Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd
[2015] FCAFC 37
•17 March 2015
FEDERAL COURT OF AUSTRALIA
Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] FCAFC 37
Citation: Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] FCAFC 37 Appeal from: Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (No 2) [2013] FCA 582 Parties: FAIR WORK OMBUDSMAN v QUEST SOUTH PERTH HOLDINGS PTY LTD (ACN 109 989 531), CONTRACTING SOLUTIONS PTY LTD (ACN 099 388 575) and PAUL KONSTEK File number: WAD 314 of 2013 Judge: NORTH, BARKER AND BROMBERG JJ Date of judgment: 17 March 2015 Catchwords: INDUSTRIAL LAW – appeal from dismissal of application for declarations of breach of s 357 Fair Work Act 2009 (Cth) – construction of s 357 FW Act – nature of representations proscribed by s 357 FW Act – where employees purportedly “converted” from employees of operating company to independent contractors of third party labour-hirer – whether representation by operating company that employees would be (or are) independent contractors of labour-hirer and not employees of operating company is a misrepresentation of “the contract of employment” and actionable under s 357(1) FW Act – not actionable – appeal dismissed.
INDUSTRIAL LAW – whether workers independent contractors of labour-hirer or employees of operating company – whether workers carrying on business –
application of indicia of carrying on business – workers not carrying on business – application of multifactorial test as to whether workers employees – workers employees –whether contracts existed between labour-hirer and workers and if so whether effective – whether contracts between labour-hirer and operating company effective – no effective contracts between labour-hirer and workers, or between labour-hirer and operating company –
circumstances in which it is necessary and permissible to imply a contract of employment – nature of contract to be implied – contract of employment implied between operating company and workers.INDUSTRIAL LAW – accessorial liability – s 550 FW Act – nature of accessorial liability under FW Act – whether knowledge of essential elements necessary for accessorial liability – knowledge of essential elements necessary – identification of essential elements of contravention of s 357 FW Act – whether onus of demonstrating knowledge of essential elements discharged – onus not discharged – accessorial liability not established.
Legislation: Acts Interpretation Act 1901 (Cth) s 13(2)(d)
Fair Work Act 2009 (Cth) ss 3, 3(a), 12, 336(2), 340(1), 357, 357(1), 357(2), 358, 359, 550, 550(1), 550(2), 570(1), Div 6 Pt 3-1
Federal Court of Australia Act 1976 (Cth) ss 27, 28
Independent Contractors Act 2006 (Cth)
Trade Practices Act 1974 (Cth) s 75B
Workplace Relations Act 1996 (Cth) ss 900–903, 900(1), 901(1), 903, Part 22
Workplace Relations Legislation Amendment (Independent Contractors) Act 2006 (Cth)
Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006 (Cth)Explanatory Memorandum, Fair Work Bill 2008 (Cth)
Explanatory Memorandum, Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006 (Cth)
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Re Odco Pty Ltd v Building Workers’ Industrial Union of Australia [1989] FCA 336
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Informax International Pty Ltd v Clarius Group Ltd (2012) 207 FCR 298
AB v State of Western Australia (2011) 244 CLR 390
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Barclay v Board of Bendigo Regional Institute of Technical and Further Education (2011) 191 FCR 212
Australian Municipal, Administrative, Clerical and Services Union v Greater Dandenong City Council (2000) 101 IR 143
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Construction, Forestry, Mining & Energy Union v Pilbara Iron Company (Services) Pty Ltd (No 3) [2012] FCA 697
Waugh v Kippen (1986) 160 CLR 156
Wainohu v New South Wales (2011) 243 CLR 181
Pettitt v Dunkley [1971] 1 NSWLR 376
Waterways Authority v Fitzgibbon (2005) 79 ALJR 1816
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Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21
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Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
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Wilton v Cole & Allied Operations Pty Ltd (2007) 161 FCR 300
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
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The Aramis (1989) 1 Lloyd’s Rep 213
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Tilson v Alstom Transport [2010] EWCA Civ 1308
Construction, Forestry, Mining and Energy Union v Victoria (2013) 302 ALR 1
Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210
Sweeney v Boylan Nominees Pty Limited (2006) 226 CLR 161
Stevens v Brodribb SawmillingCompany Proprietary Limited (1986) 160 CLR 16
On Call Interpreters and Translators Agency Pty Ltd v Federal Commissioner of Taxation (No 3) (2011) 214 FCR 82
ACE Insurance Ltd v Trifunovski (2011) 200 FCR 532
ACE Insurance Ltd v Trifunovski (2013) 209 FCR 146
London Australia Investment Company Limited v The Commissioner of Taxation of the Commonwealth of Australia (1977) 138 CLR 106
Accident Compensation Commission v Odco Pty Ltd (1990) 64 ALJR 606
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377
Chanter v Hopkins (1838) 4 M&W 399
Construction Industry Training Board v Labour Force Ltd [1970] 3 All ER 220
Australian Insurance Employees Union v WP Insurance Services Pty Ltd (1982) 1 IR 212
North East Equity Pty Ltd (ACN 009 248 819) v Proud Nominees Pty Ltd (ACN 074 270 938) (2010) 269 ALR 262
Construction, Forestry, Mining and Energy Union v Clarke (2007) 164 IR 299
Yorke v Lucas (1985) 158 CLR 661
Construction, Forestry, Mining and Energy Union v McCorkell Constructions Pty Ltd (No 2) (2013) 232 IR 290
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355Creighton B and Stewart A, Labour Law, (5th ed, The Federation Press, 2010)
Davies ACL, “Sensible Thinking About Sham Transactions” (2009) 38 ILJ 318
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Stewart A, “Redefining Employment? Meeting the Challenge of Contract and Agency Labour” (2002) 15 AJLL 235International Labour Organisation, “The Employment Relationship” (Report V(1) to the International Labour Conference, 95th Session, 2006)
Date of hearing: 25 February 2014 Place: Perth Division: FAIR WORK DIVISION Category: Catchwords Number of paragraphs: 340 Counsel for the Appellant: Mr IM Neil SC Solicitor for the Appellant: Clayton Utz Lawyers Counsel for the Second and Third Respondents: Mr RE Lindsay Solicitor for the Second and Third Respondents: Ashurst Australia
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
FAIR WORK DIVISION
WAD 314 of 2013
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: FAIR WORK OMBUDSMAN
AppellantAND: QUEST SOUTH PERTH HOLDINGS PTY LTD (ACN 109 989 531)
First RespondentCONTRACTING SOLUTIONS PTY LTD (ACN 099 388 575)
Second RespondentPAUL KONSTEK
Third Respondent
JUDGES:
NORTH, BARKER AND BROMBERG JJ
DATE OF ORDER:
17 MARCH 2015
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The appeal is dismissed.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
FAIR WORK DIVISION
WAD 314 of 2013
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: FAIR WORK OMBUDSMAN
AppellantAND: QUEST SOUTH PERTH HOLDINGS PTY LTD (ACN 109 989 531)
First RespondentCONTRACTING SOLUTIONS PTY LTD (ACN 099 388 575)
Second RespondentPAUL KONSTEK
Third Respondent
JUDGES:
NORTH, BARKER AND BROMBERG JJ
DATE:
17 MARCH 2015
PLACE:
PERTH
REASONS FOR JUDGMENT
NORTH AND BROMBERG JJ:
It is unlawful for an employer to represent to a person who is in fact its employee that the contract made with that person is a contract for services under which the person performs work as an independent contractor. It is also unlawful for a prospective employer to make a representation of that kind about a proposed contract of employment. Those prohibitions are the subject of s 357(1) of the Fair Work Act 2009 (Cth) (FW Act) contained in a Division of that Act headed “Sham arrangements”.
At trial, the appellant (Ombudsman), claimed that the first respondent (Quest), an operator of a business providing serviced apartments, contravened s 357(1) by making representations to two housekeepers employed by it to the effect that they would be (and later that they were) not its employees but independent contractors performing work at its premises. The Ombudsman alleged that the second respondent (Contracting Solutions), an operator of a labour-hire business, and the third respondent (Konstek), an agent of Contracting Solutions, were involved in Quest’s contraventions of s 357(1) and liable as accessories. The primary judge dismissed those claims.
The Ombudsman alleged that the primary judge erred for reasons including that the primary judge misconceived the claims it made. The Ombudsman sought a reconsideration of those claims.
A wide range of issues were raised by the appeal. Some of those were not raised before the primary judge at all and others were not agitated before the primary judge as helpfully as they might have been. The issues we need to consider include:
(i)The proper construction of s 357(1) (see [67]-[99]);
(ii)Whether the representations made by Quest were representations of the kind that s 357(1) proscribes (see [100]-[103]);
(iii)Whether the housekeepers were employees of Quest or independent contractors engaged by Contracting Solutions (see [132]-[234]);
(iv)Whether Quest misrepresented that the housekeepers were independent contractors (see [235]-[242]);
(v)Whether Quest misrepresented that the housekeepers would be independent contractors (see [243]-[249]); and
(vi)Whether either or both of Contracting Solutions and Konstek were involved in any contravention of s 357(1) by Quest (see [250]-[274]).
We have at [104]-[128] set out the reasons why, with respect to the primary judge, we have concluded that his Honour erred. However, by reference to an issue which was first raised on the appeal, we have determined that the appeal should be dismissed. We have come to that view because we consider that the representations made by Quest were not proscribed by, and thus not actionable under, s 357(1). In case we are wrong, we have considered and determined each of the issues identified at (iii)-(vi) above and done so on the basis of the alternate construction of s 357(1) for which the Ombudsman contended.
FACTS
The manner in which the primary judge resolved to dismiss the Ombudsman’s claims resulted in the primary judge not making most of the factual findings we will here record. Those factual findings are a combination of the unchallenged factual findings made by the primary judge together with many findings that we have been required to make in order to resolve the issues raised by this appeal.
In 2009, Quest carried on a business providing serviced apartment accommodation at some 40 apartments at “Quest on Arlington” in South Perth, Western Australia (Quest’s business). From mid-2009 until about November 2010, Quest employed Ashvin Luchmaya (Luchmaya) as the Manager of that business. Quest also employed various employees including receptionists and housekeepers (employed as casuals) to clean its serviced apartments (housekeepers). Quest paid its housekeepers at an hourly rate which differed depending upon what day of the week work was performed. Amongst the housekeepers were Margaret Best (Best) and Carol Roden (Roden). Both Best and Roden were first employed by Quest in 2007.
