Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd & Ors

[2015] HCATrans 285

[2015] HCATrans 285

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P38 of 2015

B e t w e e n -

FAIR WORK OMBUDSMAN

Appellant

and

QUEST SOUTH PERTH HOLDINGS PTY LTD (ACN 109 989 531)

First Respondent

CONTRACTING SOLUTIONS PTY LTD (ACN 099 388 575)

Second Respondent

PAUL KONSTEK

Third Respondent

FRENCH CJ
KIEFEL J
BELL J
GAGELER J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 4 NOVEMBER 2015, AT 10.15 AM

Copyright in the High Court of Australia

____________________

MR J.L. BOURKE, QC:   If the Court pleases, I appear with my learned friend, MS J.M FIRKIN, for the appellant.  (instructed by Clayton Utz)

MR R.C. KENZIE, QC:   If it please the Court, I appear with my learned friend, MR S.E.J. PRINCE, for the second respondent.  (instructed by Ashurst Australia)

FRENCH CJ:   There is no appearance for the first respondent and a submitting appearance I think for the third.

MR KENZIE:   Correct.

FRENCH CJ:   Yes, Mr Bourke.

MR BOURKE: If the Court pleases. This appeal raises a discrete issue: does section 357(1) of the Fair Work Act have any operation if the represented contract for services involves a third party and is not confined to the purported contract for services made directly between the representor, who in truth must be the employer, and the employee?  The Full Federal Court found there was no operation of the section in such circumstances.  The effect of the Full Court’s construction is that the provision can be easily avoided by an employer introducing a third party into a sham arrangement and avoid the effect of section 357.

FRENCH CJ: Was that the position under section 900 of the Workplace Relations Act?

MR BOURKE: There is no clear authority in the past on section 900 in relation to whether it applied to third party arrangements, but we would say on a correct construction of section 900, that was the case.

FRENCH CJ:   Because the Court relied upon the legislative history, did it not, and the proposition, I think in the explanatory memorandum, that 357 was intended to have the same broad effect as the predecessor provisions.

MR BOURKE:   And the Full Court actually took the view, after an examination of the extrinsic material, that it was intended to pick up triangular arrangements but ultimately found that they were stuck with the text of 357 and they could not meet that purpose with the construction they felt they were forced to arrive at and we say that was wrong.  We say the correct construction – and we will come to the text shortly – the section has a simple operation.  An employer cannot misrepresent to an employee the true type of contract under which the person performs or will perform work for the employer.  That is, it cannot be a misrepresentation that you work under a contract for services and, hence, you are an independent contractor when, in truth, you work under an employment contract and thus you are, in truth, an employee.  If such a misrepresentation is made by an employer, we say the section is triggered, subject to subsection (2) and the issue whether a defence is made out.

KIEFEL J:   Where do you identify the relevant representation?  Do you accept that it is as the Full Court states it to be?

MR BOURKE:   We do not quarrel with that.

KIEFEL J:   So where are we looking at in the Full Court’s judgment, paragraphs 25 and 30?

MR BOURKE:   If I first go to paragraph 30, which is appeal book 186.

KIEFEL J:   I think perhaps the starting point might be 25 on page 185, at least in a general way, given the background to a number of representations about conversion.

FRENCH CJ:   The specific finding would be the last sentence in 30, would it not?

MR BOURKE:   Yes.  Then, if one goes to 239, appeal book 244:

We consider that in the context of the earlier representation that on “conversion”, Best and Roden would be independent contractors of Contracting Solutions, Quest’s “post‑conversion” silence conveyed the message that after their “conversion” Best and Roden were working at Quest as independent contractors of Contracting Solutions –

They then go on about –

Contracting Solutions made those payments as Quest’s agent.

That was a further form of representation that they were independent contractors.

BELL J:   I am sorry, what paragraph number was that?

MR BOURKE:   Sorry, 239.

BELL J:   Thank you.

MR BOURKE:   Appeal book 244.  If one moves to paragraph 240 –

We are satisfied that from 2 November 2009, and as the employer of Best and Roden, Quest represented to Best and Roden that they were performing work at Quest as independent contractors of Contracting Solutions.  Quest did not prove that when the representation was made, it: (a) did not know –

and it spells out that the defence was not made out –

On that basis, and applying the construction of s 357(1) and (2) for which the Ombudsman contended (rather than the construction which we prefer), we would have found that Quest contravened s 357(1) of the FW Act.

Justice Barker was of the same view at paragraph 335, appeal book 265.

FRENCH CJ:   There is a very lengthy discussion of the matters relevant to the characterisation of their relationship with Quest, but do we take it that the finding as to the nature of the relationship with Quest is that set out at the end of paragraph 227?  It is all fairly discursive treatment.  It would be hard to tease out some of the matters.  I just want to make sure I have got the right paragraph.

NETTLE J:   Paragraph 229.

MR BOURKE:   Yes, and paragraph 230 is confirmation of ‑ ‑ ‑

FRENCH CJ:   Yes.

KIEFEL J:   Can I just go back so I can be clear about what the representations were.  The first set of meetings referred to at paragraphs 23 and onwards were in late October and it was those initial meetings that they were encouraged to sign up.

MR BOURKE:   Correct.

KIEFEL J:   And so the representation arising from that is that at paragraph 30 in the finding that “they would continue to perform work at Quest but would do so as independent contractors”.

MR BOURKE:   That was a representation as to the future arrangements.  That part of the case failed but the Full Court found there was also a representation whilst they continued to work as employees after the conversion ‑ ‑ ‑

KIEFEL J:   So that is what we are looking at on 2 November?

MR BOURKE:   Correct.

KIEFEL J:   As and from 2 November, and that is after the contracts had been signed with Contracting Solutions?

MR BOURKE:   Correct.

KIEFEL J:   So it is a representation by silence?  But it had to be in the background of those earlier representations?

MR BOURKE:   Correct.

KIEFEL J:   That is how you discern what the representation was?

MR BOURKE:   Two things, the failure to correct the initial representations at the time of the conversion and, secondly, the payment by Contracting Solutions as agents for Quest of the pay on the basis that they were independent contractors.

KIEFEL J:   Yes, I see.

FRENCH CJ:   That initial representation, although made by Contracting Solutions at the meeting with the employees, was found to be made on behalf of Quest, therefore attributed to Quest.

MR BOURKE:   Correct.

NETTLE J:   Do you accept, do you, that the future representation case properly filed?

MR BOURKE:   It did on a pleading point and we do not agitate that here.  Can I move to an examination of the text of 357?  If the Court could go to our annexure B which is the last page of our submissions filed in‑chief where the relevant provisions are set out.  Subsection (1) starts:

A person (the employer) –

and the provision can only have operation if the relevant person is the employer –

that employs, or proposes to employ, an individual –

And so there is a confirmation that with the relationship with the employer the individual you are talking about has the status as an employee –

must not represent to the individual that the contract of employment –

and we say those words should be understood as meaning ‑ they are directed to what is the true operative type of contract.  That is, it is an employment contract and that is the person, the individual, is an employee.  Then, moving on –

under which the individual is, or would be, employed by the employer is a contract for services.

Now, critically, in our submission, what occurred here was the Full Court interpreted that phrase “a contract for services” as if it had to be a represented contract of services between the employer and the individual, the individual we know being the employee, and we say effectively introduce those words into the provision when there was no requirement to do so and, in fact, the provision is entirely unqualified as to who the parties to the contract for services have to be.

The critical thing is that you are being misled from the true position which you are an employee under a contract – under an employment contract to an impression that you work under a contract for services and, thus, are an independent contractor.  The mischief obviously being that you then do not know that you are entitled to the statutory protections and entitlements that flow from being an employee.

But, further to that, one then reads the balance of the provision under which the individual performs or would perform work.  In our submission, that is the link that is required, the representation as to the type of contract under which you work.  It is not critical what is represented to be the parties to that what is in fact a purported contract for services, work as an independent contractor.  So the provision concludes with a focus on the status.

The end result of a misrepresentation about the type of contract, that is, you work under a contract for services, not an employment contract, is the risk of the employer being left with the impression they are an independent contractor and, in our submission, the effectiveness of this provision has been cut right back by the introduction of a requirement that the contract for services must be between the employer and the employee.  It must be remembered when we are talking about a contract for services in the context of 357(1), we are talking about a contract that was not effective.  It was a sham or ineffective contract.

