McMahon Services Pty Ltd v Cox

McMAHON SERVICES PTY LTD v COX
[2001] SASC 33

Full Court: Olsson, Duggan and Williams JJ

1................ OLSSON J....... I have had the advantage of reading the judgment of Duggan J in draft. I agree both with his reasoning and that the appeal must be dismissed. There is little that I would wish to add.

I particularly agree that the legislation does not contemplate that a worker should, or could, have two quite separate “employers” simultaneously in relation to performance of the same work.
It is to be remembered that the evil which was sought to be addressed, when the definition of “contract of service” was introduced with its present sub paragraph (b), was the undesirable stratagem of the entry into “sub contracting” arrangements (particularly within the building industry) with a specific intention of avoiding, inter alia, the creation of any contract of service at all, with its concomitant workers compensation obligations. That was not the instant situation.
Moreover, in the case at bar, there was no relevant direct legal relationship direct as between the appellant and the respondent. The appellant contracted with the respondent’s employer for the supply of labour, for which it paid the employer the requisite fee. The respondent at all times remained in the employ of Extraman Pty Ltd. His labour was simply hired from it in the same manner as an item of plant might have been hired. The fact that he was subject to the direction of an employee of the appellant as to precisely what work was to be done did not alter the nature of the fundamental relationships involved.
It follows that, contrary to the appellant’s submission, the respondent did not ever “work for” it in the relevant statutory sense.

6................ DUGGAN J..... The respondent was injured in a work accident which occurred on 13 January 1995. At the time of the accident he was working on the roof of a building at the Defence, Science and Technology Organisation at Salisbury. While he was removing asbestos sheets from the roof of the building he fell through the roof to the ground and suffered personal injuries.

The respondent commenced an action in the District Court for damages for the injuries which he sustained. The statement of claim alleges that the injuries were caused as a result of the negligence of the appellant, McMahon Services Pty Ltd (McMahon). At the hearing of the action in the District Court a finding of negligence was made against McMahon and judgment was entered for the respondent in the sum of $224,167.30.
It is not in dispute that, at the time of the accident, the respondent was employed by Extraman Pty Ltd (Extraman), an agency which supplied labourers to building construction sites. He was directed to the building site after a request was made by McMahon to Extraman for labourers.
After the accident the respondent received payments by way of compensation under the Workers Rehabilitation and Compensation Act 1986 (the Act) following notice of disability which was given to Extraman as his employer.
At the hearing before the District Court McMahon argued that the respondent was its employee for the purposes of the Act at the time of the accident and that he was prevented from making a claim for personal injuries at common law by s 54(1) of the Act which, subject to an exception which is not applicable to the present case, provides that the only liability which attaches to an employer in respect of a compensable disability arising from employment by that employer is liability under the Act. It follows that common law liability is excluded by this provision.
The learned trial judge rejected the argument that McMahon was the employer of the respondent for the purposes of the Act and proceeded to determine liability at common law and assess damages. The sole issue raised on the present appeal concerns the correctness of the ruling that McMahon was not the employer of the respondent under the Act.
It is convenient to begin with some relevant definitions which appear in s 3(1) of the Act.
“Employment” is defined as including “work done under a contract of service”.

“Employer” is defined as including “a person by whom a worker is employed under a contract of service, or for whom work is done by a worker under a contract of service”.

“Contract of service” is defined as meaning -

“(a).. a contract under which one person (the worker) is employed by another (the employer);
(b)a contract, arrangement or understanding under which one person (the worker) works for another (the employer) in prescribed work or work of a prescribed class;
(c).... a contract of apprenticeship;
(d)a contract, arrangement or understanding under which a person (the worker) -
(i).... receives on-the-job training in a trade or vocation from another (the employer); and
(ii) is during the period of that training remunerated by the employer.” (emphasis added)

The Workers Rehabilitation and Compensation (Claims and Registration) Regulations 1999 provide that building work of the type undertaken by the respondent at the time of the accident is a prescribed class of work for the purposes of the definition of “contract of service”.