In mid to late 2009, Luchmaya contacted a representative of Contracting Solutions. Luchmaya indicated Quest’s interest in putting in place “the ODCO system” at Quest’s business. Contracting Solutions held a license with Odco Contracting Systems Australia Pty Ltd. The Licence Agreement provided Contracting Solutions with a licence to operate as an “ODCO Contracting Licensee” and utilise certain business procedures and systems in furtherance of what the licence described as Contracting Solutions’ desire to carry on a “contract labour hire business”.
Konstek was a contractor to Contracting Solutions. With the assistance of his partner Steven Buiks (Buiks), he acted for and on behalf of Contracting Solutions in all its relevant dealings with Quest.
Various meetings occurred between representatives of Quest (primarily Luchmaya) and Contracting Solutions (primarily Konstek) in September and early October 2009 with a view to Quest engaging Contracting Solutions to implement its contracting system for housekeeping and reception staff working at Quest’s business. Correspondence was exchanged. Quest provided Konstek with details of the hours worked by its housekeepers and receptionists and the rates paid to them. At that time Quest paid its housekeepers an hourly rate of $17.97 for work performed Monday-Friday; $21.56 for work performed on weekends; and $32.34 for work performed on public holidays. Contracting Solutions provided indicative figures as to what Quest could expect to be charged per hour for housekeepers and reception staff if it utilised Contracting Solutions’ system. The hourly rate identified as the rate that would be paid to contractors providing housekeeping services was a flat rate of $19.26 per hour payable irrespective of when the work was performed. That rate was higher than the ordinary time rate then paid by Quest to housekeepers for work on Monday-Friday but lower than the applicable rate paid for weekend or public holiday work. Contracting Solutions was of the view that Quest was paying its housekeepers less than the minimum award rate required by law. It indicated that its charge would be based upon contractors being paid a rate equivalent to the ordinary time award rate which would be payable as a “flat rate” applicable whenever work was performed. The correspondence identified that Contracting Solutions would charge 19.85% on top of the flat hourly rate to be paid to a contractor as well as a 1% charge for public liability insurance.
In the correspondence, Quest was told by Contracting Solutions that:
With our system we will convert all the current staff and also continue to sign up all the new staff upon your request.
The benefits of utilising Contracting Solutions services and our ODCO license means you are not bound by Industrial legislation or awards etc. This allows you the business owner to develop flexible working arrangements with your workers and not be governed by IR law. Our system gives you true flexibility.
In further correspondence from Contracting Solutions in early October 2009, Quest was informed that the “key difference” with the Contracting Solutions system was that Quest would not have to pay penalty rates to its employees.
A meeting occurred between Contracting Solutions and Quest on 8 October 2009. Quest was provided with a copy of a draft “Hiring Agreement” and a proposal prepared by Konstek and headed “The ODCO System of Independent Contracting – Contracting Solutions” (the Proposal). The Proposal described Contracting Solutions’ main objective as being “to provide businesses with a superior system of worker engagement and workforce management which assists them to attract, retain and reward their workforce”. The Proposal described “The ODCO System” in the following terms:
THE ODCO SYSTEM
Contracting Solutions is an agency licensed under the ODCO system to engage workers as independent contractors who are on-hired to work with a specific client. (See
In simple terms: workers sourced by you are registered as ODCO independent contractors and are on-hired to work exclusively with your business. By using this system, you retain 100% control over how and when contractors work without breaching legislation such as the Australian Tax Office 80/20 rule and Personal Services Income ruling.
The ODCO model is akin to a system of labour-hire, however, commercial contracts (rather than “contracts of employment”) govern the ‘tri-partite’ relationship between Contracting Solutions, the client and the contractor.
Our system of contracting is not only useful for contractors. Offering the ODCO system to existing employees assists businesses to attract, retain and reward their workforce with remuneration packages that legally can’t be offered via employment and industrial relations legislation.
Contracting Solutions removes the uncertainty and risk associated with direct contractor engagement and direct employment. Workers engaged as ODCO independent contractors operate outside state and federal industrial relations systems and gain validity through the Independent Contractors’ Act 2007 and Federal and High Court decisions. (see: (1) The High Court Judgment Accident Compensation Commission v Odco Pty Ltd F.C. 90/040 of 22 October 1990 and (2) Odco P/L v Building Workers’ Union of Aus (1989) No VG 151of 1988)
These judgements have been challenged on occasion, however, when administered correctly have always been found to be a legal method of contractor engagement. Contracting Solutions has a 100% success rate in this area which is further strengthened by its partnership with Workplace Relations & Management Consultants, the largest privately owned industrial relations firm in Western Australia.
Contracting Solutions contractors:
•are bona fide independent contractors;
•will not be deemed employees;
•are not subject to industrial relations legislation, awards or other employment entitlements;
•will have no contractual connection to your business;
•are recognised by the ATO as contractors who are not required to obtain an ABN, register for GST or submit BAS Statements regardless of how much they earn;
•are subject to the Australian Superannuation Guarantee Levy and must have their contributions paid into a superannuation fund.
(errors in original)
The Proposal made a number of further representations relevant to the issues raised on the appeal:
·Contracting Solutions contractors are engaged under a commercial contract which has been tried and tested in the High Court of Australia;
·Contracting Solutions will perform all payroll functions and develop a tailored electronic timesheet for Quest to record the number of hours (or units) worked by each contractor weekly, fortnightly or monthly. Quest will only need to input the number of hours (or units) worked by each contractor into the timesheet which is then to be provided to Contracting Solutions for processing;
·Following each “pay run”, Contracting Solutions will issue Quest an “all inclusive” invoice based on the relevant timesheet. Those invoices will include all statutory costs (for contractors) plus Contracting Solutions’ management fees;
·Contracting Solutions will issue contractors with “remittance slips” (later referred to as “payslips”) and end of financial year payment summaries;
·Contracting Solutions will withhold PAYG tax for contractors;
·Contracting Solutions will hold the workers’ compensation insurance policy for contractors and manage all claims and assist with worker rehabilitation;
·Quest and Contracting Solutions will jointly be responsible for OHS obligations and must assist any injured contractors in their return to work;
·Contracting Solutions’ charges to Quest will include workers’ compensation insurance; and
·Contracting Solutions will ensure that the following “contractor statutory requirements” are met for all contractors:
opublic liability insurance;
oworkers’ compensation insurance;
osuperannuation contributions;
opayroll tax;
oPAYG tax withholding; and
oindustrial relations and common law obligations.
The document also asserted that as a result of a ruling by the Australian Taxation Office, ODCO contractors were not required to possess an ABN, register for GST, or submit quarterly BAS statements and that contractors also had no need to invoice either Quest or Contracting Solutions.
The Proposal asserted that Quest would be able to operate with peace of mind as to the legitimacy of “your workers” and offer the most competitive remuneration packages which would help Quest to attract, retain and reward “your staff”. It asserted that Quest would no longer need to worry about a range of issues including “confusion about legitimacy of contractors (i.e. contractor vs employee)”. It stated that engaging the services of Contracting Solutions would relieve Quest from the burden of worker administration and remove the risk associated with direct worker engagement.
As the primary judge found at [227], there was no suggestion in the discussions between Konstek and Luchmaya that the arrangements to be made should be other than those contained in the Proposal. The discussions were directed to ensuring that those of Quest’s existing staff who were “converted” from employees into independent contractors were to continue to work at Quest’s business doing the same job in the same manner as they had done before. The only practical change was that they would receive their changed income from Contracting Solutions rather than from Quest.
In October 2009, Quest entered into an agreement with Contracting Solutions described as a “Hiring Agreement” (Hiring Agreement). By the terms of that agreement, Quest engaged Contracting Solutions to provide “the administrational management of Contractors” as requested by Quest. The agreement described Contracting Solutions as “a service company … which supplies self-employed contractors to business & industry.” It further described Contracting Solutions’ services as managing “all tasks related to Contractor engagement and administration of payroll, workers compensation, superannuation, payroll tax and PAYG payments for all Contractors operating through Contracting Solutions”. In that context, the Hiring Agreement noted that “Contractors operating through Contracting Solutions are yours [Quest’s] to direct … ”. The Hiring Agreement further contained Quest’s acknowledgment that Contracting Solutions “is not performing the services required of Contractors, but are [sic] instead the supplier of Contractors, at the Client’s request, to perform the work that it has requested”.
Other terms of the Hiring Agreement dealt with the fee that it was agreed Contracting Solutions would charge for its services. The fee was referred to as a “management fee” and was said to be calculated as a percentage payable on “Contractor gross remuneration inclusive of superannuation contributions”. The Hiring Agreement also provided that, other than by prior agreement, Contracting Solutions was not obliged to process contractor payments until Contracting Solutions’ invoice for the relevant payment period had been paid by Quest’s business.
The Hiring Agreement was signed on behalf of Quest by Derek Haayema (Haayema), who was a shareholder and a director of Quest and was, for a brief period of time in 2006, a manager at Quest.
It was common ground that the process by which existing employees of Quest would be “converted” into independent contractors working at Quest was agreed to be, and was in fact, managed by Contracting Solutions on behalf of Quest. The object of that exercise, as understood by both Konstek and Luchmaya, was to have the existing housekeepers and reception employees of Quest continue to perform the same work for Quest as they were then performing but as independent contractors under Contracting Solutions’ system and not as employees. For that purpose, a number of meetings occurred between either or both of Konstek and Buiks (on behalf of both Contracting Solutions and Quest) and housekeepers and reception employees of Quest including Roden and Best.
The evidence given about these meetings by various of the witnesses who attended (principally Konstek, Buiks, Roden and Best) was somewhat inconsistent as to how many meetings there were, when they occurred, and what precisely was said. The detail is not crucial but a basic outline of what occurred is important and can be gleaned from the evidence without the need to resolve any significant inconsistency.
It is likely that the first of the meetings occurred in late October 2009 and was attended by Konstek, Buiks, Roden, Best and two or three other housekeepers employed by Quest. It lasted some 30 to 40 minutes. Other initial meetings also occurred with other groups of employees. Follow up meetings then occurred some two weeks later. The principal purpose of the follow-up meetings was to obtain completed application forms provided at the earlier meetings.
