Labour hire – contractors or employees?

Articles Written by Lucienne Mummé (Partner), Evan Mentiplay (Special Counsel)

Following on from the May 2020 Full Federal Court decision in Rossato, in July 2020 the Full Federal Court handed down its judgment in another labour hire case, Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] FCAFC 122, this time in relation to a labour hire worker engaged as an independent contractor and performing work in a manner consistent with casual employment, but with very different results to the decision in Rossato.

The case involved an appeal by the CFMMEU seeking orders that a worker, Mr McCourt, was a casual employee of Personnel Contracting for the purposes of work performed by him at two sites operated by Hanssen Pty Ltd, and therefore Mr McCourt was entitled to the benefits of the Building and Construction General On-Site Award 2010 and the Fair Work Act 2009 (Cth).  At first instance, Justice O’Callaghan determined that the contracting relationship was not a sham, and that Mr McCourt was a self-employed independent contractor who had been engaged by Personnel Contracting and supplied to Hanssen for the purposes of performing work on site. 

On appeal, the Full Court considered that determining the relationship between Mr McCourt and Personnel Contracting required “characterisation of the facts involved in the whole relationship, including, but not limited to, the terms and proper objective construction of the underlying constituent contract”.  Although the Full Court determined that the manner of the work performed by Mr McCourt for Hanssen resembled casual employment, the Court was required to consider those circumstances in the context of the relevant case law regarding labour hire arrangements involving contractors to labour hire providers who are then contracted to perform work for third parties.  Within that context, the Court determined that:

  • There was a contractual relationship between Mr McCourt and Personnel Contracting to provide labour as a contractor, and between Hanssen and Personnel Contracting for Personnel Contracting to provide it with labour, but there was no contractual relationship between Mr McCourt who performed the services and Hanssen who received the benefit of the labour;
  • Hannsen exercised a high degree of control over the times at which and manner in which Mr McCourt performed work, but Personnel Contracting exercised very little control over the performance of work by Mr McCourt.  Accordingly, the “control test” did not indicate an employment relationship between Mr McCourt and Personnel Contracting;
  • Although Mr McCourt had no intent to create an independent business of his own, this was not determinative of the relationship, as whether a person has created a business or not is a factual assessment, and a person may be working in their own business as well as working in the business of another;
  • The relevant question is not to determine the status of the contracts between the parties, but to determine the status of the relationship between the parties.  In this regard, the contractual agreement between the parties is relevant, but not determinative.  The contract may be a sham that is designed to “cloak or conceal” the true nature of the relationship or hide the identity of the real employer.  However, there was no evidence of an intent to create an employment relationship between Mr McCourt and Personnel Contracting, and no reason to believe that the terms of the contract were created to conceal the true nature of the relationship, or did not accurately record the nature of the relationship as one of independent contractor and principal;
  • The relevant case law regarding tripartite contractor arrangements was such that, absent a sham arrangement, or an inconsistency with the relevant law based on the whole of the circumstances of the relationship, tripartite contractor arrangements should be treated as contractor relationships.  In the circumstances of the relationship between Mr McCourt and Personnel Contracting, there was no inconsistency with the relevant case law.

This case highlights the importance of properly drafted agreements to document independent contractor relationships, and also of the intent of the parties in respect of the type of relationship that is to be created when using a contractor agreement.  It is also important to note that the arrangement was not a direct contractor relationship in which Mr McCourt provided services to Personnel Contracting, but a tripartite relationship in which Personnel Contractor subcontracted the services of Mr McCourt to a third party client of Personnel Contracting, and the case law regarding such tripartite contractor relationships indicates that there is less scope for a contractor to be regarded as an employee absent other evidence indicating that the contractor arrangement is intended to conceal the true nature of the relationship.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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