So, in our submission, the inappropriate focus on what were the represented parties to a contract which was a sham or ineffective was not warranted and, in fact, under the Full Court’s approach, because we are not actually talking about a contract for services that actually took effect, took legal effect, you are talking about something that did not take legal effect and you are only talking about what the employee was told.  You could say to someone you are working under a contract for services with X company where X company does not even exist.

BELL J:   The representation relates to the contract of employment under which the individual performs work, that being the implied contract of employment that came into existence after the conversion, and that is your point.

MR BOURKE:   Correct, and we say what occurred was these are employees having been represented as working as independent contractors under a contract for services when the court found that it was in fact an implied employment contract.  We say that is the end of the case, subject to if you can make out a defence under subsection (2) but confining the operation as to who you said were the parties to a contract for services that never ever operated at law and that decides whether the section operates or not, in our submission, was wrong.

FRENCH CJ:   Although the term “sham arrangements” appears in the heading, it can be a little bit of a distraction and it can also take us off into the facts of the particular case when we are looking at the question of construction as to the scope of the things which may be the content of the mischaracterisation that is called a representation here.  So the question is whether the section extends to mischaracterisation of an employment relationship as a contract of services with a third party.

MR BOURKE:   Correct, and that is ‑ ‑ ‑

FRENCH CJ:   That is really the final constructional question, the only one we have to determine.

MR BOURKE:   Correct, and taking on board your Honour the Chief Justice’s warning about operating pursuant to headings but we would say, to the extent they are of assistance, they are all one way.  The heading of 357 misrepresenting employment as independent contracting arrangement is clearly indicating the focus is on a misrepresentation about the type of contract you work on, not ‑ ‑ ‑

FRENCH CJ:   You can have great debates about whether a relationship between a putative employer and employee is, in truth, a contract of employment or a contract for services.  That does not involve any finding of sham.  It is just a debate about characterisation and what this strikes at is mischaracterisation.

MR BOURKE:   And, the safety valve is if you characterise the nature of the working arrangement incorrectly and you tell someone who, in truth, is an employee, you work here as an independent contractor, the safety valve is subsection (2).

FRENCH CJ:   Yes.

MR BOURKE:   But, we say, if you make exactly the same representation, you work here as an independent contractor but you add in “for my related company”, under the Full Court’s approach the section completely misses being able to deal with the mischief of an employee being misled.  Can I move to subsection (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 –

and then you have the words ‑

the contract –

And, we say, that is simply a reference to the true operative contract and we know if you have got to the defence under subsection (2), it must be a contract of employment ‑

was a contract of employment rather than a contract for services.

So, even in the subsection (2), there is a recognition that what the section is driving towards is someone being misled as to the type of contract – are you under an employment contract or a contract of services, thus are you an employee or do you have the status of an independent contractor?  It is not driven by any concern about who you represent were the parties to the purported contract for services? 

Could I move away from the text?  Can I briefly say about the heading as we were making the point?  The heading itself, to the extent it is of assistance, focuses on the substance – misrepresenting employment as independent contracting arrangement – that is the heading at 357.  It does not focus on privity of contract points but the type of contract you work under and, therefore, what is your status.  In our submission ‑ ‑ ‑

FRENCH CJ:   I suppose as a side issue, the thing which you did not know or were not reckless about is the characterisation, is that right, because you can have a set of facts and you know what they are.

MR BOURKE:   You are correct.  It is what you assert to the employee is the correct type of contract.  Could we move now to the – if I can call it the characterisation test that was adopted by the Full Court and that is at paragraph 77, appeal book 197?

What the Full Court, in our respectful submission, has done, is they have substituted a simple section which simply focuses on was there a misrepresentation about the type of contract to, in our submission, a very cumbersome test that is required to be met for the operation of the section; it has to meet a mischaracterisation test.  Here, the Full Court’s Justices North and Bromberg said, going to the second line:

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.

So they set up this test and, in our submission, it is difficult to see how in practice it actually works as a test.  It appears to be some type of passing off requirement where you say to the employee that contract there is not a contract of employment, it is a contract for services.  Thus, you are not an employee, you are an independent contractor.

The problem with that as a test is that in practice, employees will not point to a document and say that is really a contract for services, that is not a contract of employment.  The reality will mostly be, as in this case, there is no contract of employment.  You have set up a sham or ineffective contract for services ‑ ‑ ‑

NETTLE J:   No express contract of employment.

MR BOURKE:   Correct.  You are simply referring the employee to the false contract.  You are not looking at the true contract and trying to convince the employee to give an incorrect label.  That is underlined in this case where there was no written formal employment contract, so what are you mischaracterising?

In our submission, that application of that test is simply divorced from reality in terms of a real employment situation.  In a real employment situation, a worker will simply be told “You work here as an independent contractor” – no reference to the employment contract, implied or not – or “You work here under a contract for services; here it is”.  There will be no reference to the employment contract, and once the contract for services falls to the ground as being a sham or ineffective, and the court proceeds to imply the content of the contract of employment, the terms might be completely different.

FRENCH CJ:   Why does it have to fall to the ground as a sham or ineffective?  Is it not sufficient that it is not a contract; it is wrongly characterised as a contract for services?  I mean, the question of characterisation may involve a variety of tests and I think the word “multifactorial” appeared somewhere in the judgment.  So you are simply saying, you call this a contract for services.  It is not.  It does not mean it is not a legal relationship.  It is just the nature of the legal relationship which is being misrepresented, is it not?

MR BOURKE:   There could be a contravention play out in that way.

FRENCH CJ:   That is all that is needed.

MR BOURKE:   That is all that is needed, but we say simply asserting to someone ‑ ‑ ‑

FRENCH CJ:   Then, what you are doing is adding in other factual situations, are you not?

MR BOURKE:   Correct, but you may simply be asserting to someone, not even having a contract in front of you, a written document, and simply saying to someone “You work under a contract for services” or “You work as an independent contractor”.  That is enough to contravene the section.  Justices North and Bromberg recognised that simply saying to someone “You work as an independent contractor” would trigger the section, but you would have to expressly or impliedly – this is at paragraph 79 – draw the inference that you are referring to a contract between the employer and the employee.  We say that is simply a gloss and not necessary.

KIEFEL J:   Was section 359 pleaded or relied upon at any point in the proceeding?

MR BOURKE:   No, and I am going to come back, when looking at purpose, and examine sections 358 and 359 because we say, on the Full Court’s approach, the term “a contract for services” has been used inconsistently because the Full Court concede that section 359, the expression “a contract for services” can extend in the application of that provision to a contract for services with a third party.  And Contracting Solutions, in their submissions, also make that concession, but we have three provision division on the Full Court’s approach a different scope of meaning of the words “a contract for services”.

Can I just also say something:  Contracting Solutions in their submissions in‑chief, paragraph 26, attempted to develop this dichotomy – the nature of the contract versus the status of the contract.  The dichotomy is illusory.  Once you talk about the nature of a person’s contract – for example, you say to someone “It is an employment contract,” you are telling them about their status, you are an employee.  Once you say to someone “You work under a contract for services” you are also saying “You are an independent contractor”.  There is some suggestion our submissions and our constructions are all about status, not about the nature of the contract.  We are about the nature of the contract.  You cannot separate the two sides of the same coin.  That is demonstrated, for example, in section 357 where the section concludes with a misrepresentation the end game is that the worker is under the impression they work as an independent contractor. 

That is what subsection (1) says.  That is consistent with the mischief.  Once you misunderstand your status, you do not know what entitlements you have.  You miss out on the entitlements that cannot flow from being an employee, that are provided by statute. 

Can I move to the issue of purpose?  This is point 6 of our outline of oral submissions.  We say the purpose of 357(1) is to prevent a true employee being misled by their employer as to their true employment status and thus being deprived of their statutory rights and protections that flow from being an employee and not an independent contractor.  We say there is no reason in trying to meet that purpose as - in terms of a task of construction - to say there is no protection for employees if the represented sham or ineffective contract involved a triangular arrangement.  In our submission, there is simply no reason in logic why that would be the case and why you would have a carve‑out. 