Luchmaya attended at the start of the initial meetings. He introduced one or both of Konstek and Buiks to the employees and then left. Either at that time or earlier, Luchmaya encouraged Roden and Best, and other employees, to take up the arrangements to be offered to them. Employees were told by Luchmaya that to do so would be of benefit to them and to Quest.
At the initial meetings with existing employees, employees were given a “sign up pack” which included, amongst other things, a document of some 28 pages entitled “Contractor Guide” (Contractor Guide) and an application form (Contractor Application). Employees were “walked through” the Contractor Guide. A number of representations were made to the employees urging them to sign up and stressing the asserted benefits of “converting” to being what Konstek, Buiks and the material distributed described as “independent contractors” or “self-employed contractors”. As part of what he acknowledged to be a sales pitch to the employees, Konstek stressed what was asserted as the “higher rate of pay” that would be paid to the employees as independent contractors. They were told that they would get $20 an hour, 1% of which would pay for public liability insurance.
Employees were told that “converting” to becoming “independent contractors” would benefit them and benefit Quest and its business. Those matters were emphasised. The employees were also told that if there was insufficient work for them at Quest, Contracting Solutions would try to find them work elsewhere.
Nothing was said to the employees about the advantages of remaining an employee (including access to penalty rates, overtime rates, unfair dismissal protections and, for permanent employees, access to holiday and sick leave) or any disadvantages of being an independent contractor. Konstek and Buiks acknowledged that their purpose was to sell to the employees the benefits of becoming “independent contractors”. The more employees that signed up, the more that Konstek and Buiks would be remunerated.
For reasons we will explain, an important consideration in the resolution of this appeal is the content of the representation made by Quest at this initial meeting about the nature of the contractual arrangements pursuant to which Best and Roden would perform work should they take up the proposal being offered to them. There is no issue that the representation was made by Quest through Contracting Solutions acting as its agent.
The alleged content of this central representation was set out at paragraph 11 of the Ombudsman’s Amended Statement of Claim. However, the primary judge does not appear to have made any finding as to the pleaded representation. But, his Honour made an assumption that the representation pleaded at paragraph 11 was made (at [255]).
It will be necessary for us to make a finding as to the content of this central representation. The finding we make is based on our assessment of what would have been conveyed to persons such as Best and Roden by what was said to them, taking into account the circumstances in which it was said including that Contracting Solutions was proposing that they become independent contractors of Contracting Solutions. We find that at the initial meeting attended by Best and Roden, Quest represented to them that upon accepting Contracting Solutions’ proposal, they would continue to perform work at Quest but would do so as independent contractors of Contracting Solutions and not as employees of Quest.
After the initial meeting, Best had a number of discussions with others as to whether she would sign up. She did not want “to change to working under the contract.” However, on 30 October 2009 she signed the Contractor Application and handed it in. Roden attended a follow up meeting or two and signed up thereafter. Unlike Best, who asserted that she was told she would lose her job if she did not sign up, Roden’s evidence was that although she had been told that she would not lose her job if she refused to sign up, she was apprehensive as to whether that would truly be so. She felt that if she did not sign she may lose her job.
Whilst at trial the Ombudsman contended that employees were threatened that if they did not “convert” they would lose their job with Quest, the primary judge found no such threat was made to either Roden or Best. His Honour found that whilst neither Roden nor Best desired to change any aspect of her employment with Quest, each was induced to do so by the representations made to her by Contracting Solutions at the instance of Quest (at [204]). Neither was expressly or impliedly told she would have no job with Quest unless she signed the Contractor Application, but the primary judge accepted that both Best and Roden believed that they had no or little option but to sign the Contractor Application if they wanted to continue working at Quest (at [239]). None of those findings has been challenged.
The Contractor Application which each of Best and Roden completed began with an “Introduction” in which the applicant is congratulated and told that he or she is “one step closer to becoming an Independent Contractor with Contracting Solutions”. The introduction emphasises that the Contractor Application must be approved by Contracting Solutions “prior to [the applicant] engaging and commencing work through this Agency”. The applicant is then asked to complete the application which is organised into various sections.
Personal details and contact information are required to be entered followed by the details of the applicant’s bank account. That is followed by a section dealing with insurance in which the applicant is informed that holding public liability insurance is mandatory. Either proof of the existence of such coverage was required, or the applicant must opt to participate in the “blanket policy” held by Contracting Solutions at a cost of 1% of “your remuneration”.
The applicant is then informed about the optional income protection insurance available through Contracting Solutions. The applicant is told that Contracting Solutions conforms with the requirements of the “SGAA (Superannuation Guarantee Act Australia),” a likely reference to the Superannuation Guarantee (Administration) Act 1992 (Cth). Conforming to the requirements of that Act is said to be compulsory “for all Independent Contractors operating through this Agency”. The applicant is requested to authorise “this Agency” to either remit superannuation payable to a superannuation fund operated on behalf of Contracting Solutions or to the applicant’s chosen fund.
In a section dealing with taxation, the applicant is told that “all individuals working under labour hire arrangements will have income tax withheld under the [Australian Taxation Office’s] PAYG [Pay As You Go] system”. The applicant is instructed to complete a “Tax File Number (TFN) Declaration” and is told that, in lieu thereof, Contracting Solutions will deduct tax at a rate of 46.5%.
Details of the applicant’s work history are then required to be included. Under a heading “Your Medical History”, the applicant is told that occupational safety and health laws throughout Australia state “that we have a duty of care to ensure you are able to perform your duties in a fit and proper manner”. A number of questions are then posed about the applicant’s medical history which the applicant is required to answer. The same statement about the duty of care of Contracting Solutions is made in the section “Your Workers Compensation History”. A series of questions is asked about any workers’ compensation claims made or workers’ compensation payments or Centrelink benefits received by the applicant. The applicant is then asked to complete a declaration which substantially deals with workers’ compensation issues. The declaration requires the applicant to advise of any illnesses, injury or workers’ compensation claim payments made between submitting the application and the commencement “of an assignment”.
The applicant is then asked to acknowledge that he or she has viewed Contracting Solutions’ “Safety Induction Video”. A series of safety-related questions is posed for the applicant to answer.
That is followed by a heading “Independent Contractor Questionnaire”. The applicant is told that a series of questions needs to be completed in order “[t]o ensure that we have clearly communicated the unique way of working as an Independent Contractor through this Agency”. Some nine questions follow. They deal with the applicant’s knowledge of the way in which the Contracting Solutions system operates in relation to the making of payments, insurance, taxation, superannuation, injury reporting and occupational health and safety.
The final question asks the applicant to identify the legal status of a worker engaged “through our Agency”. Three options are given – an employee of the “Client”; an employee of “our Agency”; or “an Independent Contractor”. In answer to that question both Best and Roden stated “Independent Contractor”. In the case of Best, the form suggests that she first answered “employee of our Agency” but then changed that to “Independent Contractor”. There were no questions which sought information from Best or Roden about the nature of her business or intended business as an independent contractor. Nor was there any screening or other process utilised in which that information may have been provided or the suitability of Best and Roden to be independent contractors running their own business assessed.
The next section is headed “Your Agreement to Contract” and asks the applicant to agree to what is described as “the following Conditions of Contract” (the Agreement to Contract). To be completed, the Agreement to Contract requires the applicant’s signature and that of a representative of Contracting Solutions. Its terms are as follows:
1.I acknowledge and agree that there is no relationship of employer/employee with Contracting Solutions (CS) and that CS does not guarantee me any work. I am self-employed and as such I am not bound to accept any work through CS.
2.I hereby agree to work for an agreed amount per hour for actual on-site hours, or job price to be agreed.
3.I instruct CS to make deductions in respect of the Pay As You Go (PAYG) system of taxation.
4.I hereby agree to have no claims on CS in respect of Holiday Pay, Long Service Leave, Sick Pay or any similar payment.
5.I hereby agree that CS has no responsibility or liability to me, except that I am guaranteed to be paid for actual on-site hours worked or agreed job price for work done.
6.It is agreed that I must carry out all work that I agree to do through the Agency of Contracting Solutions in a proper manner and Contracting Solutions is hereby guaranteed against faulty work. All faulty work must be made good at no cost to Contracting Solutions. I agree to cover the work (where necessary) for Public Liability, Accident Insurance, Long Service and Holiday Pay, and have no claims in respect of the above.
7.I hereby agree to supply my own equipment including safety equipment (where necessary) for Public Liability, Accident Insurance, Long Service and Holiday Pay, and have no claims on CS in respect of the above.
On 17 November 2009, the Office Manager at Contracting Solutions instructed Kasey Jaeger (Jaeger), who held the position of Client Manager at Contracting Solutions, that all Quest workers had to be processed and entered into the payroll system, regardless of whether they had completed the Agreement to Contract or not.
Roden first received a payment and payslip from Contracting Solutions on 18 November 2009 for the period 2-15 November 2009. Roden continued to work at Quest in 2010. It appears from her evidence and that of Dinesh Bheeroo (a supervisor who worked at Quest), that Roden was still working at Quest in around November 2010 when Quest decided that it would stop using Contracting Solutions and pay its housekeepers directly. That change occurred soon after Luchmaya departed and a new owner took over the Quest business. The last day worked by Roden for which she received payment from Contracting Solutions, was 14 November 2010.
Best also first received a payment and payslip from Contracting Solutions on 18 November 2009 for work performed from 2-15 November 2009. She continued to work at Quest and receive payment from Contracting Solutions until she was injured in an accident at home on or about 28 November 2009.
The work of Roden and Best after their “conversion” continued to be the cleaning of Quest’s apartments. They were not supervised whilst cleaning but their work was checked by management. They worked to the same roster system as before. A roster was prepared by Quest and located on a noticeboard at Quest. On arrival for a rostered shift, they received instructions as to which apartments to clean from job sheets provided by Quest. They filled out timesheets, as they had done before, recording their starting and finishing times. They continued to report to Luchmaya or his successor on any issue or problem concerning their work. Best continued to work to the same hours of work as those she had prior to the “conversion”. Roden continued her regular pattern of working Mondays, Wednesdays‑Fridays and Saturdays. If Roden needed a day off, she contacted Luchmaya. If Best wanted to change her rostered shift, she contacted the office staff at Quest.