In support of his argument that McMahon was an employer of the respondent for the purposes of the Act Mr Besanko QC, for the appellant, relied upon par(b) of the definition of “contract of service”. He contended that there was at least an arrangement or understanding between McMahon and the respondent under which the latter worked for the former. Mr Kourakis QC, for the respondent, argued that it was not sufficient for the purpose of meeting the requirements of par(b) of the definition of “contract of service” for the respondent to be merely under the direction of McMahon whilst he was performing his tasks as a labourer. He argued that the Act did not contemplate that a worker would be employed by two employers in relation to the same work and he submitted that there was no understanding between McMahon and the respondent under which the work was carried out.
Before considering these arguments it is necessary to have regard to some aspects of the evidence led at the trial. The respondent said that he first approached Extraman in January 1995. He gave his personal history and his group certificate details to Mr Stasinowsky, a director of Extraman. From time to time, he was directed by Mr Stasinowsky to various construction sites. He had not been paid for any work as at the date of the accident but he said he was to be paid by Extraman, not by Extraman’s clients. When he went to the site at which the accident took place he was instructed by a Mr Beare of McMahons to work on the roof from which he later fell.
Mr Stasinowsky gave evidence. He said that Extraman was a labour hire company which supplied labourers to work on construction sites and that McMahon was one of the company’s clients. Mr Stasinowsky said Extraman supplied the labourers with necessary equipment such as boots, masks and safety goggles. Specialised safety equipment such as disposable suits for asbestos removal was supplied by McMahon. He said the labourers were paid by Extraman and that company was also responsible for their entitlements such as redundancy pay in the event that any of the workers became permanent. Extraman was responsible for the deduction of income tax from the wages of employees and was required to pay worker’s compensation levies. Mr Stasinowsky said it was not his practice to visit the various work sites. Extraman’s clients decided on the number of hours a particular labourer worked.
It is apparent from the evidence that, whereas there was a clear relationship of employer and employee between Extraman and the respondent, the relationship between the respondent and McMahon was restricted to the respondent performing various tasks at the direction of McMahon’s foreman.
The purpose of the extended definition of “contract of service” in the Act is clear enough. In York Civil Pty Ltd v Workers Rehabilitation and Compensation Corporation [1998] SAWCT 30 (unreported judgment delivered 14 May 1995) the Full Bench of the Workers Compensation Tribunal observed that:
“Provisions of the type contained within the regulation are common place in workers compensation schemes. They are frequently referred to as a deeming provisions. That is to say, they deem a person who in law is not a worker, to be a worker. Independent contractors or self employed persons who would not otherwise be afforded the protection of the Act, are afforded that protection by provisions of this type. They exist for their benefit. They do not exist so as to provide those who are employed, the opportunity to identify others as their employer. Thus the expression ‘contract arrangement or understanding’ has to be interpreted in that light.”
Mr Besanko placed reliance on the decision of this court in Warrior v Workcover Corporation [1998] SASC 6893. In that case MBFI Resorts Pty Ltd (MBFI), the owner and developer of the Wirrina Resort, requested the Kaurna Heritage Committee which represents the Aboriginal community in the Wirrina area, to assist in assessing material of potential archaeological interest uncovered in the course of excavation works. MBFI offered to fund two consultants to be selected by the Committee. The consultants were to be paid a daily fee by MBFI and their accommodation, meals and travelling expenses were to be paid by MBFI.
Two consultants were nominated by the Committee in response to this request. The Committee was advised that the consultants would have to conform with site rules for occupational health, safety and security in addition to site rules laid down by union representatives and contractors.
One of the consultants, Mr Warrior, suffered an injury whilst working on the site. In an appeal from the decision of a Review Officer the Workers Compensation Appeal Tribunal ruled that there was no evidence to support a finding that Mr Warrior was an employee of MBFI and that he did not come within the extended definition of “contract of service” in the Act.
The Full Court upheld the decision of the Tribunal. In particular, the court held that the Mr Warrior did not come within par(b) of the definition of “contract of service” in the Act because he was not engaged in prescribed work or work of a prescribed class.
Notwithstanding the ultimate result of the case, Mr Besanko relied upon some observations made by Lander J in his judgment. The other judges of the court concurred in his Honour’s reasons for decision. Lander J referred to the definitions of “employer”, “employment” and “contract of service” in the Act and concluded that Mr Warrior was not entitled to benefits unless he established that he was employed by an employer or there was a contract, arrangement or understanding under which he worked for MBFI in prescribed work or work of a prescribed class. It was not argued before the court that there was a contract under which the appellant was employed by MBFI. Instead, it was argued that there was a relevant relationship of employer and employee between MBFI and the appellant by reason of par(b) of the definition of “contract of service”.
After considering the expression “contract, arrangement or understanding” in par(b) of the definition of “contract of service” and observing that an understanding is something less formal than a contract or arrangement, his Honour said:
“The purpose of the legislation is to ensure the widest coverage of persons who work for others so that if they suffer injury and consequent disability they will be entitled to economic protection during the period of the disability.
It was put by the respondent that the contract, arrangement or understanding had to be between the worker and the other person (the employer). It was argued that it was not possible for there to be a contract, arrangement or an understanding between, for example, a worker’s usual employer and another person (the employer) which would satisfy par(b) of the definition.