We put in‑chief that a common form of sham arrangement is a triangular arrangement introducing a third party.  Contracting Solutions have not taken issue with this.  So on the Full Court’s construction of common form of “sham arrangement” this provision and possibly the division has no operation in protecting employees.

We point in terms of purpose to the heading of Division 6 - “Sham arrangements”.  The fact that the heading is cast in general terms and does not suggest that there should be solely a subset that is relevant for this division, that subset being “plain vanilla” sham arrangements or ineffective contracts directly involving the employer and the employee and not involving a third party ‑ ‑ ‑

FRENCH CJ:   “Sham” is being used in a broader sense, is it not, than contracts or purported contracts which are not really legal relationships which are not really legal relationships at all.

MR BOURKE:   Correct.  Justice Barker - with respect, we would adopt his observation at paragraph 302, appeal book 259.  He said sham arrangements suggest - addressing the heading:

the substance of a transaction or dealing will always trump the form that it takes –

Now, in our submission, under the Full Court’s construction, it is the form of the representation that trumps the substance.  The substance is you are not an employee, you are an independent contractor when you work here.  The form is – no, that all depends on whether you have said that the purported contract for services involved directly only the employer and the employee. 

So form has completely trumped substance, and we fail to see anywhere in the judgment why there should be a preoccupation with form in terms of what parties, if any, were represented to be parties to the purported contract for services and that that should drive the section.  As we have said, you are talking about a contract that never forms at law, so why what parties are to the contract is critical we fail to understand.  The only thing that is important is that the representation says that the relevant individual who is an employee is meant to be a party to that contract for services.

We then point to the content of the division.  The three sections, we say, all lead towards focusing on ensuring that employees are not misled or otherwise pushed towards being independent contractors and thus lose the protections that are provided to employees.  Could we go to section 358, which is set out in our annexure B:

An employer must not dismiss, or threaten to dismiss, an individual who:

(a)       is an employee of the employer; and

(b)       performs particular work for the employer;

in order to engage the individual as an independent contractor –

The focus is on status, a shift from employee status to an independent contractor status –

to perform the same, or substantially the same, work –

So it is to prevent someone – you have an employee and it is to prevent someone ensuring that that employee doing the same work is an independent contractor under a contract for service.  Again, the type of contract - in our submission, that section should operate whether the employer said, “You now do the same work for a related company of mine as an independent contractor”.

My learned friend suggests the word “engage” should be read down to be confined to the same parties, and we say that is form trumping substance.  All you need to do is for the employer to say, “You are doing the same work.  You are going to be threatened with dismissal unless you agree to do the same work as an independent contractor”, and it does not matter if the employer threatens that, “You be an independent contractor for my related company”.

GAGELER J:   Why are we concerned with section 358?  It seems to raises its own questions of construction.

MR BOURKE:   I am only traversing 358, 359, to highlight the overall objects of the division and, secondly, to make the point that 358 and 359 both use the expression “a contract for services” and, in our submission, both 358 – there is no justification in reading that expression “a contract for services” to being confined to the employer and the employee.

GAGELER J:   You say section 358 is concerned with a form of sham arrangement.

MR BOURKE:   It does not have to be.

GAGELER J:   No.  Well, it suggests that the heading is not particularly useful, does it not?

MR BOURKE:   Yes.  But, it clearly directed at protecting - to protect an employee from losing their status as an employee and being moved to an independent contractor status.  That may be a sham status or not sham status.  When one moves to 359, again, rather than reading it if I can move to the fourth line, there is again a reference to a “contract for services”, unqualified in terms of the parties required, contrary to the approach of the Full Court.  Also, in the second‑last line, a reference to status –

as an independent contractor –

Again, the focus on status, the interrelationship between type of contract and status - that conversation does not need to have introduced in it but who are the parties to the contract of services – if it is a related company it has no application.  As we have said, the Full Court conceded that 359 – the term “a contract for services” could include a third party but took a narrow construction of the expression “a contract for services” in 357 without any explanation why there would be this tension of the same expression within the division.

Could I, just in dealing with purpose – staying with purpose – also made the point that Division 6 sits within Part 3‑1 of the Fair Work Act. Part 3‑1 is headed “General Protections” and if one goes to the Fair Work Act at section 336 – this is building a picture that this division is directed at protecting employees not losing out in terms of their statutory protections and entitlements.  It says:

The objects of this Part are as follows:

(a)to protect workplace rights –

and then if one moves to section 341, that sections deals with the meaning of workplace right:

(1)A person has a workplace right if the person:

(a)is entitled to the benefit of, or has a role or responsibility under, a workplace law, workplace instrument or order made by an industrial body –

If one then goes to section 12, the definitions of “workplace instrument” and “workplace law”, which on my version is page 32:

workplace instrument means an instrument that:

(a)is made under, or recognised by, a workplace law; and

(b)concerns the relationships between employers and employees.

workplace law means –

(a)      this Act -

Thus, a workplace instrument would include – I do not think there would be any argument on this – any awards or enterprise agreements that enshrine entitlements to employees made under the Act.  Then:

(d)any other law of the Commonwealth, a State or a Territory that regulates the relationships between employers and employees –

which would pick up long service leave, annual leave provisions and so forth and, including in the Act - you have in the Fair Work Act numerous provisions for the benefit of employees, including minimum wage provisions under Part 2‑2; unfair dismissal provisions, Part 3‑2.  Could we go to section 61?  There is a whole scheme set up of national employment standards which are to be minimum standards that apply to employees.  If a person was misled into thinking they were an independent contractor, they have no idea they are entitled to these things.  Subsection (1):

This Part sets minimum standards that apply to the employment of employees which cannot be displaced, even if an enterprise agreement includes terms of the kind referred to in subsection 55(5) –

Then it sets out, subsection (2) –

The minimum standards relate to the following matters –

There are numerous matters, including notice of termination, redundancy pay, public holidays, et cetera.  On top of that, the scheme within Division 6 sits comfortably within the objects of the Act.  If one goes to section 3:

The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by –

and we rely on (b) –

(b)ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders –

That object will be defeated if an employer misleads an employee that they work here as an independent contractor.  In our submission, there is no reason to read down section 357, that it only has operation if you say you work here as an independent contractor with me, as distinct from my related company or some other entity.  We have set out in annexure A our analysis of the history of the predecessor provisions and the extrinsic material.  We do not seek to develop that orally.  We say an analysis of the Act itself demonstrates sufficiently the purpose we advance. 

Could we just make two overall comments about an examination of the extrinsic material? The explanatory memorandum to the Fair Work Bill regarding Division 6 of Part 3‑1, you will find nothing that suggests that there should be a carve‑out for discouraging sham arrangements in relation to sham arrangements that involve a third party. There is nothing there to suggest when it comes to a third party being used for a sham arrangement, it should be given some special status, protection or immunity, and our examination of the extrinsic material in relation to the predecessor provisions – again, no special immunity is articulated, should be provided.

FRENCH CJ:   Do you rely upon section 15AA of the Acts Interpretation Act in relation to the reference to the purpose and objects of the legislation?

MR BOURKE:   Yes.

FRENCH CJ:   Which version of it?

MR BOURKE:   We rely on the version as at the time the Act was enacted.

FRENCH CJ:   You mean it was in 2011, I think, which brings one to the interpretation that would best achieve.  You say that does not apply?

MR BOURKE:   The relevant version - Reprint No 1 of the Fair Work Act, section 30J confirms ‑ ‑ ‑

FRENCH CJ:   Okay, thank you.  So it is the earlier version of 15AA?

MR BOURKE:   Correct.  We apologise we did not – we only discovered this of recent times.  We did not point that out in our written submissions.  In our submission, we have heard no logical reason why there should be this carve‑out for what could be a deliberate sham arrangement if it is represented that a third party is involved and not directly the employer.  Further, the Full Court’s construction only encourages more elaborate sham arrangements that introduce a third party and thus only encourages a range that where you introduce a labour hire company or a related company or, in our submission, on the Full Court’s construction you ask the employee to incorporate, you then do not have the identical parties to the true employment contract.  You have avoided the section. 