After the “conversion”, neither Roden nor Best provided any uniform or any equipment but continued to wear the uniform provided by, and use the equipment supplied by, Quest.
The only change noticed by Best was that the timesheets were no longer headed “Quest”. There was no heading on the timesheets. The other change was that both Roden and Best received their pay and payslips from Contracting Solutions.
The primary judge found (at [213]) that Contracting Solutions did not discuss with Quest when the workers would be required to work or even knew when they would be working. The workers just worked as required by Quest with nothing changing in any practical sense. The unchallenged finding of the primary judge (at [240]) was that:
It is also quite clear on the evidence that thereafter Ms Best and Ms Roden performed precisely the same work at Quest South Perth in exactly the same way as they had always done.
In the year or so that Roden received payments and payslips from Contracting Solutions, she had no other contact with Contracting Solutions of any particular significance. In the first month or so she saw Konstek in passing and said hello to him. On one occasion, she contacted Konstek because she had a question about her taxation. She was referred to an accountant. On a second occasion, she had a query about transferring her superannuation entitlements.
In the period between when Best signed the Contractor Application and last worked at Quest, Best did not see or have any contact with anyone from Contracting Solutions.
When Best reported her injury and her inability to work to Luchmaya in late November 2009, there was a confrontation in which Luchmaya told Best that he did not accept she could not work. When on 7 January 2010, she rang Quest and advised she had been certified as fit to return to work, Luchmaya told her there was no work for her at that time. Ultimately, she was told by Quest that there was no job for her.
In order to obtain unemployment benefits, Best requested that Quest verify to Centrelink that she had not resigned her job. She was told by Quest that for that purpose she should approach Contracting Solutions “because they were your employer”. Best then went to the offices of Contracting Solutions and had a conversation with Jaeger. She was told by Jaeger that Contracting Solutions would contact its clients who may require cleaning services to see if alternative work for Best was available.
This was the last contact Best had with Contracting Solutions. Whilst there is an issue as to whether Best received a message left by Jaeger on Best’s mobile phone, there is no issue that Jaeger tried to contact Best to advise her of an available position with a client of Contracting Solutions.
It is doubtful although somewhat unclear as to whether Contracting Solutions supplied any workers to Quest who had not been former employees of Quest and participated in the “conversion” process. There is evidence of one request having been made by Quest for a housekeeping supervisor on 25 November 2009. However, Robert Hutchinson (Hutchinson), the CEO of the group of companies which included Contracting Solutions, accepted that Contracting Solutions had not supplied any housekeepers who were not former employees of Quest. Best’s evidence was that a few days after she was told she was no longer required, she saw an advertisement in the newspaper for housekeepers at Quest. The advertisement included the Quest logo, and did not say anything about Contracting Solutions. That evidence suggests that Quest replaced Best through its own efforts.
SECTION 357 AND THE COMPETING CLAIMS AT THE TRIAL
By its Amended Statement of Claim, the Ombudsman claimed that in the process of the “conversion” and in relation to conduct directed at a receptionist employed by Quest, Jessica Buttrum-Virco (Buttrum-Virco), Quest contravened s 358 of the FW Act and Luchmaya was accessorily liable in relation to that contravention. It also claimed that Quest contravened s 357 of the FW Act and that Contracting Solutions and Konstek were involved as accessories. The findings made by the primary judge in relation to the claims of contraventions of s 358 are not the subject of the appeal and need not be dealt with in any detail.
In relation to s 357 of the FW Act, the Ombudsman claimed that two different categories of contravention occurred in relation to representations made to Buttrum-Virco, Roden and Best. As no issue arises on the appeal as to the representations made to Buttrum-Virco, those representations need not be further addressed. The two categories of representations pleaded by the Ombudsman reflect the fact that s 357(1) deals with representations made about a proposed contract as well as representations made about an extant contract, as we later explain.
In relation to a representation about a proposed contract, the Ombudsman pleaded at paragraph 11 of its Amended Statement of Claim that on various occasions in November 2009, Quest represented to Roden and Best that:
… if they underwent the Conversion, they would thereafter be engaged under a contract for services under which they would perform work for Quest as an independent contractor.
As to the representation about an extant contract, the Ombudsman pleaded at paragraph 12 of its Amended Statement of Claim that from November 2009, Quest and Contracting Solutions represented to Roden and Best during the course of their engagement that:
… once they had undergone the Conversion, they were engaged under a contract for services under which they would perform work for Quest as an independent contractor.
The ongoing nature of that representation was pleaded as a matter to be implied from the fact that neither Quest nor Contracting Solutions withdrew or qualified the representation made in November 2009 (the paragraph 11 representation) and further implied by conduct, being that Roden and Best had undergone the “conversion” and were paid by Quest and Contracting Solutions as though they were engaged under a contract for services under which they performed work for Quest as independent contractors.
The misrepresentational nature of both kinds of representations relied upon by the Ombudsman were then pleaded at paragraph 13 of the Amended Statement of Claim as follows:
Notwithstanding the representations referred to in paragraphs 11, 11A and 12, after Buttrum-Virco, Roden and Best had undergone the Conversion in or about November 2009, they were in fact thereafter employed by Quest under a contract of employment.
At the trial and to substantiate the misrepresentational nature of the representations pleaded, the Ombudsman contended that the process by which Best and Roden were purportedly “converted” from employees to independent contractors was, in truth, a “sham”, and was legally ineffective. The allegation of a “sham” was made in the broad sense of a disguised arrangement and not in the common law sense which we later detail. The Ombudsman disputed that as a result of the “conversion”, Best and Roden had become independent contractors engaged by Contracting Solutions to provide services to Quest. The Ombudsman contended that after the “conversion”, Best and Roden continued to perform work for Quest in precisely the same way they had always done, with the only exception being that they were paid by Contracting Solutions. In relation to the making of those payments, the Ombudsman contended that Contracting Solutions was merely acting as the agent of Quest.
The Ombudsman accepted that the employment of each of Best and Roden by Quest terminated upon Best and Roden completing and submitting the Contractor Application. Primarily for the purposes of the Ombudsman’s s 358 case, those terminations were characterised as constructive dismissals brought about involuntarily.
It was the Ombudsman’s case that after those dismissals, and given that the contractual arrangements made between Contracting Solutions and each of Best and Roden were a “sham” and legally ineffectual, the fact that Best and Roden continued to perform work for Quest in the same way as they had always done was to be explained by the re‑making of a contract of employment between Quest and each of Best and Roden. Those contracts of employment, the Ombudsman contended, were to be implied from the conduct of Best, Roden and Quest. In that respect, the Ombudsman relied upon the facts of and the reasoning in Damevski v Giudice (2003) 133 FCR 438.
Quest and Luchmaya did not appear at the trial. Contracting Solutions and Konstek appeared and contested the Ombudsman’s application including by denying that Quest had contravened s 357(1). At both the trial and on the appeal they were represented by the same Counsel and made joint submissions. For ease of reference we will refer to their joint submissions as Contracting Solutions’ submissions.
Contracting Solutions contended that the “conversion” had resulted in a legally effective contract between Contracting Solutions and each of Best and Roden. Pursuant to it and the Hiring Agreement, Best and Roden provided services to Quest as independent contractors engaged by Contracting Solutions. Contracting Solutions denied the existence, post the “conversion”, of any employment contracts between Quest and Best or Quest and Roden. Contracting Solutions asserted that Best and Roden had contractual relationships with Contracting Solutions and none at all with Quest. It pointed in particular to the facts that Contracting Solutions had the responsibility for paying Best and Roden and had responsibility for the provision of their workers’ compensation insurance, superannuation contributions, payroll tax, PAYG withholding tax, and public liability insurance. Contracting Solutions contended that the contractual arrangements by which Best and Roden provided work at Quest were akin to those dealt with in Re Odco Pty Ltd v Building Workers’ Industrial Union of Australia [1989] FCA 336 (Odco No 1); and on appeal, Building Workers’ Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104 (Odco No 2) and that the reasoning applied to resolve that case was applicable in this case.
On that basis, Contracting Solutions contended that given that, from November 2009, there was never a prospective or extant employment agreement between Quest and Best or Roden, the representations made by Quest during the “conversion” process that Best and Roden would work at Quest as independent contractors contracted to Contracting Solutions were not misrepresentations and that therefore, no contraventions of s 357(1) had occurred.
THE PROPER CONSTRUCTION OF S 357(1)
Section 357 of the FW Act provides:
(1)A person (the employer) that employs, or proposes to employ, an individual must not represent to the individual that the contract of employment under which the individual is, or would be, employed by the employer is a contract for services under which the individual performs, or would perform, work as an independent contractor.
Note: This subsection is a civil remedy provision (see Part 4-1).
(2)Subsection (1) does not apply if the employer proves that, when the representation was made, the employer:
(a)did not know; and
(b)was not reckless as to whether;
the contract was a contract of employment rather than a contract for services.
No issue as to the proper construction of s 357(1) arose before the primary judge. Two issues of construction arise on the appeal. The first relates to the two-pronged operation of s 357(1). There are two kinds of misrepresentations actionable under s 357(1), and s 357(1) operates differently depending upon which kind of misrepresentation has engaged the provision. The second is an important and determinative issue of construction relating to the nature of the representations actionable under s 357(1) to which we have earlier referred. The construction we have adopted, is applied at [100]-[103] below.
The first issue of construction is relevant to whether the Ombudsman established that Quest had made misrepresentations to Best and Roden about prospective contracts of employment. The construction we adopt is applied at [243]-[249] below where we deal with that claim.
We will begin with a consideration of the first issue. The terms of s 357(1) contemplate two distinct kinds of misrepresentations. The first is a representation about a prospective employment. In relation to that kind of representation, a person proposing to engage an individual by an agreement which, if made, would be an employment agreement under which the individual would perform work as an employee, will contravene s 357(1) if the person represents that the proposed agreement would be a contract for services under which the individual would perform work as an independent contractor. A contravention of that kind is dependent upon an affirmative answer to each of the following questions:
(i)Was a representation of that kind made; and
(ii)Would the proposed agreement, if made, be an employment agreement pursuant to which the individual would perform work for the representor?
