr McCourt and Hanssen.
The first appellant and Mr McCourt commenced proceedings against Construct in the Federal Court of Australia seeking compensation and penalties pursuant to the Fair Work Act 2009 (Cth) (“the Act”). The crucial issue was whether Mr McCourt was an employee of Construct for the purposes of the Act. The primary judge held that Mr McCourt was an independent contractor, and an appeal to the Full Court was dismissed. Both courts applied a “multifactorial” approach, by reference to the terms of the ASA and the work practices imposed by each of Construct and Hanssen.
The High Court, by majority, held that Mr McCourt was Construct’s employee. The majority held that where parties have comprehensively committed the terms of their relationship to a written contract, the efficacy of which is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute, the characterisation of that relationship as one of employment or otherwise must proceed by reference to the rights and obligations of the parties under that contract. These rights and obligations are to be ascertained in accordance with established principles of contractual interpretation. Absent a suggestion that the contract has been varied, or that there has been conduct giving rise to an estoppel or waiver, a wide-ranging review of the parties’ subsequent conduct is unnecessary and inappropriate.
Under the ASA, Construct had the right to determine for whom Mr McCourt would work, and Mr McCourt promised Construct that he would co-operate in all respects in the supply of his labour to Hanssen. In return, Mr McCourt was entitled to be paid by Construct for the work he performed. This right of control, and the ability to supply a compliant workforce, was the key asset of Construct’s business as a labour-hire agency. These rights and obligations constituted a relationship between Construct and Mr McCourt of employer and employee. That the parties chose the label “contractor” to describe Mr McCourt did not change the character of that relationship.
[High Court’s website – Judgment Summary]
Extracts from judgment
Further background
6 Mr McCourt and the Construction, Forestry, Maritime, Mining and Energy Union commenced proceedings against Construct seeking orders for compensation and penalties pursuant to ss 545, 546 and 547 of the Fair Work Act 2009(Cth) (“the Act”). The claims were made on the basis that Construct had not paid Mr McCourt according to his entitlement, as an employee of Construct, to payment in accordance with the Building and Construction General On-site Award 2010. Similar orders were sought against Hanssen, on the basis that it was liable as an accessory for Construct’s alleged breaches.
7 The crucial question in the proceedings was whether Mr McCourt was an employee of Construct for the purposes of the Act. The primary judge (O’Callaghan J), applying a multifactorial approach to that question, treated the description of Mr McCourt in the ASA as “the Contractor” as decisive of that question in circumstances where the other factors were “reasonably evenly balanced”. On that basis, the proceedings were dismissed.
8 The primary judge’s conclusion was upheld on appeal by the Full Court of the Federal Court of Australia [2020] FCAFC 122. The members of the Full Court (Allsop CJ, Jagot and Lee JJ) also approached the question by a multifactorial analysis, but made it clear that had it not been for the decision of the Western Australian Industrial Appeal Court inPersonnel Contracting Pty Ltd v Construction, Forestry, Mining and Energy Union of Workers (“Personnel (No 1)” [2004] WASCA 312) – which involved “essentially the same dispute between the same parties” – their Honours would have held that Mr McCourt was an employee of Construct. Lee J, with whom Allsop CJ and Jagot J agreed, described the notion that Mr McCourt was an independent contractor as “somewhat less than intuitively sound”. But because their Honours were not able to conclude that Personnel (No 1) was plainly wrong, they held that Mr McCourt had been engaged by Construct as an independent contractor and, therefore, was not an employee.
Earlier decisions involving triangular labour‑hire arrangements
85 Construct argued that Personnel (No 1)[138], when viewed alongside the decisions in Building Workers Industrial Union of Australia v Odco Pty Ltd[139] and Young v Tasmanian Contracting Services Pty Ltd[140], established a body of authority in which “Odco‑style” triangular labour‑hire arrangements have been held not to create relationships of employment. It was submitted that this Court should not overturn this long‑standing position. Many persons, it was said, will have relied on these decisions in arranging their affairs.
86 In this regard, Personnel (No 1) was wrongly decided, the critical error of the reasoning of the majority being the attribution of decisive significance[141] to the parties’ description of their relationship in a manner so as to “remove [the] ambiguity”[142] generated by other factors in the analysis pointing in opposite directions. The same error infected the decision in Odco[143]. That error involves a departure from principle which should not be perpetuated.
87 Construct also placed reliance on the decision of the UK Court of Appeal in Bunce v Postworth Ltd[144]. In that case, it was held that a labour‑hire agency was not in a relationship of employment with its worker because it lacked the requisite power of control, which instead was found to reside in the client to whom the worker was assigned. The Court of Appeal rejected the argument that the client’s day‑to‑day control originated in the contract between the labour‑hire agency and the worker. Keene LJ (with whom Gage LJ and Sir Martin Nourse agreed) said that[145]:
“[t]he law has always been concerned with who in reality has the power to control what the worker does and how he does it.” (emphasis in original)
88 The decision in Bunce is of little assistance in this case. The reference by Keene LJ to the “reality” of the situation does not accord with the central importance of the rights and duties established by the parties in their written contract. It suggests that the “reality” of the situation is, in some unexplained way, of a significance that transcends the rights and obligations agreed by the parties. To the extent that this involves an assumption that employment contracts are to be interpreted differently from contracts generally, that assumption is not consistent with the law in Australia. Further, the Court of Appeal’s emphasis on the exercise of control is inconsistent with the recognition by this Court that the gravamen of the concept of control lies in the authority to exercise control and not its practical exercise[146]. [emphasis added]
Vicarious liability of employees is different (there subsequent conduct is relevant)
82 However, given the confusion that arises from the conflation of questions of vicarious liability of an employer with questions of characterisation of a putative employment relationship, it is necessary to explain the difference. There are two conceptions of vicarious liability of an employer[132]: the traditional “agency” conception, where an employer has a primary liability for the actions of an employee or other agent[133]; and the policy‑based conception, where an employer has a secondary liability for the liability of the employee[134]. On either conception, the relationship of employment is only the first step in ascertaining whether vicarious liability exists. There is a necessary second step which requires consideration of the subsequent conduct of the employee, the event for which the employer is to be held primarily or secondarily liable, and its association with the employment relationship.[emphasis added]