Independent contracting law: roundup and forecast

There remains significant uncertainty in the area of independent contractor law, with recent decisions leading to inconsistent outcomes, calling into question arrangements previously sanctioned by the courts and clearly suggesting that old legal approaches are ill-suited to appropriately deal with the subtleties of new modes of working. Pressure continues to build for reform as both governments and the courts continue to grapple with how to strike a balance between protecting workers and allowing parties to agree to commercial arrangements that suit their needs.

In this update, we address three Full Federal Court decisions from 2020 (two of which are the subject of appeal to the High Court of Australia), provide a re-cap on the July 2020 Report of the Inquiry into the Victorian On-Demand Workforce and the changes to collective bargaining introduced by the ACCC. We also note the subsequent NSW Parliament inquiry and a recent announcement from a large food courier business, Menulog, that is exploring moving from an independent contracting model to an employment model.

Case developments: Three Full Court decisions with three different outcomes

In 2020 there were three decisions of the Full Court of the Federal Court of Australia that considered the employee/independent contractor distinction – which requires the application of a legal test that considers a range of factors and the whole of the relationship between the parties.

Dental Corporation Pty Ltd v Moffet

This¹ was an appeal before Justices Perram, Wigney and Anderson from the decision of Justice Flick in the Federal Court.

In the first instance, the matter turned on whether Dr Moffet, a dentist, was considered an employee for the purposes of annual and long service leave entitlements as well as superannuation contributions.

Dr Moffet sold his dental practice to Dental Corporation Pty Ltd in 2007, however he continued to work for the practice under a Services Agreement, which included terms to the following effect:

• Dr Moffet was obliged to provide dentistry care in a way that maximised profits of the practice, however, the practice was not able to direct him in the exercise of his professional judgment in this regard.
• Dr Moffet was bound to undertake continuing professional development, however the practice would reimburse him for this. He was responsible for obtaining his own professional indemnity insurance.
• The agreement did not dictate the days Dr Moffet was to work or if he could take holidays.
• Dental Corporation was required to provide certain services to Dr Moffet, such as IT services.
• His remuneration was partially calculated in accordance with the revenue he personally generated for the practice.
• Dr Moffet was required to pay his own tax, and the agreement noted he would not be paid superannuation. It also expressly provided that he was not an employee.

Dr Moffet ceased performing services for the practice in 2014, and in doing so made assertions that the conduct of Dental Corporation had harmed his psychological health. Dr Moffet also contended that he was entitled to long service and annual leave payments, as well as superannuation contributions, as an employee of Dental Corporation.

The trial judge found that Dr Moffet did not fall within the ambit of an employee for leave entitlements, however he did fall within the extended definition of an employee in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth). On appeal, these findings were upheld.

The court appears to have been influenced by the fact this case involved two sophisticated parties and Dr Moffet was perceived to have known what he was agreeing to when he entered the Services Agreement, but was then seeking to re-write history when it was convenient. While Dr Moffet's primary claims were not successful, it should be noted that he did receive superannuation entitlements due to the extended definition of "employee" under the superannuation legislation.

Jamsek v ZG Operations Australia Pty Ltd

This² was an appeal before Justices Perram, Wigney and Anderson in the Federal Court, overturning a decision of Justice Thawley.

The applicants worked as delivery truck drivers for the same company for nearly 40 years. Between 1980 and 2017 they worked full time for the company and derived their sole source of income from it. They did not drive or deliver goods for any other business, though they did operate through partnership structures in order to split income with their wives.

In 1986, the company changed its location. Due to this change, the applicants requested a pay rise for the extra distance they had to drive. This request was put to the company on multiple occasions and always refused. Instead, it was agreed by the parties to change the nature of the relationship to one of "contractors" and they entered into a "Contract Carrier Arrangement". The contract included provisions to the effect that the applicants had to buy their own trucks, as well as a clause stating the working relationship was not one of employment.

After the working relationship was terminated in 2017, the applicants commenced proceedings in the Federal Court seeking a ruling that they were considered employees pursuant to the Fair Work Act 2009 (Cth) and the Superannuation Guarantee (Administration) Act 1992 (Cth), and "workers" within the meaning of the Long Service Leave Act 1995 (NSW).

Justice Thawley's original finding was that the two applicants were not considered employees.

All three Court of Appeal judges overturned Justice Thawley's decision and found that the applicants were employees. In doing so, Anderson J cited that whether parties are in an "employment relationship" will often be a matter of impression. Anderson J said that in finding the relationship was one of employment, he preferred looking to the substance of the relationship rather than the legal framework and contractual obligations governing it.

This decision involved the type of scenario where allegations of sham contracting will, in our view, always have some cut-through – the people and the work stayed the same; it was just the labels attached which changed over the 40 years the relevant workers were engaged.

CFMMEU & McCourt v Personnel Contracting Pty Ltd

The Full Federal Court, consisting of Chief Justice Allsop and Justices Jagot and Lee, dismissed the appeal³ lodged by the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) and Daniel McCourt against a decision of Justice O'Callaghan.

