Where Respondent and Second Appellant entered into a written contract describing Second Appellant as "self‑employed contractor". was the Second Appellant an employee of the Respondent?

Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (9 February 2022)

Intro:-

This is an appeal from the Full Court of the Federal Court of Australia.

Facts:-

The Respondent (trading as "Construct") is a labour-hire company based in Perth, which engages workers to supply their labour to building clients. Construct's major client was Hanssen Pty Ltd ("Hanssen"), a builder of high‑rise residential apartments and offices[1].

In 2016, Mr McCourt was a 22‑year‑old British backpacker who had travelled to Australia on a working holiday visa. Seeking a source of income, and with limited prior work experience as a part‑time brick‑layer and in hospitality, Mr McCourt obtained a "white card", which enabled him to work on construction sites. He contacted Construct and attended an interview on 25 July 2016. At the interview, Mr McCourt indicated that he was prepared to do any construction work, and was available to start work immediately. He confirmed to the Construct representative that he owned a hard hat, steel‑capped boots and hi‑vis clothing, having purchased them for less than $100 in the hope of finding construction work. He was offered a role and presented with paperwork to sign. Among the documents he signed was an Administrative Services Agreement ("ASA"), which described Mr McCourt as a "self‑employed contractor".

The day after Mr McCourt's interview, Construct contacted him to offer him work at Hanssen's Concerto project site beginning the following day. When he arrived on site, Mr McCourt was given the Hanssen Site Safety Induction Form and Hanssen Site Rules. He was told that he would be supervised primarily by a leading hand employed by Hanssen, Ms O'Grady[3]. Mr McCourt did not sign a contract with Hanssen.

Mr McCourt worked at the Concerto site between 27 July and 6 November 2016. While on site, Mr McCourt worked under the supervision and direction of Hanssen supervisors, including Ms O'Grady. Although Construct staff sometimes conducted site visits, they never directed Mr McCourt in the performance of work, except to draw his attention to workplace health and safety issues in the manner of his work. Mr McCourt's primary tasks were described as follows:

"For a period of months, he engages in basic labouring tasks; he takes out the bins, cleans workspaces and moves materials. He is not an entrepreneur nor a skilled artisan; he is paid by the hour, and when at work, is told what to do and how to do it."

On 6 November 2016, Mr McCourt finished work at the Concerto site and left Perth. He returned the following March and, on 14 March 2017, recommenced work on the Concerto project. On 26 June 2017, he began working on Hanssen's Aire project, performing work that was substantially identical to the Concerto project. On 30 June 2017, Mr McCourt was told that he was not to continue working at the Aire project. Thereafter, Mr McCourt did not receive any work from Construct.

Mr McCourt and the Construction, Forestry, Maritime, Mining and Energy Union commenced proceedings against Construct seeking orders for compensation and penalties pursuant to ss 545, 546 and 547 of the Fair Work Act 2009 (Cth) ("the Act"). The claims were made on the basis that Construct had not paid Mr McCourt according to his entitlement, as an employee of Construct, to payment in accordance with the Building and Construction General On-site Award 2010. Similar orders were sought against Hanssen, on the basis that it was liable as an accessory for Construct's alleged breaches.

The ASA and related documents

Given its central importance to the characterisation of Mr McCourt's relationship with Construct, it is desirable to set out the terms of the ASA in full:

"RECITAL

Construct is an administrative services agency operating essentially within the building industry, liaising between builders (or their contractors) (both described as 'builders') and self‑employed contractors for the provision of labour by self‑employed contractors to builders and supplying to the self-employed contractors financial administrative services.

The Contractor requires Construct to keep the Contractor informed of opportunities for the Contractor to provide builders with labour services and to provide the Contractor with financial administrative support to enable the Contractor to concentrate on maximising the supply of quality labour to builders.

