Independent contracting (in an employment relationship) out for a duck?

In a 5-nil decision the High Court has emphatically restated that an employee is an employee and does not become an independent contractor just by saying so.

The case (Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd & Ors [2015] HCA 45, 2 December 2015) concerned a triangular contracting arrangement involving two workers being told they were independent contractors.  In making its decision the High Court took the opportunity to restate the importance of protecting the employment relationship. 

In earlier bulletins we have warned you of the dangers in telling employees that they are engaged as independent contractors and not employees[1].

Section 357 of the Fair Work Act 2009 provides that an employer must not represent to an individual that the contract of employment under which the individual would be employed is a contract of services and that they work as an independent contractor.  In short if the relationship really is one of employment the employer should not represent it is one of an independent contractor.

Quest tried to get around this prohibition by a triangular contracting relationship and adding a party to the relationships.  Ms Best and Ms Roden were housekeepers for Quest.  Contracting Solutions contracted with Quest to provide housekeeping services and then engaged Ms Best and Ms Roden as independent contractors.  As a practical matter, Ms Best and Ms Roden continued to perform precisely the same work for Quest in precisely the same manner as they had done before the triangular contracting arrangement. 

The Fair Work Ombudsman prosecuted Quest alleging that it was breaching section 357 of the Fair Work Act because in making those arrangements Quest was representing to Ms Best and Ms Roden that they were independent contractors when the legal reality was that they were employees of Quest.

Apparently Quest and Contracting Solutions thought their arrangements did not breach section 357 of the Fair Work Act because the independent contracting was with Contracting Solutions and it was Quest that was the notional employer.  So it could not be Quest that was representing the arrangement as something other than it was, but only Contracting Solutions.

The Fair Work Ombudsman had no success at first instance.  On an appeal the Full Court of the Federal Court said the triangular contracting arrangement skirted the prohibition in section 357 of the Fair Work Act.  But the High Court said, “We disagree”.

In a short sharp joint judgment Chief Justice French with Justices Kiefel, Bell, Gageler and Nettle said the decision of the Full Court was based on a misreading and misunderstanding of the prohibition.  To think that a triangular contracting arrangement could avoid the prohibition was to confuse the object of the prohibited representation, with the content of the prohibited representation. 

The prohibition is the misrepresentation of the nature of the contract under which the person performs work.  The prohibition does not depend upon who are the parties to the contract that is said to be the misrepresentation.

That may sound a little technical, but once accepted makes perfect sense, especially given the High Court’s restatement that employment is a matter of status and not simply contract.  The contract of employment arises from the nature of the relationship, even when there is nothing in writing, and that relationship cannot be avoided by the words of a contract or by interposing a third party.

What some may have thought was a loophole in section 357 of the Fair Work Act has been closed.  In doing so the High Court took the opportunity to restate the famous epigram from Re Porter (1989) 34 IR 179 at [184]:

[Parties] cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.

The attempt to create a relationship of independent contractor was ousted for a duck.



Author: Mark Paul