Personnel Contracting Pty Ltd (trading as Construct) is a labour hire company that engages workers and arranges for them to work at the sites of its various clients. The client pays Construct, who then pays the workers for their hours worked.

Hanssen Pty Ltd (Hanssen) is a builder of high-rise residential apartments and offices and Construct's main client. In 2017, Hanssen accounted for 70-75% of all workers supplied to clients by Construct.

Construct and Hanssen entered into a Labour Hire Agreement (LHA). Under the LHA, Hanssen places an order with Construct for labour and Construct organises for workers on its registers to work under the "direction and supervision" of Hanssen "from the time they report to [Hanssen] and for the duration of each day on the assignment". This tripartite relationship is sometimes referred to as an "Odco" arrangement due to a decision by the same name,⁴ which held that workers engaged as independent contractors by a labour hire company and hired out to third-party clients of the labour hire company, were independent contractors and not employees of the host company or the labour hire company.

After entering into an Administrative Services Agreement with Construct, Mr McCourt, a 22-year old backpacker, began providing labouring services to Hanssen. He worked regular hours at the Hanssen site, around 50 hours a week, and was paid by the hour, with no penalties if work was not completed in a competent or diligent manner. He was a low-skilled labourer, taking instruction from and being under the control and supervision of Hanssen in performing cleaning and basic building work, which he was unable to delegate to a third party. While he supplied his own boots, hard hat and hi-vis shirt, his equipment was supplied by Hanssen. In short, all of the aspects of the way Mr McCourt carried out his work conformed with the characteristics of an employment relationship.

The question before the Court was whether Mr McCourt was a casual employee of Construct, or an independent contractor and supplied to Hanssen on that basis.

At first instance, Justice O'Callaghan held that the relationship was one of principal and self-employed contractor and not one of employment, and that the Administrative Services Agreement signed by the parties plainly defined the parties' relationship.

The Full Court rejected the appeal and upheld O'Callaghan J's decision that Mr McCourt was an independent contractor. However, in doing so, the Court made it clear that its decision to uphold the finding was the result of the constraints of legal precedent, rather than the factual circumstances.

Lee J (with whom Allsop CJ and Jagot J agreed) outlined the tension that arises in attempts to apply the multi-factorial employee/independent contractor test to new and novel labour arrangements. His Honour recognised the validity of the grounds of appeal advanced by the CFMMEU and noted that, were the case approached with a clean slate, the decision reached would likely differ. However, Lee J ultimately considered himself bound by the decision of the Western Australian Industrial Appeal Court, where Construct's engagement model had been found to be a legitimate independent contracting relationship.⁵ Allsop CJ echoed that opinion, also acknowledging a similar decision of the Full Court of the Supreme Court of Tasmania, and stating that if it were not for the previous authorities, his Honour "would favour an approach which viewed the relationship between Mr McCourt and [Construct] as that of casual employment".

Takeaway

The three decisions show that (as always) each case turns on its facts. However, the differing outcomes also highlight the uncertainty in this area of law and the reason that many are seeking reforms to make it more straightforward and enable businesses to manage legal risk.

When in doubt, bring in the High Court: Leave to appeal granted

Following the Jamsek and McCourt Full Federal Court decisions referred to above, ZG Operations and the CFMMEU respectively brought applications to the High Court seeking leave to appeal the decisions.

In February 2021, the High Court granted leave in both cases, declaring that the appeals would be heard together.

ZG Operations' application to appeal the Jamsek decision highlighted that there are inconsistent decisions at the Federal Court level in relation to whether an independent contractor must be running their own business or whether they can work in the business of another. The High Court noted that there were validly formed partnerships in the Jamsek case and appeared to agree that this fact had not been sufficiently dealt with by the Full Federal Court.

The CFMMEU's application to appeal the McCourt decision was heard after leave had already been granted in relation to ZG Operations' application, and the High Court consequently put it on Construct to establish why leave should not be granted. Construct made arguments as to why the preceding decisions should be upheld, stating that the Full Court judges below had correctly applied the law. However, the High Court noted that the Full Federal Court had "expressed disquiet with the outcome but felt constrained by authority", and ultimately concluded it was appropriate to grant leave as there were similar considerations of precedential consistency that needed to be clarified.

We expect that the substantive decisions from the High Court in relation to the two cases will not be delivered until the second half of 2021 (at the earliest).

ACCC collective bargaining changes

In October 2020, the ACCC announced that a class exemption due to commence in early 2021 will allow small businesses to collectively negotiate without first having to seek ACCC approval.

The changes would allow independent contractors and businesses with a turnover of less than $10 million to collectively bargain and has been touted as a potential way to give gig economy workers and independent contractors more power to bargain over things such as service pricing.

Theoretically, the changes might enable subcontractors engaged by various businesses to collectively negotiate with those businesses over things such as rates, and may even facilitate them being represented by a union or similar body in such negotiations.