As we have put earlier, you can simply assert the contract is with a party that does not even exist.  Because you have not asserted that the sham arrangement is with me, the employer, you have avoided liability.  That will be the consequence no matter how deliberate and calculated the sham arrangement was.  In our submission, in addition to our reliance on the text and purpose, given that this is clearly and beneficial and remedial purpose for the provision, such a restricted construction is not warranted. 

Contracting Solutions develop an argument that the purpose is to prevent a deliberate misrepresentation to the employee.  As we understand their argument, they say as a result if the third party is introduced you may not know the exact circumstances of the third party and that contract for services and so you might make a mistake as an employer when making the representation about the purported contract for services.  That argument fails because it entirely ignores the role of 357(2).  That is the moderator.  If you did not know that the contract for services was a sham and you were not reckless, you will not be found liable.

But the operation of the provision is not designed to cut back subsection (1) by an arbitrary application that if you refer to a third party there is no application, even though there are no words to support that cutback.  On what we say is a red herring, Contracting Solutions also say and assert, “Quest did not know the true situation”.  It is a red herring because the Full Court has found that if our construction is correct, we would have won the case against Quest.

But if I could simply make a couple of points about that assertion.  One, there was no express finding made about whether Quest set up this arrangement deliberately knowing it was a sham.  The Full Court did not need to make such a finding because no defence under 357(2) was invoked.  But they would have had a hard day in proving that they had a defence under 357(2) because the Full Court found that Contracting Solutions were agents for Quest at all times.  That is paragraph 28, appeal book 186, 226 at appeal book 240, 239 at appeal book 244.  The Full Court found that nothing changed.  They continued to work in exactly the same way after the conversion.

You could infer that Quest would have known that.  That is appeal judgment 193, appeal book 232.  Plus in the joint reasons of Justices North and Bromberg, they express the view, although they did not need to, that Quest’s conduct in acting on the assurances of Contracting Solutions that this would all be okay was probably reckless – appeal book 252, paragraph 273 – given that Contracting Solutions had a financial interest in getting the work and, two, Quest sought no independent advice in the context of an area where sometimes the line between employee and independent contractor is hard to draw.

GAGELER J:   How does that bear on the issue in the appeal?

MR BOURKE:   It does not, but I am answering it because they have put it in‑chief.  Finally, we say in terms of purpose, on the Full Court’s construction and Contracting Solutions’ approach, a deliberate or reckless misrepresentation to an employee gains immunity simply by mentioning a third party to the purported contract for services.  Accordingly, we say the Full Court’s construction should be rejected, ours should be preferred.  The appeal court confirmed that if our construction was correct, we win against Quest.  That is paragraph 240, appeal book 244; paragraph 336, appeal book 265.  Otherwise we would seek the orders set out in Part VIII of our submissions in‑chief.

Sorry, I should add one thing.  In looking – we received this morning Contracting Solutions’ outline of oral submissions.  They have set out a completely new point at paragraphs 15 and 16 that you will not find in their submissions in‑chief that somehow, even if we win on construction ‑ I do not understand this ‑ somehow we lose the appeal, when the Full Court actually confirmed we should win the appeal, and they say we should have pleaded the case on the basis that Contracting Solutions was the employer.  It has not been advanced, should not permitted to be advanced. 

We further say, it is contrary to the Full Court’s own finding that nothing changed and they remained employees of Quest under an implied contract of employment.  In our submission, this is simply an attempt to dampen the obvious gap in the provision created by the Full Court’s construction where you introduce a third party, the provision has no operation.  They have attempted to dampen that criticism down by saying just rejig your pleadings and allege that Contracting Solutions is the employer, but that was clearly not the case.  Contracting Solutions, on the evidence, had virtually nothing to do with these workers after conversion except organise the pay and that was done as agent for Quest.  So, unless there are any other matters.

FRENCH CJ:   In other words ‑ well, we will hear from Mr Kenzie, I suppose, but the 15, 16, 17 point says the appropriate way of dealing with the matter is to plead contravention by the third party.

MR BOURKE:   Yes.

FRENCH CJ:   Okay.  Mr Kenzie.

MR KENZIE:   If it please the Court.  The Court has our outline of oral submissions on which we rely.  Your Honours, the starting point in our final submissions was to challenge the appellant in terms of the question that the appellant said arose for the Court’s consideration.  The reason that we did that is because we submitted that the question that the Court was addressing in terms of section 357 was not simply the question of whether section 357 could be avoided on one construction rather than the other but addressing the question of the reach – against a background of the reach of section 357 and an appreciation of the fact that if section 357 had the reach contended by the ombudsman, it addressed circumstances which took you beyond any consideration of whether someone had a shelf company or was seeking to introduce some form of defence by means of deception and the like.

The question that the Full Court was addressing is clear, and has been identified in the submissions today, and was addressed in circumstances where it was quite clear that the court fully understood that simply because you had a triangular relationship – whatever that might mean –it did not mean that that was ipso facto something that was indefensible or to be criticised, that a situation in which an employer is party to an arrangement in which a person who was formerly or presently an employee becomes an independent contractor is not a matter which innately gives rise to criticism.  It may give rise to criticism in the event that there is deception involved, but the mere transfer of someone from the status of employee to the status of independent contractor is not something that is frowned on by the legislature ‑ ‑ ‑

FRENCH CJ:   In other words, the statement of issue in paragraph 2 of the appellant’s submissions can be put to one side because we are simply talking about the construction of the section rather than conclusionary views?

MR KENZIE:   Yes, correct.  And, your Honour, the notion that the debate is to be informed, not just informed but determined in effect, by considerations of avoidance is a deflection ‑ ‑ ‑

FRENCH CJ:   You are worried about framing bias, I think.

MR KENZIE:   Your Honour, it is important to understand that if the – and the Full Court was aware of this and I will come to the passages – if the effect of the provision is as contended by the ombudsman it inevitably makes an employer, making a representation about what will happen to an employee who is to be an independent contractor to some third party, liable under section 357 – it does not have to be an intentional misrepresentation – if that statement turns out ‑ is in fact a misrepresentation.

NETTLE J:   But only if he is reckless.  It has got a defence otherwise under subsection 2.

MR KENZIE:   I will come to subsection 2.  Subsection 2 is a provision that allows you to escape if you can actively prove that you were not reckless in relation to that, that is so, but the primary aspect of section 357 is to make you liable and put you into a position in which you will be liable regardless of whether the representation was innocent and the like unless you prove your way out of the hole, under section 357(2).

NETTLE J:   That is not very surprising, is it, given the nature of the legislation that we are talking about?

MR KENZIE:   Well, there needs to be an explanation as to why you are in the hole in the first place when the representation, on the ombudsman’s construction, is about something that is happening as between other people.

NETTLE J:   But it is simply a case of caveat employer.  They are the ones that are to take care in making representations to people who are, in truth, employees, is it not, but they have a get‑out if they are not deceitful or reckless.

MR KENZIE:   They have a get‑out if they can prove their way out; that is so.  Your Honours, the Full Court accepted, if the Court would look at appeal book page 212, paragraph 137, that a triangular relationship might be “real or artificial”.  The court is here discussing, from paragraph 136, about how labour might go from being performed as an employee to a position in which a relationship of an intermediary arises.  The plurality said:

The use of such arrangements may be real or artificial.  Where artificial, the external form, appearance or presentation of the relations . . . may cloak or conceal either an underlying employment relationship or the identity of the true employer.  This is what is commonly referred to as a disguised employment ‑

In paragraph 141 on the next page –

The existence of disguised employments underpins the enactment of the provisions of the FW Act with which we are here concerned –

The question asked and answered by the court, as we put it, was clear.  It was not about sham arrangements; it was which of the two constructions, which are identified at paragraphs 75 and 76 of the plurality judgment, was correct.  They were simple questions about the scope of the provision, a provision which will apply not just to arrangements which might be described as deceptive arrangements, but to any arrangement, as well appreciated by the plurality.  The question as to which of the two constructions was answered by the court, as disclosed in paragraphs 75 and 100 of the decision, by the court saying that section 357 was directed to:

a representation made by an employer that its contract with its employee is not an employment contract but is a contract for services –

and requiring that ‑

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.