The second kind of misrepresentation contemplated by s 357(1) is a misrepresentation about an extant employment. In relation to that kind of representation, a person who is an employer party to an employment agreement will contravene s 357(1) if the person represents to the employee that he or she performs work under a contract for services made between the parties, when in truth the work is being performed pursuant to a contract of employment between the employer and the employee. The two fundamental elements here raised are:
(i)Was a representation of that kind made; and
(ii)When made, was the individual to whom it was made performing work for the representor under a contract of employment made with that person.
In relation to a representation about a proposed agreement, the second question is to be answered by reference to what was being proposed. The nature of the agreement which eventuated may be relevant in determining this, but the relevant question is whether the nature of the agreement proposed was misrepresented at the time the proposal was made. The question is not whether a representation made about the nature of the proposed agreement turned out to be false by reference to the agreement actually made. So much is clear for reasons including that, in relation to a representation about a prospective agreement, a contravention of s 357(1) is not dependent upon the making of any agreement.
Conversely, in relation to a representation about an extant agreement, a contravention of s 357(1) is dependent upon the existence of an employment agreement and the making of a false representation about the nature of that agreement.
Whether the representation must be about the nature of that agreement (ie the prospective or extant employment agreement between the employer and employee) is the issue raised by the second question of construction we need to determine. For ease of reference, we will deal with the issue raised by that second question by reference to a representation about an extant contract. Our reasoning and conclusion would be the same for a representation about a prospective contract.
In our view, the subject matter to which an actionable representation under s 357(1) must be directed, is the nature of the contract between the representee (the employee) and the representor (the employer). Addressing that subject matter, the representation will be prohibited by s 357(1) and thus actionable under that provision, when the contract between the employer and its employee is represented to be a contract for services made between those parties. In simple terms, on this construction, an actionable representation is a representation made by an employer that its contract with its employee is not an employment contract but is a contract for services.
The alternative construction is that for which the Ombudsman contended when the issue arose on the appeal. On the Ombudsman’s construction, an actionable representation is not confined by s 357(1) to a mischaracterisation of the contract between the employer and employee. It includes a representation that the employee is an independent contractor, including an independent contractor whose contract is with a third party, when in fact that person is the employee of the representor. Under this construction, the subject matter of the representation is not confined to the nature of the contract which exists between the employer and employee but extends to a misrepresentation as to the employee’s status more generally.
Whilst the difference between these two constructions may seem semantic, it is significant. On the construction which we prefer, a representation made by an employer to its employee that he or she is providing work as an independent contractor under a contract for services made with another person is not actionable. In that circumstance, the representation is only a misrepresentation about the contract between the employer and the employee to the extent that it denies the existence of that contract. To be actionable, the representation needs to do more than deny the contract—it needs to mischaracterise the contract as a contract for services made between the employee and the employer.
On the Ombudsman’s construction, the same representation would be actionable because whilst not mischaracterising the nature of the contract with the employee, the employer has mischaracterised the status of the employee as that of an independent contractor when in fact the person is an employee.
We agree with the Ombudsman’s submission that it is not necessary for the representation made by the employer to expressly advert to the existence of the contract. It would, for instance, be sufficient if the employer said to the employee, “you are working for me as an independent contractor”, where that representation is likely to be objectively understood to be a reference to the nature of the contract between the employer and the employee. It would also be sufficient if the employer said to the employee, “you are an independent contractor”, where the only contractual relationship to which that statement could reasonably be understood to relate is a contract between the representor and the representee. However, the fact that the representation does not need to expressly advert to the contract does not, as the Ombudsman’s submission suggested, relieve the need for the representation to address the nature of the contract which exists between the representor and the representee.
The text of s 357(1) identifies the subject matter to which the representation must be directed as the contract made between the employer and employee and not simply the status of the employee. What is proscribed is a representation by the employer to the employee “that the contract of employment … is a contract for services”. The contract being referred to is clearly the contract between the employer and its employee and it is the character of that contract, and not that of another contract, that must be misrepresented for the representation to be actionable under s 357(1). That construction is also confirmed by the words of s 357(2), where the definite article “the contract” is used.
Our view as to the proper construction of s 357(1) (in relation to both of the issues of construction identified above) is based upon the text of the provision and a consideration of the legislative history and the relevant extrinsic material that sheds light on the purpose and policy of the provision.
The predecessor provision to that part of s 357(1) which prohibits a misrepresentation about an extant agreement was s 900(1) of the Workplace Relations Act 1996 (Cth) (WR Act) which provided:
(1) A person contravenes this subsection if:
(a) the person is a party to a contract with an individual; and
(b) the person makes a representation to the individual that the contract is a contract for services under which the individual performs work, or is to perform work, for the person as an independent contractor; and
(c) the contract, as in force at the time of the representation, is a contract of employment under which the person is the employer of the individual, rather than a contract for services under which the individual performs work as an independent contractor.
The second aspect of s 357(1), concerning a representation about a proposed agreement, was separately dealt with by the WR Act in s 901(1):
(1) A person contravenes this subsection if:
(a) the person offers to enter into a contract with an individual; and
(b) the person makes a representation to the individual that the contract, if entered into, would be a contract for services under which the individual would perform work for the person as an independent contractor; and
(c) the contract, if entered into, would be a contract of employment under which the person would be the employer of the individual, rather than a contract for services under which the individual would perform work as an independent contractor.
It is evident that s 357(1) of the FW Act is an amalgam of its two predecessor provisions which had separately dealt with a representation about an extant contract and a representation about a prospective contract. The Explanatory Memorandum to the Fair Work Bill 2008 (Cth) (The FWA Explanatory Memorandum) explained at [1447] that:
Clause 357 prohibits an employer misrepresenting an employment or proposed employment relationship as an independent contracting relationship. Although the text of the clause has been simplified, it is intended to broadly cover the effect of sections 900 and 901 of the WR Act.
The Explanatory Memorandum to the Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006 (Cth) (The WRA Explanatory Memorandum) is more expansive in addressing the predecessor provisions to s 357(1). The WRA Explanatory Memorandum stated at [11], in relation to what became s 901 of the WR Act dealing with prospective contracts, that:
11.Proposed section 901 would provide a civil penalty for attempting the conduct outlined in proposed section 900 in that this conduct would occur at the time a person offers to enter into a contract with an individual.
(emphasis added)
Those observations are consistent with our earlier expressed view as to the operation of s 357(1) of the FW Act in relation to prospective contracts. In particular, whether or not the nature of the proposed contract was misrepresented is to be answered by reference to what was proposed, rather than by reference to what eventuated when a contract was later made.
Returning, then, to the second issue of construction we have identified, the FWA Explanatory Memorandum addressed what became s 357(1) at [1448]. It essentially repeated the text of s 357(1). Again, the WRA Explanatory Memorandum dealing with the predecessor provisions is more informative.
Before turning to consider that, it is necessary first to observe that the Workplace Relations Legislation Amendment (Independent Contractors) Act 2006 (Cth) enacted Part 22 of the WR Act, in which ss 900–903 (as well as other provisions) were found. Part 22 was headed “Sham Arrangements”. Division 6 of Pt 3-1 of the FW Act (Division 6), in which s 357 is contained, repeats that same heading. The enactment of Part 22 of the WR Act was part of a package of reforms which included the enactment of the Independent Contractors Act 2006 (Cth). The objectives of that legislative package were explained in the “Regulation Impact Statement” (Regulation Impact Statement) contained in the Explanatory Memorandum to the Independent Contractors Bill 2006 (Cth) (ICA Explanatory Memorandum). As the WRA Explanatory Memorandum explains at page 3, that Regulation Impact Statement covered the measures contained in the Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006 (Cth).
A number of helpful observations are made in the Regulation Impact Statement which address the objectives of the civil remedies dealing with “sham arrangements” which were first enacted as Part 22 of the WR Act. Relevantly, the Regulation Impact Statement stated (at 9–10) that in order to provide protection to employees, civil penalties should be available to sanction employers found to have disguised genuine employment relationships. That, it was observed, would send a clear message to employers that sham arrangements are unlawful. It was considered that the availability of civil penalties would deter sham arrangements. What was meant by “sham arrangements” was identified (at 9) as:
an arrangement through which an employer seeks to cloak a work relationship to falsely appear as an independent contracting arrangement in order to avoid responsibility for legal entitlements due to employees.
The Regulation Impact Statement further stated (at 10):
Penalties for sham independent contracting arrangements should apply to labour hire agencies that employ workers who are ‘on-hired’ to host businesses in the same way as they apply to other employers.
The WRA Explanatory Memorandum stated (at [2]–[3]) that the proposed Part 22 would provide civil penalties for sham arrangements and related matters with respect to employment and independent contracting relationships.
In relation to what became s 900 of the WR Act, it was stated (at [4]–[5]):
4.Proposed section 900 would allow a civil penalty to be imposed by a Court on persons who misrepresent an employment relationship as an independent contracting arrangement.
5.Subsection 900(1) would describe the circumstances under which a person will be liable to a civil penalty for misrepresenting an employment relationship as being an independent contracting arrangement. The person would need to have entered into a contract with an individual and have made a representation to that individual that the contract was a contract for services under which the individual would perform work as an independent contractor. The person will have contravened this section if, at the time the representation was made, the contract was one of employment unless they can prove the matters in proposed subsection 900(2).
(italics in original)
An explanation in similar terms was given at [12] in relation to s 901(1).
Whilst the task of statutory construction must focus on the text of the provision in question, ascertaining the meaning of that text requires consideration of the purpose and policy of the provision in the context of the legislation as a whole: Informax International Pty Ltd v Clarius Group Ltd (2012) 207 FCR 298 at [162] (Besanko, Jagot and Bromberg JJ). As French CJ, Gummow, Hayne, Kiefel and Bell JJ said in AB v State of Western Australia (2011) 244 CLR 390 at [10] (by reference to the observations of Dixon CJ in Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 at 397), the context, general purpose, policy and fairness of a statutory provision are guides to its meaning. Their Honours continued:
The modern approach to statutory interpretation uses “context” in its widest sense, to include the existing state of the law and the mischief to which the legislation is addressed. Judicial decisions which preceded the Act may be relevant in this sense, but the task remains one of the construction of the Act.
(Footnotes omitted.)