IT IS AGREED

1. Construct's Responsibilities

Construct shall:

(a) Use reasonable endeavours to keep informed of opportunities in the building industry for the Contractor to supply labour to builders identified by Construct;

(b) Inform the Contractor when, and on what basis, an opportunity arises for the Contractor to supply labour to a builder;

(c) Liaise between builders and the Contractor regarding the means by which the Contractor shall supply labour to such builders, including the duration that the builder requires such labour, the place at which labour is to be supplied, the daily hours of work during which labour is to be supplied and any other terms and conditions upon which labour is to be supplied by the Contractor to the builder;

(d) Subject to performance by the Contractor of his or its obligations under this Agreement, underwrite payment to the Contractor, within 7 days of receipt of an invoice from the Contractor, of all payment rates payable by the builder in respect of the supply of labour to the builder by the Contractor, including payment rates negotiated by the Contractor directly with the builder;

(e) Complete administrative forms and undertake necessary correspondence with Government authorities as may be required under any law of Western Australia relating to labour supplied to builders under this agreement, other than the completion by the Contractor of his taxation returns, including any instalment activity statement or business activity statements.

2. Construct's Rights

Construct shall be entitled to:

(a) Negotiate with any builder a payment rate for the supply by the Contractor of labour to the builder, provided that the Contractor shall be at liberty to negotiate with the builder an increase in the payment rate and any other terms and conditions upon which labour is to be supplied by the Contractor to the builder, subject to the Contractor properly performing his obligations under this Agreement;

(b) Negotiate with the builder the basis upon which Construct is to be remunerated on a commission basis as a percentage of the agreed payment rate for the supply of services by the Contractor to the builder;

(c) Negotiate with the builder for remuneration in respect of any increase in the payment rate negotiated directly by the Contractor with the builder;

(d) Withhold from the Contractor payment of any monies reasonably required by Construct to compensate it for any claim made against Construct by the builder in respect of the supply of labour by the Contractor to the builder.

3. The Contractor's Warranties

The Contractor warrants that:

(a) He has provided Construct with true and accurate information regarding his work experience and capability for the supply of labour to builders;

(b) He is self‑employed;

(c) He does not require Construct to guarantee the Contractor work of any type or of any duration;

(d) That he shall keep Construct fully informed of the outcome of negotiations with the builder by the Contractor in order to ensure that Construct is promptly and accurately informed of any higher rate of payment agreed by the builder and the value of any other terms and conditions agreed with the builder by the Contractor;

(e) Construct shall not be liable to pay the Contractor any amounts in respect of annual leave, sick leave, long service leave or any other statutory entitlement required in an employer-employee relationship.

4. The Contractor's Obligations

The Contractor shall:

(a) Co-operate in all respects with Construct and the builder in the supply of labour to the Builder;

(b) Ensure accurate records are maintained as to the amount of labour supplied to the builder by the Contractor;

(c) Attend at any building site as agreed with the Builder at the time required by the Builder, and shall supply labour to the Builder (subject to notification under clause 5(c)) for the duration required by the Builder in a safe, competent and diligent manner;

(d) Indemnify Construct against any breach by the Contractor of sub‑paragraph 4(c) hereof;

(e) Supply such tools of trade and equipment, for safety or other reasons, as may be required by the builder, in respect of which the Contractor is solely responsible;

(f) Possess all statutory certification relevant to the supply of labour, and shall ensure that these certificates be both current and valid in Western Australia;

(g) In the event that the Contractor reasonably considers that his safety is endangered by conditions on the building site, promptly report the unsafe conditions to Worksafe if unable to have the unsafe conditions rectified by the builder promptly;

(h) Not represent himself as being an employee of Construct at any time or otherwise represent himself as authorised to act on behalf of Construct other than strictly under the terms of this Agreement.

5. The Contractor's Rights

The Contractor is entitled to:

(a) Receive payment from Construct of all amounts negotiated with the builder by Construct and the Contractor within seven (7) days of the issue by the Contractor of a valid invoice delivered to Construct by the Contractor for the supply of labour to the builder by the Contractor;

(b) Refuse to accept any offer of work from a builder;

(c) Notify the builder and Construct on 4 hours notice that he is no longer available for the supply of labour under the terms of this Agreement."

A number of observations may be made here about the terms of the ASA. First, Recital A might be said to suggest that Construct was engaged merely in seeking out business opportunities for Mr McCourt. But the operative terms of the ASA and the factual matrix in which it was made make it clear that Construct's business was more substantial than introducing labourers to builders. Under cl 2(a), Construct was empowered to fix Mr McCourt's remuneration, subject to the possibility that he might negotiate extra benefits from Hanssen. And under cll 1(d) and 5(a), Construct assumed the obligation to pay Mr McCourt for his work with Hanssen.