I will come to the text in a moment.  The question arose because, as the Court has already seen this morning, the Full Court was seeking to determine whether the terms of section 357 were broad enough to catch the representations described in paragraphs 30 and 240 of the reasons for decision.  They have been read to the Court this morning but, plainly, the first of them, in paragraph 30, was a representation 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.

So the representation was a representation about a relationship between the employees and Contracting Solutions, but the second of the representations in paragraph 240 that:

as the employer of Best and Roden, Quest represented to Best and Roden that they were performing work at Quest as independent contractors of Contracting Solutions.

As our friend has said, the plurality dismissed the claim on the basis of its preferred construction.  It went on to consider the position in the event that the above construction was wrong and said they:

would have found that Quest contravened s 357(1) –

by the second representation, but they would not have found that the representation at paragraph 30 was a contravention because of a pleading defect which was identified at paragraph 247 because it only pleaded to the way matters had worked out and not that the representation was a representation made.  But, your Honours, if it had been properly pleaded it would have led to liability in circumstances where the employer, that is, Quest, the party found to be the employer, had no involvement in the circumstances giving rise to the misrepresentation.  Your Honours, that is clear from the facts in this case. 

Contracting Solutions was a labour hire company and the judgment of the court was to the effect that the documentation that was produced as between Contracting Solutions and the individuals was considered to be insufficient to establish the relationship.  Your Honours will find that at paragraph 203 of the decision and paragraph 234, and it was considered unclear as to whether there was any evidence demonstrating the ongoing and regular engagement by Contracting Solutions of the individuals as independent contractors.  Your Honours will find that at paragraphs 208 and 209.

The point is that in order to come to the conclusion as to what was going on at Contracting Solutions, as between Contracting Solutions, the court was engaging in an inquiry about matters that had nothing to do with Quest in the sense that they involved documentation created by Contracting Solutions and the question of whether there had been any activity as between those parties giving rise to a contract whereby work was done as an independent contractor.

GAGELER J:   It is very hard to say that it has nothing to do with Quest in circumstances where the statutory conclusion is that Quest is the employer, is a party to a contract of employment.

MR KENZIE:   Well, your Honour, the position as to that is that Quest was – is explained by the course of the judgment really.  The process of reasoning in circumstances where the relationship between Contracting Solutions and the individuals was proffered as one of independent contractor was to say that there was no evidence that satisfied – that disclosed that conclusion.  That conclusion having been reached, the plurality then went back and said, “Well, you have to explain the fact that work was being done at Quest on some basis”, and it was in those circumstances that it was felt open by them to imply a contract as between Quest and the individuals, and Quest was then found to be the employer and then 357 was applied.

GAGELER J:   It is hardly an innocent bystander.  That is my point.

MR KENZIE:   Your Honour, I am proffering this case as one in which the examination inevitably involved matters to which Quest, whilst it was involved or may have been involved in the sense your Honour suggests, it clearly involved matters in respect of which Quest would have had no knowledge.  Your Honour, the point is that the section, if it has the reach that the ombudsman says, has a reach regardless of whether there is distance between the parties.  The section will apply if there is a representation made by a person found to be an employer - in this case, found to be an employer by a process of implying a contract of employment - making a statement about what is happening as between other parties - innocently, liability follows.

BELL J:   But, Mr Kenzie, liability only follows in a case in which the person is the employer of the employee, so that it is a little difficult, particularly given subsection (2), to apprehend this floodgates concern that you express.  It may be accepted that the Act does not set its face against circumstances in which people cease to be employees and become independent contractors.  But in such a case 357 is not engaged.  It is only when there is a contract of employment and when there is a representation respecting the nature of that contract of employment.

MR KENZIE:   That is accepted.  Our friend’s contentions, however, rested on the notion that there was something innately undesirable in a transfer and we have addressed that in our submissions.  The balance that is achieved in the legislation is a balance that is designed, as we would put it, to reflect Parliament’s concern to encourage the flexibility of independent contracts subject only to the need to protect employees from deception. 

Our point is that the construction advanced by the ombudsman would have the effect of providing for liability, true it is subject to being able to fight your way out, in circumstances where there is no deception, there is no sham and where the employer - this case might not be a perfect example, but certainly in cases where the employer is not a party to anything or any developments which will inform the question as to whether the person is truly an independent contractor. 

FRENCH CJ:   It is directed to a case in which the employer is making a representation about the nature of the relationship with the employee and that it is wrong.

MR KENZIE:   It is wrong, innocent but wrong and liability follows and there is a defence.

FRENCH CJ:   That does not, as it were, erode the notion of flexibility.  It just says you have to be careful to get it right, I suppose, as a matter of policy because of the reverse onus in (2) and so forth.

MR KENZIE:   Well, your Honour, what we have to say about it is that that starting point - and that is the starting point - would then inform the approach to the text.  The approach to the text would be based on the need to accommodate a balance between the protection of employees and the right to promote but it would not be informed, in our respectful submission, by considerations of whether that construction would make it easy to provide a defence by introducing a third party. 

FRENCH CJ:   You are giving arguments about why your construction and that of the Full Court is to be preferred to theirs.  Do you accept that both constructions are open on the text?

MR KENZIE:  No, your Honour.  We submit that the ombudsman’s construction is not open and the conclusion that the ombudsman seeks is one that could only be done by distorting the text.  The reason for that is that if you look at section 357, already read, it provides that:

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.

In other words, the one thing is in fact another.

FRENCH CJ:   Do you say that is incapable, textually, of encompassing the case in which the representation is that what is, in truth, a contract of employment with me is a contract for services with someone else?

MR KENZIE:   In our respectful submission, it is a section which has as its subject matter the contract of employment and a representation that it – the contract of employment with the employer – is, in fact, a contract of services.  The notion that that can be transformed into a description of a contract with a third person is something that can only be done, in our respectful submission, by adding words to the section.

The section is concerned with prohibiting a representation about the legal character of the contract under which the individual would be employed.  It is not, in our respectful submission, intended to address a representation about the status of the representee at large, regardless of whether of the representee is to be engaged by someone else.  When the section refers to the contract for services under which the individual would perform work as an independent contractor it is simply identifying the misdescription of the true contract identified earlier in the provision.

FRENCH CJ:   It would nail it down for you if the words “contract for services” in subsection (1) were followed by the words “with the employer”.

MR KENZIE:   But, your Honour, that is our friend’s submission.  He submitted that on day one.  Our submission is that those words are not necessary and never were necessary because the section otherwise makes it as plain as it can be that it is a representation about a contract and the word “contract” is used twice.  It is a representation that this contract – and the words are “under which you would be employed by the employer” - is a contract for services.  Your Honour, it does not need any words added.  Our construction makes use of all of the words in the provision and it does not need any other addition.  It is not to be read as a representation about status in general.

KIEFEL J: But is it possible to read section 357(1) purposively in relation to representations and what they are meant to convey to a person in this way? Even though you think you have a contract of employment with me (your true employer), in fact, you have a contract of services with someone else as an independent contractor (someone I have introduced you to).

MR KENZIE:   Yes, your Honour has stated the argument.  In our respectful submission, that involves truly an extension of the words in the provision because Parliament has chosen the words of contract.  The subject matter of the provision is the contract.

KIEFEL J:   But it is concerned with representations.  It is concerned with what is conveyed by what is said.  So that you have to read subsection (1) in the context of what is intended to be conveyed having regard to the – what is conveyed having regard to the mischief that is sought to be avoided.

MR KENZIE:   Your Honour, what we have to say is that reading it in the way that the Full Court read it according to its text, in our respectful submission, gives it appropriate work to do.  In paragraph 79, the Full Court explained that its construction did not mean that you had to refer to the contract, a representation to an employee who only had one contract that you will be an independent contractor would be construed as falling within the provision for good and proper reason. 

But it does not provide the gateway for turning the section into something that, in our respectful submission, it is not.  That is a guarantee to avoid liability of the correctness of a statement about what is going on between other people because that is its ambit.  Once shorn of the deflection that this is all about shelf companies and the like, the debate can be seen for what it was and is. 