However, some commentators have also suggested that the changes will not have much practical impact as there would still be limitations on the ability to collectively boycott other businesses or share information (i.e. the type of actions that usually enable a collective to exert pressure on a larger party).

Comment

While the practical impact of these changes remains to be seen, it will be an area for businesses that engage significant numbers of subcontractors to keep an eye on in the future, as the changes could have strategic implications for how businesses price their services for their own contracts and manage their subcontractor workforce more generally.

Inquiry into the Victorian On-Demand Workforce

The inquiry was conducted by Natalie James⁶ and was broadly asked to consider "on-demand" work in the Victorian labour market

The inquiry had a strong focus on "platform workers", "platform work" being defined as work that is accessed through or organised by digital platforms which match workers and clients via internet platforms or apps. This is a subset of "on-demand work". On-demand work is any work in the labour market being procured "on demand", which usually results in fluctuating work hours necessitating labour models based on casual employment or self-employed workers/independent contractors.

The inquiry looked at various aspects of platform work, noting the key issues platform workers face. One issue identified was the lack of certainty regarding work status and applicable laws for platform workers.

The inquiry handed down 20 recommendations and noted an ideal approach would be that reform is implemented by the Commonwealth. However, if the Commonwealth fails to act, the inquiry noted there are levers available to the Victorian Government to make changes.

Some of the key recommendations are as follows:

• Amendments to the Fair Work Act 2009 (Cth) to codify and clarify work status so that those working as part of another's business are considered employees and bona fide self-employed autonomous workers are covered by commercial laws.
• Amendments to the FW Act providing that:
  • a party asserting a worker is not an employee bears the onus of proving work status; and
  • the bargaining positions of each party be expressly considered when determining work status.
• There should be a primary source of advice and support for workers to help them understand and use dispute resolution processes in determining their work status.
• Platforms should be transparent with workers, customers and regulators about their worker contracts.
• "Fair conduct and accountability standards" should be established to underpin arrangements established by platforms with non-employed on-demand workforces.
• Streamlining of existing unfair contract term remedies.
• Strengthening provisions to counter sham contracting.

As the foreword to the report notes, the inquiry was established in 2018 in a climate where there was a focus on tightening labour regulation, and was published in the COVID-19 climate where there was significant disruption and other concerns for business and policy makers. However, the report also observes that it is "on-demand" workers such as casual employees and self-employed "independent contractors" who feel the impact first and fast. The report notes that they are the first to be "let go" during economic downturns and do not have leave balances to draw down on.

Comment

We anticipate that the report is unlikely to result in much reform in the immediate term, however, the recommendations may receive more consideration once the COVID-19 pandemic has fully subsided and governments have more room to consider ways in which the workforce may be organised in future.

Select Committee on the impact of technological and other change on the future of work and workers in NSW

In 2020, the NSW Parliament commenced an inquiry similar to the Victorian On-Demand inquiry referred to above. In April 2021, the inquiry held hearings where key gig economy businesses such as Uber and Deliveroo faced scrutiny in relation to the working conditions of their drivers.

Comment

We suspect the NSW inquiry is likely to maintain the momentum from the Victorian inquiry and keep these issues in the national public discourse in 2021.

Menulog looking to move away from contracting model

Perhaps due to the increased scrutiny of independent contracting arrangements, Australian food courier business, Menulog, recently announced that it will be looking to move to an employment model to engage its couriers.

Menulog has stated that "[u]ltimately, we want to employ couriers, however the current regulatory framework presents a number of challenges, with specific regards to existing modern awards, the lack of flexibility they present and subsequent cost". The company is proposing to make an application to the Fair Work Commission for a new Modern Award which would apply to gig workers.

Menulog says the changes stem from its philosophies and values, including those of its new European parent group, Just Eat Takeaway.com. Menulog's managing director, Morten Belling, has stated the "plan will help us better do the right thing by our couriers and meet our moral obligations as an Australian-born business".

The announcement received quick support from a range of industrial relations commentators, as well as the Transport Workers' Union (TWU). The TWU called the announcement a "watershed moment for the gig economy in Australia" and sees this as a path towards better conditions for food delivery workers.

Comment

While the process of introducing a new Modern Award would be far from simple, it is an interesting idea and, if successful, may allow other gig economy businesses to follow Menulog's lead in pursuing employment arrangements and avoid the uncertainty associated with utilising an independent contracting model.

¹[2020] FCAFC 118.

²[2020] FCAFC 119.

³[2020] FCAFC 122.

⁴Building Workers Industrial Union of Australia & Ors v Odco Pty Ltd (1991) 29 FCR 104.

⁵Personnel Contracting v CFMEU [2004] WASCA 312, on the basis that the arrangement was an Odco arrangement.

⁶Fair Work Ombudsman from 2013-2018 and currently a partner at Deloitte. Former Chief Counsel, Workplace Relations in the Department of Education, Employment and Workplace Relations.