Once Mr McCourt accepted an offer of work, his core obligation pursuant to cl 4(a) was to "[c]o‑operate in all respects with Construct and [Hanssen] in the supply of labour to [Hanssen]". This included, pursuant to cl 4(c), the obligations to attend Hanssen's worksite at the nominated time, and to supply labour to Hanssen "for the duration required by [Hanssen] in a safe, competent and diligent manner".

Similar obligations were contained in Construct's Contractor Safety Induction Manual signed by Mr McCourt. By that document, which was found by the Full Court to have contractual force between Mr McCourt and Construct, Mr McCourt agreed, inter alia: to follow all worksite safety rules and procedures given by Construct's "host client", and to report any safety hazards, incidents or injuries to the site supervisor or administrator and to Construct.

Before both the primary judge and the Full Court, the facts surrounding the work practices of Construct and Hanssen, and the specific arrangements vis-à-vis Mr McCourt, were canvassed at length. Given there was no challenge to the validity of the ASA nor any suggestion that the contract had been varied by conduct, a review of how the parties went about discharging their obligations to each other after execution of the ASA was unwarranted.

The primary judge applied a "multifactorial approach" to the question whether Mr McCourt was an employee or an independent contractor, in which both the terms of the ASA and the work practices imposed by each of Construct and Hanssen were relevant.

The primary judge's conclusion was upheld on appeal by the Full Court of the Federal Court of Australia.

Issue:-

Was Mr McCourt an employee of Construct for the purposes of Fair Work Act, 2009 (Cth)?

Consideration:-

The employment relationship and the contract of employment

In Commonwealth Bank of Australia v Barker[69], French CJ, Bell and Keane JJ said:

"The employment relationship, in Australia, operates within a legal framework defined by statute and by common law principles, informing the construction and content of the contract of employment."

An employment relationship will not always be defined exclusively by a contract between the parties]. Historically, the employment relationship was recognised and regulated by the law before the law of contract came to govern the relationship. An employment relationship, though principally based in contract, may be affected by statutory provisions and by awards made under statutes It may also be that aspects of the way in which a relationship plays out "on the ground" are relevant for specific statutory purposes. So, for example, a statute may operate upon an expectation generated in one party by the conduct of another, even though that expectation does not give rise to a binding agreement.

A contract of employment may be partly oral and partly in writing, or there may be cases where subsequent agreement or conduct effects a variation to the terms of the original contract or gives rise to an estoppel or waiver. In such cases, it may be that the imposition by a putative employer of its work practices upon the putative employee manifests the employer's contractual right of control over the work situation; or a putative employee's acceptance of the exercise of power may show that the putative employer has been ceded the right to impose such practices.

While there may be cases where the rights and duties of the parties are not found exclusively within a written contract, this was not such a case. In cases such as the present, where the terms of the parties' relationship are comprehensively committed to a written contract, the validity of which is not challenged as a sham nor the terms of which otherwise varied, waived or the subject of an estoppel, there is no reason why the legal rights and obligations so established should not be decisive of the character of the relationship.

Not only is there no reason why, subject to statutory provisions or awards, established legal rights and obligations in a contract that is entirely in writing should not exclusively determine the relationship between the parties but there is every reason why they should. The "only kinds of rights with which courts of justice are concerned are legal rights". The employment relationship with which the common law is concerned must be a legal relationship. It is not a social or psychological concept like friendship. There is nothing artificial about limiting the consideration of legal relationships to legal concepts such as rights and duties. By contrast, there is nothing of concern to the law that would require treating the relationship between the parties as affected by circumstances, facts, or occurrences that otherwise have no bearing upon legal rights.

In Narich Pty Ltd v Commissioner of Pay‑roll Tax, approving the earlier decision in Australian Mutual Provident Society v Chaplin, in the course of delivering the reasons of the Privy Council dismissing the appeal from the Supreme Court of New South Wales, Lord Brandon of Oakbrook said that:

"where there is a written contract between the parties whose relationship is in issue, a court is confined, in determining the nature of that relationship, to a consideration of the terms, express or implied, of that contract in the light of the circumstances surrounding the making of it; and it is not entitled to consider also the manner in which the parties subsequently acted in pursuance of such contract."