I do not agree with that submission. If it was right it would mean that a worker on loan from one employer to another might not come within the coverage of the Act.
I believe that the worker might be performing work under a contract of service where the contract under which the worker works for an employer has been entered into by the worker’s usual employer and the second employer. So also a worker might perform work under a contract of service because of arrangements entered into by another person and the person for whom the work is being performed.
I suppose ordinarily if two persons reach an agreement or enter into an arrangement whereby another person, a worker, will perform work for one of those two persons at least an understanding will arise between the worker and the person for whom the work is being performed, i.e. the employer under which the worker performs the work. However, I do think a worker can come within a contract of service even if the circumstances giving rise to the worker performing the work were made by others as long as one of those others is the employer in par(b) of the definition of “contract of service” for whom the worker is working.
It was submitted by the respondent in this case that the appellant’s claim had to fail because there was no contract, arrangement or undertaking between the appellant and the respondent. It was said that MBFI concluded its agreement directly with the Kaurna Heritage Committee.
In my opinion there was at least an understanding existing between the appellant and MBFI under which the appellant worked for MBFI. That understanding must have existed because of the arrangements entered into between MBFI and Kaurna Heritage Committee. The appellant was paid for his attendance at the site. Indeed he was paid directly by MBFI. In the letter of 1 December 1994 from MBFI to the Committee reference was made to ‘the seminar/briefing of the on-site workers’. The Committee also referred to the education and instruction of employees who may be hired or arrive on site subsequent to the initial seminar. I think that there was at the least an understanding that the appellant would work for MBFI. There was no contract of employment nor was there a contract for services. The relationship was far more informal than a contractual relationship but it did involve at least an understanding of the kind I mentioned.”
Mr Besanko readily conceded that what Lander J said about the worker performing work under a contract of service where the contract had been entered into between the worker’s usual employer and the second employer were obiter dicta. The case turned on whether the worker was engaged in work of a prescribed class. Furthermore, Lander J concluded that there was an understanding existing between the worker and MBFI under which the appellant worked for MBFI. He found that this understanding existed because of the arrangements entered into between MBFI and the Committee. It was also of significance that the worker was paid directly by MBFI and that formal instructions and briefings were given by MBFI to employees on the site.
It is essential to look closely at the facts of each case when applying the criteria set out in the definition of “contract of service”. I have said that there is no doubt that the respondent was employed under a contract of service with Extraman. It was admitted in McMahon’s pleadings that such was the case at all material times.
There was no suggestion in Warrior’s case that Mr Warrior was employed by the Committee which brokered the arrangement or understanding whereby Mr Warrior was to work as a consultant. Furthermore, when his Honour referred to the possibility of a worker coming within the coverage of the Act when the worker was on loan from one employer to another, I do not think he intended to suggest that the worker would be employed by both employers at the same time in relation to the same work. It would seem anomalous if this were the case. There are no provisions in the Act which address the difficulties which might arise in that event such as the giving of notice of injury and problems associated with issues such as joint liability and contribution. When commenting on the definition of “contract of service” in Mason & Cox Pty Ltd v McCann (1999) 74 SASR 438 at 450 Perry J seems to have anticipated similar difficulties. He said:
“I add that, given that the principal object of the Act is to establish a workers’ rehabilitation and compensation scheme of the kind described in s 2(1)(a), that object would seem to be satisfied once it is possible to identify an employer who employs the worker pursuant to a contract of service as that expression is defined in the Act. No additional protection is given to the worker, and what might be thought to be an unwarranted burden imposed on other persons, as well as the potential for a good deal of confusion, if other persons are also to be regarded at the same time, as employing the worker for the purposes of the Act.”
It is apparent from the evidence in the present case that, whereas there was a clear relationship of employer and employee between Extraman and the respondent, the relationship between the respondent and McMahon was restricted to the respondent performing various tasks at the direction of McMahon’s foreman.
There is an identifiable element of employment in each of the categories of relationship which come within the definition of “contract of service” in s 3(1) of the Act. Par(a) specifically refers to employment, par(c) is concerned with apprenticeship, par(d) deals with on-the-job training which is remunerated. It is in this context that par(b) is to be read. The contract, arrangement or understanding there referred to must be of such a nature as to produce the result that one person can be said to be working under it for another. Of course, as Lander J pointed out in Warrior’s case, the understanding may be quite informal, but it must at least establish the necessary relationship. In this case a relevant relationship under the Act was established as between Extraman and the respondent. The respondent was employed by Extraman and, in the course of that employment, he was hired out to McMahon. The relationship between the respondent and McMahon involved nothing more than the bare giving of directions by the McMahon foreman and the performance by the respondent of the tasks assigned to him. He was hired to McMahon but he retained his status as an employee of Extraman. In my view it follows that he was not an “employee” of McMahon for the purposes of the Act.
In my view, the learned trial judge was correct in holding that s 54(1) of the Act did not prevent the respondent from bringing an action in negligence for damages for personal injuries against McMahon.
I would dismiss the appeal.

32.............. WILLIAMS J... I agree that the appeal should be dismissed for the reasons given by Duggan J.

[2001] SASC 33

8 March 2001