If you accept that the scope of the section is what it is and not confined in some undefined way by the heading “Sham arrangements”, which your Honours will not find helpful, then the question has to be asked, if the legislation has this reach, bearing in mind the words, bearing in mind the history and the extraneous material, is it justified to construe the section, as your Honour puts to me, in a purposive fashion so as to give rise to that result.

KIEFEL J:   Realistically, an employer is not going to make a representation strictly in terms of the subsection, is it?  That is not going to happen.  The question will always be whether what is conveyed comes within the purpose.

MR KENZIE:   Yes, your Honour.  If one approaches it in the manner that the Full Court did in paragraph 79, which was read by our friend, it does not have to refer slavishly to – of our contract.  But that is a separate consideration to one about whether the reach of the section is a reach that extends to what is going on involving other people.  It is a separate question. 

Your Honour, I take on board what your Honour puts that in the real world you might not find people talking about a contractual document.  But the reach of the section does not depend, in our respectful submission, on that as the Full Court said in paragraph 79, but it does – but the words of the section do take you down the road to what is happening as between the representor and the representee. 

BELL J:   But always against a background that the employee is performing or will perform work for the person who is the employer.

MR KENZIE:   Correct.

BELL J:   It is not as though they are at quite the remove that you are seeking to put them.

MR KENZIE:   I am not suggesting a complete removal.  I am suggesting that the scope of the provision is such as to catch arrangements which, regardless of the end – which is to get the employee to perform work for the employer – the representation can be about matters that are not within the ken of the representor.  That tells against seeking a purposive instruction, and tells in favour of reading the provision in accordance with its text.  That approach, in our respectful submission, is consistent with the legislative history and the supporting materials, as the plurality realised.

Could I come to that, your Honours?  The legislative materials in relation to the introduction of the Workplace Relations (Independent Contractors) Bill are found in tab 14 of the respondent’s folder of legislation.  I will not dwell long on this, because as your Honour Justice Bell has put to me, this provides the background but does not answer the question. 

In any event, if your Honours would look at tab 14, page 6, point 1 - this is the legislative package which introduced the provisions which regulated federal independent contractor law, and also introduced the balancing provisions, of which section 357 was one.  At page 6, point 1 of the materials, you will see the benefits to be perceived were the facilitating of the use of independent contractors and the flexible arrangements offered by them as being imperative ‑ ‑ ‑

BELL J:   I am sorry, can you just refer to the document?

MR KENZIE:   I am sorry, your Honour.  It is the explanatory memorandum, tab 14 to our bundle of ‑ ‑ ‑

KIEFEL J:   I think we have them as loose documents.

BELL J:   We have them as a bundle of documents, Mr Kenzie.  Are you referring to the explanatory memorandum to the Workplace Relations Legislation Amendment (Independent Contractors) Bill?

MR KENZIE:   Yes, I am referring to the explanatory memorandum in relation to the Independent Contractors Bill 2006.

BELL J:   All right.  At what page?

MR KENZIE:   Page 6, under the heading “Problem”.

GAGELER J:   We seem to have two documents.  One is the explanatory memorandum for what is just called the Independent Contractors Bill 2006 ‑ ‑ ‑

MR KENZIE:   Yes, that is the one to which I am ‑ ‑ ‑

GAGELER J:   ‑ ‑ ‑ and there is another one, an explanatory memorandum for the Workplace Relations Legislation Amendment (Independent Contractors) Bill.

MR KENZIE: I think the answer to that is one of them was concerned with the developments which gave rise to the provisions in the Independent Contractors Bill, and the other, which your Honours will have, relates to the introduction of sections 900, 901 and the predecessors to section 357. I am seeking to go to the one of the two that is headed “House of Representatives - Independent Contractors Bill 2006”.

GAGELER J:   Is it the same Bill, or is it a different Bill?

MR KENZIE:   There were two Bills at the same time, your Honour.  That is the reason for the two documents.  They were part of the same legislative package, introduced as two Bills.  What was going on was the new federal regime in relation to independent contractors was being introduced.  At the same time, provisions changing the Workplace Relations Act which affected employees were being enacted with the consciousness that the world was changing in relation to independent contractors, and there needed to be provisions in the workplace relations legislation that dealt with the balance that, in a sense, underpins the debate that is occurring in this Court today.

KIEFEL J:   What was the world shift in relation to independent contractors?

MR KENZIE:   The critical shift in relation to independent contractors involved the move essentially from a situation in which there had been State control and regulation through sections like section 106 of the New South Wales Act which was the subject of the Solution 6‑type proceedings and similar legislation in other States whereby independent contracts were regulated by industrial tribunals and leading to a concern that there was an interface between industrial regulation and commercial regulation.  So there was a great history in New South Wales where it was most pronounced, your Honour.  In section 106 there was a near 100 year history of regulation which, with the expansion of the Act, gave rise to a very considerable regulation of independent contracts.

KIEFEL J:   So there was concern about a blurring between the status of employee and ‑ ‑ ‑

MR KENZIE:   There was that.

KIEFEL J:   So we are looking at an attempt to segregate it?

MR KENZIE:   Looking at an attempt to obliterate the State regimes of controlling independent contract and to substitute by a federal regime because overwhelmingly there was a perceived need to recognise the flexibility and worth of independent contracts.

FRENCH CJ:   One of the problems addressed in the memorandum is the deeming of a certain class of relationship to be employer/employee.

MR KENZIE:   That is right.  Your Honours, I do not want to take this too far.  It is important your Honours have some understanding of this because it does underpin, in our submission, the proper approach to section 357 and I do not want to make it sound more important ‑ ‑ ‑

KIEFEL J:   Do I take it that there are other provisions which have the effect of segregating the two and, if that is the case, is 357 a protective provision?

MR KENZIE:   Well, I would not flee from the description that it was given in the Full Court that it was construed beneficially because it was seen to be protective and it would be wrong to read section 357 as intending to do anything other than protect employees from undesirable conduct.  I do not flee from that.  What I wanted to point to on page 6 of the explanatory memorandum in particular was – I will not read it all – but the identification of the problem at the top of the page, the fact that there was an intended move away from clauses which restrict engaging labour hire workers and, as your Honour the Chief Justice says, at the bottom of page 6, the deeming provisions:

There are problems with deeming provisions which seek to change the nature of a working arrangement from independent contractor to employee –

The concern was the other way.  The concern was that State legislation was taking independent contract and moving it into employment, reading on -

and thereby draw independent contractors into the net of workplace relations regulation.  Deeming provisions have the effect of invalidating individual choice and flexibility in choosing working arrangements.  They infringe on individuals’ freedom to choose from a diversity of workplace relationships, including their right to negotiate conditions of work that suit their own individual needs.

Now, Your Honours, one can have the endless political debate about all this, but what was being achieved in the 2006 legislation was obviously a balance to do that and also the introduction of provisions like sections 900 and 901. Could I say something about that?

KIEFEL J:   Just before you do, I think page 9 of the explanatory memorandum has the discussion about the arrangements, does it not?

MR KENZIE:   Yes, it does and it refers to sham arrangements as arrangements through which an employer seeks to cloak a work relationship to falsely appear as an independent contracting arrangement.

KIEFEL J:   In contradistinction to genuine independent contracting arrangements and they talk about the need to protect workers from sham arrangements.

MR KENZIE:   Correct.  Your Honour, it is the same point that the plurality was making in the paragraph of the judgment that I went to earlier:  the consciousness that there is a desirability in promotion of flexibility through an independent contract but there is the need to protect from deception.  That is the balance.

FRENCH CJ:   Does this underpin some sort of proposition that the construction for which the appellant contends, as it were, undermines or corrodes in some way flexibility in arrangements?  It is still concerned about misrepresentation.

MR KENZIE:   Your Honour, yes.  Where this is leading is that our submission is that our construction, in addition to being supported by the text, is consistent with the avoidance of cloaking and the like because – and I will come to this – contrary to our friends’ submissions, it is incorrect to proceed on the basis that the legislation as construed by the plurality would be of no use in circumstances where there was a shelf company type arrangement but would not extend, on the other hand, to cover representations about arrangements to which the employer was not a party.

FRENCH CJ:   It would still fall within the mischief of – I am taking the metaphor from the last line on page 9 – having a rooster and calling it a duck.