The one exception to this principle was said to be the case where subsequent conduct could be shown to have varied the terms of the contract[79]. To similar effect, in Connelly v Wells, following Narich, Gleeson CJ said:

"Where the relationship between two persons is founded in contract, the character of the relationship depends upon the meaning and effect of the contract. In the absence of a suggestion that a contract was varied after it was originally made, its meaning and effect must be determined as at the time it was entered into. If the contract is in writing, then the court which is considering the nature of the relationship between the parties is directed to an examination of the terms of the written agreement in the light of the circumstances surrounding its making."

Numerous other Australian courts have continued to recognise as authoritative the decisions in Chaplin and Narich.

Uncertainty in relation to whether a relationship is one of employment may sometimes be unavoidable. It is the task of the courts to promote certainty with respect to a relationship of such fundamental importance. Especially is this so where the parties have taken legitimate steps to avoid uncertainty in their relationship. The parties' legitimate freedom to agree upon the rights and duties which constitute their relationship should not be misunderstood. It does not extend to attaching a "label" to describe their relationship which is inconsistent with the rights and duties otherwise set forth. To do so would be to elevate their freedom to a power to alter the operation of statute law to suit themselves or, as is more likely, to suit the interests of the party with the greater bargaining power.

Where the parties have comprehensively committed the terms of their relationship to a written contract the validity of which is not in dispute, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract. Where no party seeks to challenge the efficacy of the contract as the charter of the parties' rights and duties, on the basis that it is either a sham or otherwise ineffective under the general law or statute, there is no occasion to seek to determine the character of the parties' relationship by a wide‑ranging review of the entire history of the parties' dealings. Such a review is neither necessary nor appropriate because the task of the court is to enforce the parties' rights and obligations, not to form a view as to what a fair adjustment of the parties' rights might require.

In this respect, the principles governing the interpretation of a contract of employment are no different from those that govern the interpretation of contracts generally. The view to the contrary, which has been taken in the United Kingdom, cannot stand with the statements of the law in Chaplin and Narich.

The parties' description of their relationship

To say that the legal character of a relationship between persons is to be determined by the rights and obligations which are established by the parties' written contract is distinctly not to say that the "label" which the parties may have chosen to describe their relationship is determinative of, or even relevant to, that characterisation.

Subject to statute, under the common law the parties are free to agree upon the rights and obligations by which they are to be bound. But the determination of the character of the relationship constituted by those rights and obligations is a matter for the court.

As a matter of principle, however, it is difficult to see how the expression by the parties of their opinion as to the character of their relationship can assist the court, whose task it is to characterise their relationship by reference to their rights and duties. Generally speaking, the opinion of the parties on a matter of law is irrelevant. Even if it be accepted that there may be cases where descriptive language chosen by the parties can shed light on the objective understanding of the operative provisions of their contract, the cases where the parties' description of their status or relationship will be helpful to the court in ascertaining their rights and duties will be rare.

Having made these general observations, one may turn now to consider the relationship between the present parties.

Mr McCourt served in the business of Construct

In this Court, Construct was content to disavow the notion that Mr McCourt was carrying on his own business. That disavowal might be said to be no more than recognition that any suggestion to that effect was unsustainable. As both the primary judge and the Full Court appreciated, Mr McCourt could not sensibly be said to have been carrying on business on his own account. That was plainly correct, notwithstanding the language used in the ASA to describe Mr McCourt's occupation which suggested otherwise.

Construct submitted that it was "simply a finder of labour". But that ignores the complex suite of rights and obligations of Construct vis-à-vis Mr McCourt that had been established under the ASA. Construct was authorised: to fix Mr McCourt's reward for his work (cl 2(a)); to act as Mr McCourt's paymaster (cll 1(d), 2(d)); and to terminate Mr McCourt's engagement should he fail in any respect to obey the directions of Construct or Hanssen (see cl 4(a), (c)). And, as will be seen, by cl 4(a) Construct retained a right of control over Mr McCourt that was fundamental to its business as a labour‑hire agency. There would be no reason for the existence of such obligations if Construct were not in the business of labour hire, but rather in the business of "introducing" suppliers of labour to builders and leaving those parties to sort their own affairs.