Part 22 of the WR Act was replaced by Division 6 of Pt 3-1 of the FW Act. Each of ss 900–903 of the WR Act has a counterpart provision in Division 6. There can be no doubt that Division 6 seeks to address the same mischief as that addressed by Part 22 of the WR Act. The extrinsic material to which we have referred makes it clear that the mischief which is addressed by the provisions which are now found in Division 6 is the attempted avoidance of legal entitlements due to an employee through arrangements which falsely disguise the employee as an independent contractor. Those provisions were clearly intended to protect employees. They should be regarded as remedial and beneficial despite their penal nature. The same approach has been adopted in relation to other provisions of that character contained in Pt 3-1 of the FW Act: Barclay v Board of Bendigo Regional Institute of Technical and Further Education (2011) 191 FCR 212 at [14]–[17] (Gray and Bromberg JJ); Australian Municipal, Administrative, Clerical and Services Union v Greater Dandenong City Council (2000) 101 IR 143 at [75] (Madgwick J); National Union of Workers v Qenos Pty Ltd (2001) 108 FCR 90 at [48] (Weinberg J); Construction, Forestry, Mining & Energy Union v Pilbara Iron Company (Services) Pty Ltd (No 3) [2012] FCA 697 at [35] (Katzmann J); and see Waugh v Kippen (1986) 160 CLR 156 at 164-5 (Gibbs CJ, Mason, Wilson and Dawson JJ).
We would accept that the avoidance of sham arrangements is a broad objective. We also accept, as the extrinsic material indicates, that the avoidance of sham arrangements includes arrangements achieved through triangular contracting involving labour-hire agencies (however described).
We recognise that at least in one respect and in relation to the second issue of construction that we have identified, the construction of s 357(1) which we prefer imposes some restriction upon the effectiveness of s 357(1) as a tool for deterring sham arrangements made through triangular contracting. If the employee disguised as an independent contractor is in truth the employee of the labour-hirer, a representation made by that employer as to the nature of the contract between the employee and the labour-hirer will be actionable under s 357(1). In that context there will be a misrepresentation made by an employer to its employee about the nature of the contract between them. However, s 357(1) is likely to be an ineffective deterrent against disguised employment relationships achieved through triangular contracting where the end-user employer simply denies the existence of an employment contract with the worker without mischaracterising that contract to be a contract for services.
There are two answers to the suggestion that our preferred construction fails to achieve the beneficial purposes of Division 6. The first is that, at least in relation to situations where an employer seeks to convert its employee or former employee into an independent contractor (including through triangular contracting), another provision may provide relief. Section 359 of the FW Act (formerly s 903 of the WR Act) provides:
A person (the employer) that employs, or has at any time employed, an individual to perform particular work must not make a statement that the employer knows is false in order to persuade or influence the individual to enter into a contract for services under which the individual will perform, as an independent contractor, the same, or substantially the same, work for the employer.
Note: This section is a civil remedy provision (see Part 4-1).
A second and complete answer is that whilst our approach to construction should strive to give effect to the evident purpose of the legislation, we must nevertheless arrive at a construction consistent with the terms of the legislation: AB v State of Western Australia at [23] (the Court). We do not accept that the construction for which the Ombudsman contended is consistent with the terms of s 357(1).
DID THE OMBUDSMAN RAISE AN ACTIONABLE CLAIM?
We have concluded that to be actionable under s 357(1) of the FW Act, a representation as to an extant or prospective employment contract made or to be made between an employer and its employee or prospective employee must misrepresent the nature of that contract as a contract for services made between them.
The Ombudsman did not plead that Quest made a representation which misrepresented the nature of proposed or extant contracts of employment that Best and Roden had, or were offered, by Quest. Nor did the Ombudsman run its case at trial based upon establishing that a representation of that kind was made. At trial, and on the appeal, the Ombudsman’s position was that the critical part of the representation that was made by Quest was that post the “conversion”, Best and Roden would be, or were, working at Quest as independent contractors. The essence of the Ombudsman’s position was that it was unnecessary for Quest’s representation to mischaracterise the nature of either its proposed or extant contracts with Best or Roden. Instead, it was sufficient for the misrepresentation to mischaracterise the work to be, or which was being, provided by Best and Roden to Quest as work provided by an independent contractor and not work of an employee.
The terms of the representation made by Quest at the initial meeting attended by Best and Roden are set out at [30]. That representation addressed the arrangements then proposed. We have accepted at [239] that the representation made at the initial meeting continued to have effect and that, in the absence of any revocation or qualification, it became a second representation about the extant arrangements. However, as is plain from their terms, the representations are not representations about the nature of extant or proposed contracts of employment between Quest and Best or Roden which misrepresented those contracts of employment as contracts for services. Instead, the representations deny the existence of contracts of employment and assert contracts for services with Contracting Solutions.
For the reasons we have given, the representations relied upon by the Ombudsman and made by Quest were not actionable under s 357(1) of the FW Act. It follows that the primary judge’s order dismissing the Ombudsman’s s 357(1) application was correct and ought not be set aside. That is so despite the fact that the primary judge dismissed the application on a different basis.
DID THE PRIMARY JUDGE ERR?
Although we have concluded that the appeal should be dismissed, in deference to the submissions made, and in case we are wrong in concluding that the Ombudsman failed to raise an actionable claim under s 357(1), we now turn to consider and determine the other issues raised by the appeal.
Prior to outlining the approach taken by the primary judge to the Ombudsman’s s 357(1) case, we should say at the outset that the competing contentions presented to the primary judge by the Ombudsman and by Contracting Solutions lacked clarity. Issues and facts relevant to the Ombudsman’s s 358 case became unnecessarily entangled in the Ombudsman’s s 357 case. Most of the submissions made by the parties about the s 357 case unduly concentrated upon whether the facts of this case were more similar to those dealt with in Damevski or to those dealt with in Odco. Much of the appeal was also taken up by that comparative exercise. Whilst that exercise was not irrelevant, the undue focus given to it seems to have distracted the attention of the parties from some of the fundamental issues which required greater attention including, as will already be apparent, issues about the proper construction of s 357(1). Neither Damevski nor Odco concerned s 357 of the FW Act or its predecessor. Each of those cases turned on its own facts. The use of those facts as short-hand references to the facts of this case was an unfortunate exercise engaged in by all parties and was liable to create confusion as we think it did.
It is perhaps unsurprising that, in the context which we have described, the primary judge seems to have misconceived an important aspect of the Ombudsman’s s 357(1) case and dismissed it, at least in part, on the basis of that misconception.
That the primary judge misconceived the Ombudsman’s s 357(1) case is the first basis upon which the Ombudsman put its first ground of appeal that the primary judge erroneously dismissed its s 357 application.
Under a heading “Sham?” and at [249]–[250] of the reasons for judgment of the primary judge, his Honour said:
[249]The applicant’s argument that the process by which Ms Best, Ms Roden and Ms Buttrum-Virco were converted from employees to independent contractors was, in truth, a sham and legally ineffective is based on the submission by the applicant that each of the three employees was constructively dismissed.
[250]I am unable to reach the conclusion that this was so given my conclusion that the employees did, in reality, have choices as to whether or not they signed the Contractor Applications. Sections 357 and 358 of the FW Act are civil penalty provisions. In my view, the applicant has not established a dismissal as it contends.
(emphasis added)
Shortly thereafter and under a heading “Summary and Conclusion” and at [255], the primary judge said:
The applicant also pleads various representations. By ASOC at [11], it pleads that on various occasions in November 2009 QSP, by Mr Konstek acting for and on behalf of QSP and Contracting Solutions, represented inter alia to Ms Best and Ms Roden that if they underwent the conversion, they would thereafter be engaged under a contract for services under which they would perform work for QSP as independent contractors. The representations were said to be oral at meetings conducted by Mr Konstek in November 2009 and in writing in a document ‘Quest – System Changes’ signed inter alia by Mr Konstek and by the ‘Contractor Application’ each furnished to Ms Best and [Ms Roden] by or at the direction of Mr Konstek and executed by them and finally, in the case of Ms Roden, by a letter addressed to her under the letterhead of Contracting Solutions dated 30 November 2009. The problem with this plea is that it does not set up any contravention of the FW Act. Assuming those representations were made, they only breach the FW Act if they are misleading on the basis that the employees concerned remain in truth employees and never became independent contractors. But the applicant’s primary case was that they did become independent contractors yet by force or threat rather than voluntarily. I have found they did become independent contractors but voluntarily.
(emphasis added)
It is evident from the passages we have set out from the primary judge’s reasons that the primary judge was of the view that the Ombudsman’s s 357(1) case was based on the contention that in the “conversion” process, Best and Roden had been constructively dismissed. That much seems clear from the observations made by the primary judge at [249]. The observation made in the last two sentences of [255] also suggest that the primary judge’s understanding of the Ombudsman’s case was that the process of “conversion” (which included the dismissals) was achieved by force or threat rather than the voluntary assent of Best and Roden.
It is by reference to the observations recorded at [249] and [255] of the primary judge’s reasons for judgment that the Ombudsman contended that the primary judge erroneously considered that its case under s 357 depended on a finding that Best’s and Roden’s contracts of employment with Quest were each constructively terminated by Quest in the “conversion” process.
We accept that an error of that kind was made by the primary judge.
In the penultimate sentence of [255] of the primary judge’s reasons, his Honour described the Ombudsman’s “primary case” as being that Roden and Best became independent contractors by force rather than voluntarily. We accept the submission made by the Ombudsman that it was not its case that Best and Roden became independent contractors involuntarily or at all. Rather, the Ombudsman’s case was that Best and Roden were employees of Quest who, post the “conversion”, became employees of Quest again and never became independent contractors.
It is clear that a contravention of s 357(1) does not require that it be established that an employee was dismissed by the employer, let alone constructively dismissed. Nor, for that matter, does a contravention of s 357(1) depend upon whether the person to whom a prohibited representation is made thereafter becomes an independent contractor voluntarily or involuntarily.
There is nothing in the Ombudsman’s pleadings which supports any contention that its s 357(1) case relied upon Quest having dismissed Roden or Best. At trial, the Ombudsman accepted that, as a matter of fact, the employments of Best and Roden by Quest had been terminated in the process of the “conversion”. Primarily in support of its s 358 case, those terminations were asserted by the Ombudsman to have been constructive dismissals. Whilst that characterisation and the fact of the dismissals was adverted to as part of the factual matrix relied upon by the Ombudsman, we accept the Ombudsman’s contention that it did not put its s 357(1) case on the basis that it was dependent upon either the fact of the terminations or their characterisation as constructive dismissals.
