Legal update no. 333

[00:00 to 01:28]

Paul: It’s the age-old question. Are they an employee or a contractor? And it can be a difficult question to answer sometimes, particularly when you might have employees and contractors working side by side and even doing the same work. But if you get it wrong and your contractor turns out to be an employee, there can be real problems, including employee entitlements under an EA may not have been paid, and your staff member would have all the protections of an employee under the law, including in relation to termination.

So how do you ensure your contractors are not found to be employees? We’re going to give you our hot tips to do exactly that.

Hi, I’m Paul Barker, Team Leader of the AGS employment team, and I’m delighted to be joined by two of our employment law experts, Clare Besemeres, Senior Executive Lawyer.

Clare: Hi Paul.

Paul: And Bec Piechocki, Senior Lawyer.

Bec: Great to be here.

Paul: This is the first episode of our new employment podcast series, Off the clock conversations on what matters in APS employment law. We’ll be giving practical tips to help HR practitioners and lawyers navigate the tricky issues that we so often see in Commonwealth employment and related areas. If you want to stay ahead of the pack, be sure to subscribe and tune in, and drop us a comment if you have a tricky or topical issue you’d like our employment team to discuss.

[01:28 to 02:38]

Paul: So Bec. How do the courts determine whether a worker is an employee or contractor?

Bec: Well Paul, like you say, the ‘are they, aren’t they an employee question?’ has to be one of the top five issues that comes up for employment lawyers and HR practitioners across the board. Traditionally, the courts have used what’s been referred to as the multifactorial test, and that held sway for quite some time. And there are a number of authorities out there confirming that, like the High Court case of Hollis and Babu [Hollis v Vabu Pty Ltd (2001)], which involved the bike couriers who supplied their own bikes but wore the company’s branding and long story short were found to be employees.

Under this particular test, you need to look at all of the features of the relationship and make a somewhat impressionistic judgment as to whether the overall effect suggest an employment relationship or not. So some questions you might ask, depending on the facts, will include does the worker supply their own tools and equipment? Can they subcontract their work to other people, or can they set their own hours, et cetera. So it’s very fact sensitive, which of course makes things tricky and sometimes uncertain. But there have been some developments, right Clare?

[02:38 to 03:39]

Clare: Indeed. So in 2022, and we’re talking about Jamsek and Personnel Contracting [ZG Operations Australia Pty Ltd v Jamsek; Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd], of course, the High Court made it, at least in theory, a bit easier to apply this test because they held that where there’s a comprehensive written contract and there’s no suggestion it’s a sham or anything like that, you look to the terms of the contract to determine whether it’s an employment contract or not. So still a multifactorial test, if you like, but you’re looking at what the contract says the salient features of the relationship are. That doesn’t rule out the possibility that the terms of a written contract will be varied over time, though, including by the party’s conduct. And we’re also not saying to all employers out there that you can just slap the label, ‘this is not an employment contract’ on a contract and that’s it, all sorted.

Bec: No, we’re definitely not saying that. As the High Court said in personnel contracting, and I quote, 'the parties cannot create something which has every feature of a rooster, then call it a duck, and insist that everyone else recognise it as a duck.'

Paul: Yeah, I love that quote. I wish I’d come up with it.

[03:39 to 04:55]

Paul: So, under the common law, it really comes down to what the employment contract says the features of the contractual relationship are. Or at least it did, right Clare?

Clare: Well, yes. So hot on the heels of the High Court decisions in Jamsek and Personnel Contracting, and by hot on the heels, I mean about 18 months later, which for a legislative response to a judicial decision, we know is lightning quick; the Fair Work Act was amended to introduce a provision, section 15AA, that tells us how we have to go about determining the ordinary meanings of employer and employee. And ordinarily, the contract is no longer the beginning and the end of the inquiry.

Bec: Right. So essentially under that provision, what is old becomes new again, in a way. It says you have to look at what’s described as the real substance, practical reality and true nature of the relationship. And to do that, you have to consider the totality of the relationship, which means the terms of the contract but also other factors, including how the contract’s performed in practice. So effectively, this provision introduced a reset back to the common law test that held sway before those 2022 High Court cases and Jamsek and Personnel.

[04:55 to 06:55]

Paul: Yes, that’s right. You’re back to looking at the totality to decide whether the relationship is a duck or a rooster, or, to use another metaphor that caught my eye recently in a Fair Work Commission decision, putting a Ferrari badge on a Toyota doesn’t make it a Ferrari. I can’t quite recall who the Ferrari was in that situation; the contractor or the employee.