In terms of the test suggested by Windeyer J in Marshall, it is impossible to say that Mr McCourt was in business on his own account. The core of Mr McCourt's obligation to Construct under the ASA was his promise to work as directed by Construct or by its customer. Mr McCourt's obligation to work was meaningful only because the benefit of that promise was ventured by Construct as an asset of its labour‑hire business.

Mr McCourt worked subject to the control of Construct

Like the "own business/employer's business" dichotomy, the existence of a right of control by a putative employer over the activities of the putative employee serves to sensitise one to the subservient and dependent nature of the work of the employee, so as to assist in an assessment of whether a relationship is properly to be regarded as a contract of service rather than a contract for services.

Construct submitted that control was a necessary, though not sufficient, condition of a contract of service, citing Zuijs v Wirth Brothers Pty Ltd[127]. It was submitted that Hanssen alone supervised and directed every aspect of Mr McCourt's work, and it was emphasised that Construct was not entitled, under either the LHA or the ASA, to enter Hanssen's site and issue directions to Mr McCourt regarding the performance of his work. So much may be accepted. But this Court in Stevens, and indeed in Zuijs itself, emphasised that it is the right of a person to control the work of the other, rather than the detail of the actual exercise of control, which serves to indicate that a relationship is one of employer and employee.

Under the ASA, Construct was entitled to determine for whom Mr McCourt would work. Once assigned to a client, Mr McCourt was obliged by cl 4(a) to "[c]o-operate in all respects with Construct and the builder in the supply of labour to the Builder". That obligation must be understood in context. It was not directed towards the carrying out of any particular task, or the effecting of any specific result, for Hanssen. There was no suggestion that the work Mr McCourt agreed to do would involve the exercise of any discretion on his part, either as to what he would do or as to how he would do it. Mr McCourt's obligation to "supply ... labour" in cooperation with Hanssen necessarily meant that he agreed, for the duration of the assignment, to work in accordance with Hanssen's directions. He was simply not permitted to do otherwise. Had Mr McCourt breached cl 4(a), Construct (not Hanssen) would have been entitled to terminate the ASA.

Mr McCourt's performance of that obligation was unambiguously central to Construct's business of supplying labour to builders. In referring Mr McCourt to Hanssen, Construct was exercising, and commercialising, its right to control the work that Mr McCourt would do and how he would do it. The marketability of Construct's services as a labour‑hire agency turned on its ability to supply compliant labour; without that subservience, that labour would be of no use to Construct's clients. That right of control was therefore the key asset of Construct's business. Its significance was not diminished by the circumstance that the minutiae of Mr McCourt's performance of daily tasks were at the direction of Hanssen. Indeed, the right of control held by Construct over Mr McCourt explains why there was no need for any contractual relationship between Mr McCourt and Hanssen in order to support Hanssen's ability to issue day‑to‑day directions to Mr McCourt.

Mr McCourt had no right to exercise any control over what work he was to do and how that work was to be carried out. That state of affairs was attributable to the ASA, by which Mr McCourt's work was subordinated to Construct's right of control.

Mr McCourt's designation as "the Contractor" is of no moment

The ASA described Mr McCourt as "the Contractor". But the effect of the rights and duties created by the ASA was that Mr McCourt was engaged by Construct to serve Construct in its business. The rights and duties agreed between Construct and Mr McCourt leave no room for ambiguity as to the character of that relationship. For the reasons stated above, that the parties have described their relationship a certain way cannot change the character of the relationship established by their rights and obligations.

Conclusion

Under the ASA, Mr McCourt promised Construct to work as directed by Construct and by Construct's customer, Hanssen. Mr McCourt was entitled to be paid by Construct in return for the work he performed pursuant to that promise. That promise to work for Construct's customer, and his entitlement to be paid for that work, were at the core of Construct's business of providing labour to its customers. The right to control the provision of Mr McCourt's labour was an essential asset of that business. Mr McCourt's performance of work for, and at the direction of, Hanssen was a direct result of the deployment by Construct of this asset in the course of its ongoing relationship with its customer.

In these circumstances, it is impossible to conclude other than that Mr McCourt's work was dependent upon, and subservient to, Construct's business. That being so, Mr McCourt's relationship with Construct is rightly characterised as a contract of service rather than a contract for services. Mr McCourt was Construct's employee.