Section 357, along with ss 358 and 359, appear in Div 6 of Pt 3-1 of Ch 3 of the FW Act, under the heading “Sham arrangements”.
Section 13(2)(d) of the Acts Interpretation Act 1901 (Cth) makes it tolerably clear that the heading before the Division is part of the FW Act. Thus, it might be regarded in determining the proper construction of s 357.
The Ombudsman says that the first, and fundamental, aspect of the first ground of appeal – that the primary judge was wrong in dismissing the application for orders against Quest under and consequential on s 357 – is that the primary judge materially misconceived the Ombudsman’s case against Quest for orders under s 357. It is contended that his Honour erroneously considered that the Ombudsman’s case depended on a finding that the contracts of service under which the housekeepers were originally employed before their so‑called “conversion”, had been constructively terminated by Quest. The Ombudsman says this erroneous view is expressly articulated at [249] and in the penultimate sentence of [255] of the judgment of the primary judge.
The Ombudsman contends that the correct position is that the mechanism by which the original contracts were terminated was irrelevant to the Ombudsman’s case against Quest under s 357, because s 357 is indifferent as to whether the workers to which it relates were ever party to a contract of service or, if they were, to whether or how those contracts were terminated. Thus, the Ombudsman submits the only relevant question is whether the contracts, that the housekeepers were told were contracts for services, were in fact contracts of service.
The Ombudsman says that issue was raised for decision before the primary judge by [11]‑[14] of the Ombudsman’s amended statement of claim and was addressed in its final submission before his Honour.
The Ombudsman says the second aspect of this first ground of appeal is that the primary judge failed to address the Ombudsman’s reliance on Damevski v Giudice [2003] FCAFC 252; (2003) 133 FCR 438, and instead found, at [226] of his judgment, that the circumstances of the present case stood “in the same category” as those in Building Workers’ Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104 without there being any basis in the evidence for such a conclusion.
The Ombudsman says that the third aspect of the first ground of appeal is that, if the observations made in the primary judgment in the last sentence at [5], the first sentence of [9] and the last sentence of [19] constitute a finding that the contracts under which the housekeepers performed work after their “conversion” were contracts for services, then such a finding:
(1)is wrong and, as Damevski demonstrates at [6], [51], [52], [89], [90], [96], [101], [102], [143] and [172(3)], cannot stand with the findings in the primary judgment at [19] and [213], that the work performed by the housekeepers and their relationship with Quest did not change “in any practical sense”, or the finding in [206] that Contracting Solutions acted as Quest’s agent in paying them;
(2)may have been influenced by an erroneous view, articulated in [227] of the primary judgment, that the subjective view of Quest and Contracting Solutions was determinative of whether the housekeepers were employees or independent contractors, when Damevski demonstrates that the correct position is that the reality of the relationship is the only determinative factor; and
(3)in any event, is not attended by any reasons or reasoning.
In the course of the hearing of the appeal, a question was raised by the Court as to the proper construction of s 357(1) and whether it could be said to apply in the factual circumstances of this case – a constructional issue apparently not raised by the respondents on the appeal, or raised before the primary judge.
In their joint judgment, North and Bromberg JJ deal with the question of the proper construction of s 357(1) at [67]‑[99].
In the result, North and Bromberg JJ say, at [100], that to be “actionable” under s 357(1), a representation as to an extant or prospective employment contract made or to be made between an employer and its employee or prospective employee must misrepresent the nature of that contract, as a contract for services made between them.
Because the Ombudsman did not plead that Quest made a representation which misrepresented the nature of the proposed or extant contracts of employment it alleged that the housekeepers had with, or were offered, by Quest, and because the Ombudsman did not run its case before the primary judge based upon establishing that a representation of that kind was made, North and Bromberg JJ consider that the primary judge’s order dismissing the proceeding under s 357 was correct and ought not be set aside.
I have been in two minds about the proper construction of s 357(1). An alternative construction to that preferred by North and Bromberg JJ, is the construction contended for by the Ombudsman. Having regard to the text of s 357(1), it may be said it was not incumbent upon the Ombudsman, in alleging contravention of s 357 before the primary judge, to prove that the “contract for services” representation was a representation about a particular contract that the “employer” (as defined in s 357(1)) and the “individual” (referred to in s 357(1)) were negotiating or had just concluded in respect of their personal contractual relationship.
On this reading of the text, there is no reason why the relevant representation, that the contract of employment under which the individual is, or would be, employed by the employer “is a contract for services under which the individual performs, or would perform, work as an independent contractor”, may not encompass a representation that the work which the individual performs, or would perform, as an independent contractor, is or will be work under a contract for services the individual has made, or proposes to make, with a third party, such as a labour hire firm like Contracting Solutions. The question is why the type of contract for services to which s 357(1) refers should be confined to a contract made, or to be made, by the employer with an individual.
In finding that the representation must be of that type, North and Bromberg JJ place emphasis on the text of s 357(1), and particularly the words suggesting that the representation of the employer concerning the contract for services must necessarily relate to “the contract of employment under which the individual is, or would be, employed by the employer” (emphasis added), as well as the legislative history of s 357, including s 900(1) of the earlier Workplace Relations Act 1996 (Cth) and the Explanatory Memorandum to the Fair Work Bill 2008 (Cth) and the Explanatory Memorandum to the Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006 (Cth), each of which appears to support the construction their Honours prefer.
It might be argued, however, that these extraneous materials need not be relied on to construe the meaning of the text used in s 357(1), if the text is otherwise plain.
In the context of such an extensive piece of workplace regulation as the FW Act, there may be said to be every reason why s 357(1) should be construed strictly according to its ordinary grammatical meaning, albeit in context and having regard to the objects and purposes of the FW Act; as required by Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [78] (the plurality).
The primary object of the FW Act is set out in s 3, which provides that the object is to provide “a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians”, by the mechanisms then set out in (a) to (g). Paragraph (a) states:
providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations.
Section 336(1) of the FW Act specifies the objects of Pt 3-1 of the Act, within which, as noted above, Div 6 and s 357 appear. Those objects are as follows:
(a)to protect workplace rights;
(b)to protect freedom of association by ensuring that persons are:
(i)free to become, or not become, members of industrial associations; and
(ii)free to be represented, or not represented, by industrial associations; and
(iii)free to participate, or not participate, in lawful industrial activities;
(c)to provide protection from workplace discrimination;
(d)to provide effective relief for persons who have been discriminated against, victimised or otherwise adversely affected as a result of contraventions of this Part.
Section 336(2) (which came into operation on 1 January 2013) emphasises that the protections referred to in subs (1) are provided to a person, whether an employee, an employer or otherwise.
To the extent that these objects of the FW Act should be regarded and may be considered helpful in the construction of s 357(1), they tend to emphasise that there is to be freedom and flexibility in agreement making and freedom from discrimination in the exercise of workplace rights. Probably, however, they do not help very much in the construction of s 357.
To the extent that the heading to Div 6 – “Sham arrangements” – is relevant to the constructional issue, it perhaps speaks for itself. That is to say, the substance of a transaction or dealing will always trump the form that it takes in the course of legally characterising it. But it also may be said not to take things terribly far.
Militating against the alternative construction to s 357(1) is s 357(2). This is because there will be no contravention, in terms of subs (1), if the employer proves that, when the relevant representation was made, the employer did not know and was not reckless as to whether “the contract was a contract of employment, rather than a contract for services” (emphasis added).
The use of the definite article “the” in this context, before the phrase “contract of employment …” strongly suggests that, as a matter of fact, there is, or is proposed to be, a contractual relationship between the employer and the individual that is either a contract of employment or a contract for services.
On this basis the sole question in a s 357(1) contravention proceeding is whether the contract between the employer and the individual is a contract of employment, rather than a contract for services as represented by the employer.
While it may be contended that subs (2) is intended to permit a defence that is limited in scope and does not cover a representation about a third party contract for services, it seems unlikely that such a partial defence would have been intended. Rather subs (2) helps in understanding the true scope of subs (1).
In these circumstances, I consider the construction preferred by North and Bromberg JJ is, with respect, correct.
Accordingly, for the reasons given by North and Bromberg JJ in their joint judgment, the appeal pressed by the Ombudsman cannot succeed as there is no “actionable” representation.
WERE THE HOUSEKEEPERS EMPLOYED BY QUEST UNDER CONTRACTS OF EMPLOYMENT?
I should add that if the alternative construction, for which the Ombudsman contended, was to have been preferred, I would have found the housekeepers were indeed employees from the time of their placement with Quest following their “Odco conversion”, for the reasons, briefly stated, that follow.
The critical question, on the pleadings (as explained in the joint judgment of North and Bromberg JJ), is whether the placement of the housekeepers by Contracting Solutions with Quest after the conversions were made resulted in them being properly characterised, at law, as employees, not as independent contractors. If they were employees then, as discussed below, Quest represented to them from the commencement of their placement as at 2 November 2009, that their contracts were for services, in contravention of s 357(1).
The primary judge appears to have accepted that because the Odco arrangements were purportedly implemented, with the housekeepers formally and voluntarily resigning their positions with Quest and signing on with Contracting Solutions as “independent contractors”, it was not open to find they became employees upon their placement with Quest.
In that regard, I accept the submission made on behalf of the Ombudsman that the earlier apparent implementation of the Odco arrangements does not preclude consideration and acceptance of the Ombudsman’s contention in this regard.
That is not to say, however, as discussed below, that the arrangements variously made: by Quest with Contracting Solutions; by the housekeepers with Contracting Solutions; and the terms of the arrangements upon the housekeepers’ placements with Quest, are irrelevant, for they are not.
The Odco case – which had the effect, broadly speaking, of legitimising the operation of labour hire firms and characterising the labour they supplied to business enterprises as labour provided or engaged on an independent contracting basis – supports the view of Quest that the housekeepers, following their Odco-like conversions, were independent contractors supplied to it by Contracting Solutions, and that they did not thereafter become employees of Quest (or indeed independent contractors to Quest under any direct contractual arrangements with Quest).
While I understand the primary judge to have adopted that approach, the Ombudsman submits that, upon detailed analysis and having regard to the factual circumstances that prevailed upon their placement with Quest following their conversion, the housekeepers became employees. This analysis, the Ombudsman submits, is well‑illustrated by Damevski.
