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This week, a decision from Australia’s top court strengthened the workplace rights of employees. Under Australian law, an employer cannot represent to someone who is legally an employee that they are an independent contractor. In Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45 (“Quest”), the High Court of Australia held that a business will breach this rule if it misrepresents that an employee performs work under a contract of services with a third party, such as a labour hire business.

Workplace Rights, Employees and Independent Contractors

In Australia, employees are entitled to rights at work under employment agreements, industrial awards or the National Employment Standards. The National Employment Standards, contained in Part 2-2 of the Fair Work Act 2009, set a minimum threshold of rights and protections for employees. Employers cannot avoid these rights and protections.

Importantly, employees and independent contractors are entitled to different rights under Australia’s workplace laws. Business owners, therefore, have different obligations to persons who perform work as independent contractors under contracts for services, compared to employees under contracts of employment. As explained in an earlier article, whether an individual is an employee or independent contractor is a question of substance, not form. The fact that a written contract states that a person is an independent contractor, rather than an employee, will not be determinative.

Misrepresentations About Status of an Employee

As the workplace rights of employees and independent contractors are different, it is important that employers do not mislead employees into believing that there are actually independent contractors. Section 357 of the Fair Work Act, therefore, prevents employers from representing to an employee that the employee works as an independent contractor under a contract for services.

The provision obviously applies where an employer misrepresents that an employee is under a contract for services with the employer. However, until the High Court’s decision in Quest, it was unclear whether section 357 applied in circumstances where an employer misrepresents that an employee works under a contract for services with a third party.

Facts of the Case

Quest, a business that operated serviced apartments, had for a number of years employed two housekeepers. Quest then attempted to enter into a “triangular contracting” arrangement involving the housekeepers and a labour hire business, Contracting Solutions Pty Ltd. Under the attempted arrangement, Contracting Solutions would engage the housekeepers as independent contractors and then Quest would engage Contracting Solutions to provide the services of the housekeepers under a labour hire agreement.

The substance of the housekeepers’ services remained the same under the triangular arrangement. So there was no doubt that the housekeepers never legally became independent contractors – they were still employees of Quest. But, during this period, Quest’s conduct amounted to a misrepresentation that the housekeepers were independent contractors of Contracting Solutions, rather than employees of Quest.

The Fair Work Ombudsman sought pecuniary penalties against Quest for breaching section 357 of the Fair Work Act. Quest argued that the provision did not apply because its representation was that the housekeepers were independent contractors of Contracting Solutions, rather than independent contractors of Quest. The Federal Court of Australia accepted this argument at first instance, and on appeal to the Full Federal Court.

Decision

The High Court did not agree that section 357 should be given the confined operation argued for by Quest, and accepted by the courts below. The High Court emphasised that the purpose of the provision was “to protect an individual who is in truth an employee from being misled” about their employment status. A restrictive approach to the legislation would not achieve this purpose.

The High Court concluded that section 357 applies wherever an employer misrepresents that an employee is an independent contractor under a contract for services. It is irrelevant whether the employer represents that the other party to the contract for services is the employer itself, a third party or even an entirely fictitious entity.

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The High Court’s decision in Quest is a reminder to business owners that sham arrangements involving labour hire companies cannot be used to avoid an employee’s rights under Australia’s workplace laws. Determining whether someone is an employee or an independent contractor can be a complex process, so it is best to have the assistance of a specialist lawyer.

At LegalVision, our employment team can help you understand your obligations under Australia’s workplace laws.

Questions? Please get in touch on 1300 544 755.

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