Clare: Yeah, it’s a nice analogy or metaphor. You could be forgiven for missing the good old days, all 547 of them, of only having to look at the contract, not commenting on the policy decision behind the amendment at all that the records state that we don’t comment on policy, but it just made life easier in some ways, didn’t it? I mean, let’s face it, understanding a contract is hard work at the best of times, let alone having to dissect a living, breathing employment relationship. But it may be easier for the Commonwealth, right Paul?

Paul: Yeah, that’s right Clare. Commonwealth employment is quite unique. We at AGS have long held the view that the Commonwealth can only employ people under the Public Service Act, or other Commonwealth legislation, and this view is underpinned by section 67 of the Constitution.

So, for departments and executive agencies, you might have a contractor that looks like a duck and quacks like a duck. But unless they’ve been engaged under the Public Service Act, they’ll not be one of our APS ducks. That will also apply to statutory agencies whose enabling legislation states that they can only engage employees under the Public Service Act. And as you know, there are many agencies in this category; FWO, TSRA, NDIA, to name a few.

Bec: I have to say, I find this so interesting, Paul, and it’s something that, as an employment lawyer and having been an employment lawyer for quite some time, I wasn’t really across until I began working within the Commonwealth. It’s a really Commonwealth-specific issue.

[06:55 to 09:54]

Bec: But of course, not all Commonwealth entities are the same, are they?

Paul: No, no they’re not Bec. For starters, they don’t all engage employees under the Public Service Act. That said, other statutory entities which do not employ under the Public Service Act will usually have a statutory power to engage employees and a statutory power to engage contractors and consultants.

So generally, the person will only be an employee if they’re engaged under the employment power. So a similar position to our view about employment under the Public Service Act. I say generally because there can be some exceptions to this.

Clare: And Commonwealth companies are different again, of course.

Paul: Yeah, that’s right Clare. Commonwealth companies are incorporated under the Corporations Act. They don’t normally rely on a statutory power to engage employees, and they engage employees in the same way an ordinary corporation would. Though, again, as with everything, there are some limited exceptions there.

Bec: Right, so let’s just assume for a moment that we’re talking about an entity that can only engage under statutory power. What about the test and the Fair Work Act that Clare and I were just talking about, that says you need to look at the real substance, practical reality, et cetera, to determine whether someone’s an employee. Is that test still going to apply where employees can only be engaged under the Public Service Act, for example?

Paul: Well, our view at AGS is generally no, not employees can only be engaged under a statutory power. So section 15AA is only relevant to determining the ordinary meaning of the terms employee and employer for the purposes of the Fair Work Act. The ordinary meaning of these terms is not relevant to the underlying reasons for our longstanding view that the Commonwealth can only employ under the Public Service Act or another Commonwealth law, and the EM to section 15AA makes clear that this provision was not intended to change the meaning of employee and employer in the context of any other Commonwealth legislative scheme, such as public sector employment.

So 15AA is not going to be relevant to whether someone has been engaged as an employee under a statutory power. It will of course, be relevant in other circumstances, like for some of the Commonwealth companies that we just touched on.

Bec: Okay so that is quite a unique position. Sticking, for example, with APS agencies, for the moment, it seems like what we’re saying is that so long as there’s no evidence of a decision to engage someone as an employee under Public Service Act, there simply is no employment relationship with that person.

[09:54 to 11:27]

Bec: Can it really be as simple as that? What about the recent Federal Court decision? Didn’t that find that conduct by a Commonwealth employee was made under a statutory provision, even though I think that was expressly not the intention of the person who made the decision?

Paul: Yeah, that’s right Bec. You’re, of course, referring to the Full Federal Court decision of eSafety Commissioner and Baumgarten [eSafety Commissioner v Baumgarten], which all started, of course, within an email sent by an officer of the eSafety Commissioner to X, formerly Twitter, about a social media post.

Now the eSafety Commissioner has a statutory power to issue content removal notices. But in this particular case, the staff member didn’t have the delegation to exercise that power and also didn’t think there was a basis to do so. So instead, they sent an email essentially letting X know that the post might breach X’s user policies, and X subsequently removed the posts.

However, the ART and then the Full Federal Court held that by sending that email, the staff member had made a reviewable decision to issue a formal removal notice under the Online Safety Act.

Bec: Okay, so couldn’t similar reasoning extend to decisions to say employee someone under the Public Service Act? I mean, what’s to stop a court from coming along and saying, well, you may not have intended to engage them as an employee under the Public Service Act, but nevertheless, that’s what you did.