MR KENZIE:   Yes, it would if you were being penalised for having a rooster and calling it a duck but you were in no position to know whether it was a rooster or a duck.

FRENCH CJ:   You just have to be careful.

MR KENZIE:   Insofar as it is perceived that there are two potential constructions available, and our first submission is that that can only be done by stretching the words, but if your Honours say if we can get past that one, then these submissions go to the next question.  That is the way in which it is put.  They are not and cannot be definitive but they do instruct in relation to an approach to the scope of the provision like section 357.

More particularly, if I could say something about the legislative history, the plurality in the judgment at paragraphs – this is appeal book page 198 and 199 ‑ discerned in paragraph 81 and 84 that the legislative history as seen from the text of the predecessor provisions and the relevant explanatory memorandum was completely supportive of the conclusion reached in relation to the text.  Justice Barker was to similar effect at paragraph 295, both in relation to the legislative package introduced by the (Independent Contractors) Bill and the explanatory memorandum.  As far as the other Bill is concerned, the other 2006 Bill, the second of the two Bills that your Honour Justice Gageler referred to, that is the explanatory memorandum to the Workplace Relations Legislation Amendment (Independent Contractors) Bill 2006, the second of the two Bills, your Honour.

GAGELER J:   It is the operative Bill.

MR KENZIE: It is the operative one; yes, that is right. The other one is the other side of the coin in terms of the legislative package and this is the operative one. Correct. If your Honours would open that briefly at page 5 in paragraph 5 of the explanatory memorandum. At that stage two provisions were introduced, sections 900 and 901. They dealt with the actual as opposed to the prospective, respectively. The explanatory memorandum reads:

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 next words are important ‑

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.

Your Honours, just pausing there, we would make the submission that that is totally in support of our submission and destructive of our friend’s approach to the section.

GAGELER J:   But it says nothing about who the counterparty to the contract has to be.  They are putting it in other words.  It says nothing about the representation needing to be a representation about – that includes a representation about the counterparty to the contract.

MR KENZIE:   It says:

The person would need to have entered into a contract with an individual –

so that makes him the employer, and a contract of employment –

and have made a representation to that individual that the contract was a contract for services –

The same contract, not some contract with another person, “the contract was a contract for services”.  There is a coincidence of language between this and the text of present section 357 which, in our respectful submission, cannot be ignored because the intention was to confine, in accordance with the balance, the scope of the liability of the employer.  Your Honours, we would make the submission that our friends – that that is destructive of the ombudsman’s contention but supportive of the contention reached by the plurality as was clearly appreciated by them.  Your Honours, we have also referred, in our submissions ‑ ‑ ‑

KIEFEL J:   Mr Kenzie, forgive me for interrupting, could you assist me?  What is the accessorial liability provision?

MR KENZIE:   Section 550, your Honour.

KIEFEL J:   Thank you.

MR KENZIE:   This is the provision that has been ‑ ‑ ‑

KIEFEL J:   It is 550(2)(c) refers to being directly concerned in the contravention.

MR KENZIE:   Yes, that is right.

KIEFEL J:   So, do you read this with section 357?

MR KENZIE:   Yes, and, indeed, section 550 was utilised, or sought to be utilised, in the proceedings and an application of the reasoning in cases like Yorke v Lucas was applied in relation to that provision, your Honour.  But, it is relevant, in our respectful submission, to our friend’s assumption that section 357 is useless unless it means what the ombudsman says that it is because of easy avoidance. 

We have never accepted that submission, your Honour, and the Court would not accept it for this reason.  Just as section 550 was sought to be used in this case, if you had a shelf company situation – just, for example – there would be nothing to prevent a pleading alleging that the representor who made a representation caught by section 357 on behalf of the sham company was made, as it were, by the sham company.  In other words, if you have got a sham company its actions have got to be undertaken by a human agency, and if you had a sham arrangement, a statement was made about what would happen within the sham company, it would be very difficult for you to avoid liability on the basis that ‑ ‑ ‑

FRENCH CJ:   One piece of conduct constitutes the action of the principal and accessory.

NETTLE J:   But what if there were no sham company, it was just a pretence, and the employer said, you are engaged under a contract of services with the X company which, in truth, did not exist?  What then?

MR KENZIE:   Well, your Honour, it may not be perfect.

NETTLE J:   Would the section apply?

MR KENZIE:   Well, it may not be able to apply in the circumstance where there was no company at all, but the assumption against us is that it would have no operation.  At best, there may be questions as to whether it would operate in all circumstances, but the contention that it would have no utility in that ‑ ‑ ‑

NETTLE J:   I do not think it says it does not have any utility, it just says it has got a very reduced utility if your construction is correct.

MR KENZIE:   Yes.  Your Honour, identifying circumstances in which it might not apply at best would form part of the debate, in our respectful submission.  Our submission is that section 357 has got plenty of work to do if it is confined to the relationship of the employer and the employee.  It would not be confined, as our friend submits.  It might not cover every situation and that might be taken on board.  But if that conclusion does not provide a foundation ‑ as we have put it, torturing the words of section 357 to give rise to a conclusion that the explanatory materials suggest was not what was sought.

BELL J:   Mr Kenzie, I do not think I quite understood how you were suggesting that the representation made by an individual on behalf of the sham company might be caught.  I just did not understand the submission.  What were you putting?

MR KENZIE:   Well, your Honour, if I am a person and I have got a sham company and a statement is made by me, it is not difficult to conceive a pleading in which it is contended that when I made that statement, I made it on behalf of the employer, and it is not difficult to understand, in our respectful submission, that liability would be able to be affixed by proper pleadings, notwithstanding the fact that you were talking about a sham company.  Justice Nettle advances a situation in which section 357 might not apply.

BELL J:   In which there is no sham company; I understand that.  But just to work this through, you say that on a view that the person who is the human face of the sham company makes a representation, you are now an independent contractor with Acme Cleaning, to the employee, might be acting as agent for the real employer, is that right?

MR KENZIE:   Yes, and so the ‑ ‑ ‑

BELL J:   And that person is caught by 357, notwithstanding that the representation is that a contract between Acme Cleaning and the employee is the basis of engagement of that person to perform the work for the employer.  Is that the submission?

MR KENZIE:   If the statement is made by the human agent who represents the sham company and the former employer, that person makes a statement and it is found that the sham company is the employer, then ‑ ‑ ‑

BELL J:   …..that is the difficulty, is it not?  If the sham company is the employer, we do not have a problem because there is no sham.  What one is concerned with is where one has an employer making a representation about the nature of the employment of the employee.

MR KENZIE:   Yes.

BELL J:   Now, if your submission is that in an instance where a representative of the sham company, which we will call for the present purposes Acme Cleaning, says to Ms Smith, you will be an independent contractor employed by Acme Cleaning, when at all times Ms Smith is in fact working for a company called Perfect Cleaning.  In that instance, do you say that if it can be construed that the representation is made by Acme Cleaning’s officer, as agent of Perfect Cleaning, 357 is engaged?  You accept that, do you?

MR KENZIE:   Yes, we do.  Indeed, we would say that ‑ ‑ ‑

BELL J:   That is because, in that instance, the representation identifies that the suggested, but in fact fictive, contract is with Acme Cleaning.

MR KENZIE:   Yes.

BELL J:   Whereas, in truth, throughout the employment relationship, has been a contract of employment with Perfect Cleaning.

MR KENZIE:   Yes.

NETTLE J:   If that is so, I do not understand why you do not accept liability in this case because those were the facts which were found in paragraph 30 of the joint reasons, were they not?

MR KENZIE:   No, your Honour.  It was put in this case - it was not a shelf company case - it was put that you will work in the future for Contracting Solutions ‑ ‑ ‑

NETTLE J:   For Acme.

MR KENZIE:   ‑ ‑ ‑ an independent body for this purpose as an independent contractor.  So it was not a case in which you could attribute in the same way the statements of Contracting Solutions as statements of Quest.  If you had a shelf company situation, the shelf company has to operate through a human agency and a representation made by the mastermind, as it were, will be taken as a representation made on behalf of the employer and the operative company, not the employer, can be joined as an accessory, in our respectful submission. 