In my view, depending on the circumstances of a particular case, an Odco outcome might reasonably be arrived at, or a Damevski outcome might reasonably be arrived at. As demonstrated in their Honours’ analysis of this broad question at [132]-[171] of the joint judgment, the authorities have often sought to characterise the true relationship of a worker and an enterprise, in circumstances where a labour supply arrangement has been interposed between them, in terms of whether the labour supply arrangement is coherent, in commercial terms, so as to make the continued characterisation of the worker as an independent contractor factually explicable. If it is not, the view may be adopted that the worker is not hired help, but an employee of the enterprise.
In Damevski, Merkel J, at [144], made the point, with which I respectfully agree, that whether a contractual relationship of employer‑employee exists between an enterprise and a worker placed with that enterprise, “depends on the proper characterisation of the contractual arrangements made between the various parties”. His Honour in referring to the “various parties” was referring not only to the enterprise and the worker but also to the labour hire firm involved in the hiring arrangement. His Honour there further made the point, which I accept, that the labelling of the relationship of the parties, chosen by the parties, may be disregarded where in law they are wrong having regard to “the real substance” of the relationship: see Curtis v Perth and Fremantle Bottle Exchange Co Ltd [1914] HCA 21; (1914) 18 CLR 17 at 25 (Isaac J).
Ultimately, at [172], Merkel J concluded that the “real substance” of the contractual agreements made between the various parties in Damevski was that the labour hire firm had the role, in the relationship between the enterprise and its former employees, of agent for both parties and in creating privity of contract between them. His Honour gave four detailed reasons for coming to that conclusion, which are worth noting in detail, as follows.
First, under the respective agreements entered into by the enterprise in respect of all of its employees in the ACT, including its managers and supervisors, those employees were to be employed precisely as they had been previously, save that the arrangements for payment were to differ as a result of the interposition of the labour hire firm as a conduit for payment of the new rates of pay payable to the employees. The labour hire firm was to receive the “contractors’” time sheets and pay them the amount due and receive an administration charge. There was some evidence that the labour hire firm paid Mr Damevski only after it was paid by the enterprise. That evidence was also consistent with a principal/agent relationship. In any event, as was pointed out in Odco, at 119, payment by an “intermediary” is not fatal to the existence of an employment relationship between the contractor and the putative employer.
When the role of the labour hire firm in the relationship was considered it was difficult to see it as anything other than an intermediary employed by both parties to create privity of contract between them. It was significant that the labour hire firm was to play, and played, no role in determining the rates payable, other than to ensure they included its administrative charges, or in determining the time and content of the services to be performed by the former employees. Both of those matters were determined by the enterprise.
Secondly, the enterprise, rather than labour hire firm, made all of the specific arrangements relating to Mr Damevski’s re-engagement to work as a cleaner for it as from the date of conversion. It determined and informed him about where, when and how he was to work under the new arrangements and how much he was to be paid for that work. It provided him with the vehicle, clothing and equipment that enabled him to carry out his cleaning work for it. When the enterprise no longer required his services that effectively brought to an end his employment under these arrangements. The enterprise’s conduct was consistent with it acting as a principal, rather than as an agent for the labour hire firm, in relation to the employment after the conversion date.
Thirdly, all of the relevant features of Mr Damevski’s employment, save for the manner and quantum of payment, remained unchanged. He did not supply any of the equipment required to perform his services. Viewed as “a practical matter” he did not conduct his own business or enterprise or have any independence in the conduct of the cleaning services he provided to the enterprise. Little skill or training was necessary for him to carry out his services. Neither he, nor his putative agent, the labour hire firm, had any real scope for bargaining for rates of remuneration. He could not take work or annual leave as and when he wanted. His tools and equipment were provided by the enterprise, which controlled and directed where, when and how he was to work. Applying the factors relied upon in the joint judgment in Hollis v Vabu Pty Ltd (2001) 207 CLR 21 it is clear that, notwithstanding the labels employed by the parties, Mr Damevski provided his services to the enterprise post‑conversion as an employee, rather than as an independent contractor.
Accordingly, Merkel J was satisfied that the common intention of the parties, viewed objectively, manifested by their words and conduct, was that Mr Damevski was to re‑employed by the labour hire firm acting as agent on behalf of the enterprise and Mr Damevski. Save for the labour hire firm’s role in respect of payment, the evidence did not establish that it was to have any role as principal in relation to his employment relationship with the enterprise as and from the post‑conversion date.
His Honour concluded that was consistent with the commercial circumstances surrounding the communication and with the subject matter of those communications between those various parties. His Honour said that those circumstances and that subject matter could be simply stated as the enterprise “requiring that its workforce and their work continue in all respects as before, save that the workforce performed that work as independent contractors”. Merkel J said that the failure of the enterprise to achieve that outcome is the result of the parties not having the legal capacity to determine the nature of their contractual relationship by the use of labels that do not accord with the real substance of that relationship.
Fourthly, the factors that led the Full Court to reject a similar agency argument in Odco were absent in Mr Damevski’s case. The enterprise, rather than the labour hire firm, effectively fixed the remuneration to which Mr Damevski was entitled. Further, the labour hire firm played virtually no role in relation to Mr Damevski’s employment relationship with the enterprise. Although the labour hire firm was liable to pay Mr Damevski the agreed rate, his Honour was not satisfied that the evidence justified a finding that there was a common intention that Mr Damevski could not look to the enterprise for payment of his services. Rather, the re-employment relationship his Honour was satisfied existed as from the post‑conversion date, entitled him to look to the enterprise for payment if, for some reason, the labour hire firm was not paid in respect of Mr Damevski’s services.
While Marshall J did not rely on the conduct of the labour hire firm as agent of the parties in the way that Merkel J did – and the presiding judge, Wilcox J, said, at [2], that he preferred the view of Marshall J in this regard – Marshall J also concluded, at [65], that, on the facts as found, the enterprise did not establish an arrangement in the form recognised in Odco or any like arrangement.
Marshall J was also fortified in the conclusion he reached, by his finding that the alleged contract between the labour hire firm and Mr Damevski was ambiguous, which, of itself required the “reality of the situation” to be examined closely to establish what legal relationship, if any, actually existed (at [79]).
Wilcox J, having preferred the view of Marshall J on the agency question, also doubted that the difference mattered very much. With that observation, I respectfully agree.
Wilcox J, at [4], said that the finding of his colleagues to the effect that there was a contract of employment between the enterprise and Mr Damevski was compelling, whether one focussed on the evidence relevant to the existence of any relationship between Mr Damevski and the labour hire firm, or that relevant to any relationship he had with the enterprise.
Wilcox J, who was also a member of the Full Court in Odco, noted, at [7], that he was a party to that decision and did not resile from anything there decided. His Honour stated that “the facts of that case were significantly different from those of the present case”.
In my view, the substance of the arrangements between the various parties considered by Merkel J in Damevski are present in this case. I am satisfied that, in substance, and despite the labels that various parties endeavoured to apply to the housekeepers following their resignation as employees and “conversion” to independent contractors, upon recommencing work with Quest a new contract of employment was effected, by implication, for the same reasons that Merkel J found Mr Damevski was an employee.
In my view, there is no significant distinction between the two cases. Here, as in Damevski, the hiring agreement provided for Contracting Solutions to bill Quest before paying the housekeepers. While in Damevski, but not here, the enterprise controlled the rates of pay of the workers, that seems to me to be an immaterial difference when one considers the nature of the relationship overall by which Quest controlled the implementation of the arrangements.
In short, the reality of the situation here was that nothing changed for the housekeepers from the work day prior to the conversion, to the work day following the conversion. They had no control over their work. They did not operate any independent business. Further, from the housekeepers’ point of view, nothing changed in the performance of their work after the conversion. The lip service paid by Quest and Contracting Solutions to the legal language of being an independent operation, by creating separate pay, superannuation, insurance and tax structures and the like, cannot hide the substance of the arrangement that subsisted between the housekeepers and Quest following the “conversion”. While their take‑home pay was higher, something Quest had acceded to, nothing else changed. The housekeepers were employees.
Thus, if I had considered the alternative construction of s 357(1) which the Ombudsman contended to be the proper construction of the provision, I would have found that from the placement of the housekeepers with Quest from 2 November 2009 they were employees of Quest, as alleged by the Ombudsman.
DID QUEST REPRESENT TO THE HOUSEKEEPERS THAT THEY WERE ENGAGED UNDER A CONTRACT FOR SERVICES?
If it had been necessary to so find, I would also have had little hesitation in finding that this representation was made upon the placement of the housekeepers with Quest from 2 November 2009. Quest, by its and Contracting Solutions’ earlier conduct, represented that the relationship between Quest and the housekeepers, as and from 2 November 2009, was not governed by a contract of employment with Quest, but by a contract for services, and the housekeepers were independent contractors of Contracting Solutions. In that regard I would, with respect, adopt the conclusion and reasons for it of North and Bromberg JJ at [239]‑[240] of their joint judgment.
It would follow, on application of the alternative construction of s 357(1), that the representations made to the housekeepers from 2 November 2009 and continuing until their employment ceased, were, as alleged by the Ombudsman, in contravention of s 357(1) of the FW Act.
I would also agree with North and Bromberg JJ, as explained at [241] of their joint judgment, that it was for Quest to raise and prove the s 357(2) defence at the hearing, not for the Ombudsman to negative it.
As no defence was offered by Quest at the hearing before the primary judge that in making the representations it did not know and was not reckless as to whether the contract was a contract of employment, rather than a contract for services, s 357(2) would have had no relevant operation.
ARE CONTRACTING SOLUTIONS AND MR KONSTEK LIABLE FOR QUEST’S CONTRAVENTION?
If Quest were to have been found liable for contravening s 357(1), for the reasons given by North and Bromberg JJ in their joint judgment at [273], the Ombudsman did not prove that either Contracting Solutions or Mr Konstek had knowledge of the two essential elements of Quest’s contravention of s 357(1) described by their Honours in their joint judgment at [257]. As a result I would have found neither had any accessorial liability for Quest’s conduct.
CONCLUSION AND ORDER
I would, however, for the reasons given above, dismiss the appeal.
I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker. Associate:
Dated: 17 March 2015
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