[11:27 to 12:36]

Clare: Well, I guess the thing about the Baumgarten decision is that it’s about what action by a government agency will be taken to be reviewable by the ART. That’s a quite different question from what will or won’t be a legally effective decision under the relevant statute. There was no dispute in the Baumgarten case that the email the eSafety Commissioner’s office sent to X was not a valid or effective removal notice under the Online Safety Act. I mean, it wasn’t even a botched attempt at one, but that was kind of the point.

The ART and the Federal Court was saying, you know, if we could only review decisions, or rather, if the ART could only review decisions that were legally made, what would they even be reviewing half the time? Sometimes the very reason someone wants the tribunal to review a decision is because it’s legally flawed.

So I do think it’s a pretty different scenario if a court is, you know, having to determine whether, as a matter of law, someone was engaged under the Public Service Act. Surely we think a court is still going to want to see that, you know, an authorised delegate said or did something at some point that suggests a conscious decision to engage that person as an employee under the provisions of the Public Service Act.

[12:36 to 14:47]

Bec: Like what? What might suggest that?

Clare: Yeah, good question.

Paul: Yeah. Well, like a lot of things in the employment space, the answer is probably a bit nuanced. At the end of the day, APS agencies and departments should take reassurance from knowing that someone won’t be an employee unless they have been properly engaged as one under the Public Service Act.

However, it’s still advisable for a number of reasons, not to think of that requirement as a mere formality or a technicality that agencies can rely on, no matter what the actual facts are. So, for example, an agency finds itself in a situation where they believe a person is an independent contractor, but that person claims to be an employee. Of course, the agency can say, well, we didn’t engage that person as an employee under the Public Service Act, but how do they prove that in court, for example?

Clare: How do you prove a negative?

Paul: Exactly. There’s no actual requirement under section 22 of the Public Service Act that an engagement of an employee be in writing. It’s possible and certainly theoretically possible, that an agency head or a delegate could engage a person as an employee without documenting it in writing.

Bec: And I suppose if there’s nothing in writing, then potentially the court would have to figure out whether that person was engaged as an employee under the Public Service Act by looking at the relevant conduct. And if we come back to the duck versus rooster metaphor, I suppose the court would possibly be more inclined to find that there had been an engagement under the Public Service Act if, the arrangements looking a bit like a duck, for example, if the worker seems to have been engaged exactly the same way as all the other agency employees, and there’s really no way to distinguish them.

Paul: Yeah, that’s right, Bec. And that’s a great segue into our discussion of hot tips. So what are some key tips for entities wanting to make sure they’re engaging a contractor and not an employee?

[14:47 to 16:55]

Paul: Picking up on what you were both just discussing, my tip would be clearly document the nature of the engagement.

Clare: Yeah absolutely, and if the person’s a contractor, make sure the written agreement expressly states, you know, at a minimum, this is not an employment engagement under the Public Service Act.

Bec: Yeah and I suppose building on that, it would also be helpful to have consistent practices in place and to be able to show how they’re different between employees and contractors. It’s probably going to be easier to prove that someone is a contractor if the agency has regular standard practices for entering into the two different types of engagements, and if the contractor process was followed for the particular worker.

Clare: For sure. And of course, for those entities that can only engage employees under the Public Service Act or other legislation, the delegate entering into the arrangements should have the necessary authority under the provisions, which I might put forward as our next hot tip.

So, make sure the decision maker has the appropriate delegation and that that’s clearly documented as well. So if it’s an employee engagement, the decision maker needs to be the agency head or delegate for the purposes of section 22 of the Public Service Act. But if it’s a contractor arrangement, the decision maker needs to have the necessary authority for that.

Bec: Yeah, and I suppose zooming out a little bit, I would put forward as a final hot tip for all entities, no matter what the particular structure, don’t set and forget. You know, what this discussion has really sort of drawn out is that agreements might be varied over time, the nature of the particular role might change, decision makers with the relevant delegations may move on to another workplace, and of course, the legal landscape itself might change. We all know employment law is a very dynamic area.

Clare: Which is one of the reasons we love it so much.

Paul: That’s right. Thanks Clare, thanks Bec. Those are some great hot tips. Well, we could probably talk about this all day, I know I could, but that brings us to the end of our time.

Thanks very much to Clare and Bec for joining me. And thank you to our listeners for tuning in to our very first Off the clock podcast.