You do not escape simply because you add another body.  If you can establish accessorial liability and establish that the person who made the statement, whether or not that person was the employer, was acting as the agent of the employer so that it is a statement made by the employer, you do not escape liability.

BELL J:   But, Mr Kenzie, to come back to your focus on the definite article in 357(1), in the instance that we have been discussing, the employment contract is between Perfect Cleaning and Ms Smith, the representation made by Acme Cleaning is as to affecting contract between that body and the employee.

MR KENZIE:   Yes.

BELL J:   So that I thought that the importance that you placed on the definite article was to say the representation to the individual is that the contract of employment under which the individual is employed is a contract for services under which the individual performs work as an independent contractor.

MR KENZIE:   But with the same employer, and all that I am putting about the shelf company is that the existence of the shelf company will normally provide a basis for attributing liability to both the person who made the statement as the employer or anyone else engaged in the sham, for this purpose, as an accessory.

FRENCH CJ:   Well, you just say that your construction meets that mischief through the accessorial path.

MR KENZIE:   Correct.  It is not complex, your Honour.  That is all I am seeking to say, and that leads to the final submission that our construction, consistent with the text and the legislative history, does not involve the attribution of liability in circumstances where the employer would not know or would not be expected to know and at the same time does not suffer the vice that is asserted by our friend of being easily avoided and accordingly is consistent with the objects and consistent with the text.

There was one final point - there are two final points, your Honours.  I am sorry, I will be brief.  Sections 358 and 359 - section 357 is in a group of provisions which are protective provisions.  They have different ambits because the subject matter of those provisions is different.  They sit together.  The reach of section 357 is, as we would put it, to deal with what happens between the employer and the employee.  The reach of section 358, as we would submit it, is similar, that you could not read section 358 as covering a situation in which the intent was to have the person employed by a third person.  The word “engage” can only mean engage by contract.  There is no other meaning suggested.  So the reach of 358 is the same, in our submission, as the reach of 357.

The reach of 359, although it uses expressions like “contract of services”, the reach is different.  The reach in section 359 is consciously made different because there the Parliament is talking about false statements knowingly made.  The reach is broader because it addresses a situation in which the employer makes a statement that the employer knows is false in order to persuade or influence the individual to enter, et cetera.  That is not just enter a contract with him or it; it is enter.  So the reach is different.

But, your Honours, the points that are to be made from that are firstly these.  Obviously the scope of these provisions is different and intended to be so, but you do not get from the existence of these provisions, or any of them, the conclusion that you approach 357 on the basis that it should be read, contrary to its apparent terms, in a manner extending beyond the position of employer and employee.

You do not reach that conclusion in relation to section 357 any more than you would reach it in relation to section 358.  The reach of the provisions is different.  The package is a discrete package and you would not read 357 as attributing liability, true it is with a get‑out, in circumstances where it is about a representation about what is happening with someone else; whereas Parliament in 359 of course is saying, “Look, you can’t make a knowingly wrong statement about things that might affect other people”; defensible.  So it all hangs together, in our respectful submission, and none of it provides a licence for taking a broader approach to 357.  The final thing there is ‑ ‑ ‑

NETTLE J:   Just pause, if you would, on 358.  If Quest had said to Ms Roden, “I threaten to dismiss you in order that you be engaged by Contracting Services to provide me with your cleaning services as an independent contractor”, would 358 have applied?

MR KENZIE:   No, your Honour.  In our respectful submission, when it says in order to engage the individual as an independent contractor, it does not say so that someone else can engage the person as an independent contractor.

NETTLE J:   Thank you.

KIEFEL J:   Section 359 would apply.

MR KENZIE:   Section 359 would apply in that set of circumstances, yes, your Honour, and correctly so because you have people taking wrongful action and it protects employees from that.

BELL J:   Would 359 apply if one simply said, “I’m not prepared to keep employing you any longer; your only option is to work for Contracting Solutions as an independent contractor”?

MR KENZIE:   It is probably difficult to see how 359 would cover ‑ ‑ ‑

BELL J:   It is very difficult to see.

NETTLE J:   Why would not 358 apply?

MR KENZIE:   Section 358 would not apply for reasons that we have given.  If you are talking about third parties, 359 ‑ ‑ ‑

BELL J:   One could threaten to dismiss in those circumstances without attracting any of the Division 6 prohibitions.

MR KENZIE:   You can make a statement to persuade or influence the individual to enter into a contract for services.  You are quite free to do that, as long as you do not make a false statement.

BELL J:   You are free to threaten a person with dismissal or indeed to dismiss them on the basis that a third party will engage them to perform work for you as an independent contractor.  That does not create any difficulty.

MR KENZIE:   No, and indeed you can do a lot of things in connection with turning people into independent contractors.  Indeed, 359 is part of that balance, your Honour, and we take on board what your Honour has said.  Section 359 is to be understood as consistent with the objects at the time that the balance was struck in the legislation, as saying there is nothing wrong with taking people who are employees and making honest arrangements to turn them into something else.  That is because Parliament has said that something else is something we value. 

You can have an argument about the rights and wrongs of that but that is what Parliament has done.  Then 359 is a control on that and there is nothing terribly complex about that.  But none of it amounts to a basis for saying, “Let’s take section 357 and see if we can twist the language and make it do something that, on the face of the language, it does not do.”

BELL J:   What is the policy behind 358, just as a matter of interest?  Why, if one can dismiss people in order to engage them as an independent contractor to perform the same functions under a contract for services, why is that prohibited where the engagement is direct but not where it is through a labour hire company?

MR KENZIE:   Well, your Honour, the line drawn by the legislation in relation to this is that there is nothing wrong with a process whereby people go from status A to status B.  Indeed, it is potentially desirable.  But the line that is drawn is in terms of compulsion and making that happen against the will of the person to be protected, your Honour.  That is the balance that Parliament ‑ ‑ ‑

BELL J:   But that is not an answer to my question, Mr Kenzie, because we are looking at a situation where it is against the will of the employee.  The employee will be performing the same services for Perfect Cleaning this time as an independent contractor with Acme Cleaning – no offence –but if it were direct, that is, the engagement direct, it would be.  In both instances there is compulsion.  What is the policy reason that you identify for your construction over that favoured by the ombudsman?

MR KENZIE:   By “direct” we mean direct in terms of by the person and not by some other means.  The point, again, is that Parliament has intentionally confined itself to the relations between the parties; could have gone further, could have said you cannot use threats whoever is going to be

the contractual beneficiary, but it has not done it.  This is the extent.  Your Honour asked me what the policy behind that is ‑ ‑ ‑

BELL J:   Hard to grasp.

MR KENZIE:   I would love to help.  It may not be perfect.  This is a legislation that is of comparatively recent origin – your Honour, that may be the answer, but I do not want to labour it.  The only other thing I wanted to say is this.  We have made a point about the reversal of onus provision in section 357(2).  The point that we made in relation to it is simply this, that the explanatory materials again support the second respondent’s position. 

The reason for that is that when you look at the explanatory memoranda for the introduction of the defence, you find that the reason for the placing of the onus on the employer in the case of section 357(2) is because, like the position that prevails in relation to the general protection provisions discussed in Barclay, the underpinning theory is that it is okay to place the onus of proof on the employer because the employer is in possession, and indeed, in a particular position to know about the matters that constitute the defence.

Your Honours, the explanatory memorandum uses that language.  It says it is okay to put the onus in 357(2) over here, because that person is going to know all about it.  It is a legitimate statutory stance to adopt to do that, in the way that it is in section 340, the Barclay provisions.  That only takes one back to the first point that I was perhaps too laboriously trying to make, which is as to the reach of it.  It makes relevant an understanding of the reach of section 357 and what it catches.  It catches you unless you can prove your way out of it.  You have got the onus, because everyone is assuming you know all about it.  That assists the construction for which we contend in the first place.  I am sorry to have taken a little longer than I had intended, your Honours.

FRENCH CJ:   Thank you, Mr Kenzie.  Yes, Mr Bourke.

MR BOURKE:   There are no matters in reply, your Honour.

FRENCH CJ:   Thank you.  The Court will reserve its decision.  The Court adjourns until 10.15 tomorrow morning.

AT 12.16 PM THE MATTER WAS ADJOURNED