April 2022

The Nation Reviewed

Blinding contracts and labour law

By Kieran Pender
Illustration by Jeff Fisher
A British backpacker’s win in the High Court has inadvertently left contractors with fewer employment protections

Daniel McCourt was not looking for trouble. In 2016, just 22, the Englishman arrived in Australia on a working holiday visa, hoping to travel across these wide lands and earn enough to keep going. With experience as a bricklayer, a bartender and a kitchenhand, McCourt was confident he could locate work. When he found his way to Perth, he sent his résumé to Construct, a labour hire company supplying the construction sector.

It would prove to be a fateful job application. Almost six years later, McCourt and his union, the Construction Forestry Maritime Mining and Energy Union (CFMMEU), found themselves in the High Court. “He was not a skilled worker, he was not a man with a plan,” observed Justice Patrick Keane when the case was argued via videolink late last year. In a decision handed down in February, Australia’s top judges reshaped the nation’s employment law. It will forever be a quirk of history that a jobbing British backpacker seeking backpay provided the case that rewrote – some say critically undermined – employment protections for Australian workers.

Our labour law has at its heart a binary distinction: a divide between employees, who work for their employers, and independent contractors, who provide their services under contract – as artisans and entrepreneurs – to one or more organisations. For more than a century, this dichotomy has been used to distinguish those who are entitled to workplace rights from those who are not. (The author of this article is an independent contractor to The Monthly; the magazine’s editorial and production staff are employees.)

Today, the Fair Work Act 2009 guarantees minimum wages, maximum weekly hours, leave entitlements, protection from unfair dismissal and more – for “employees”. That term is left undefined. “In this Part,” offers section 11 of the legislation, “employee and employer have their ordinary meanings.” That ordinary meaning is found in the common law – law made by judges – that has accumulated since the modern label of employment emerged in 19th-century Britain.

This is why McCourt ended up in the High Court. At his interview with Construct in July 2016, McCourt was offered a job on the spot. Among the paperwork was an “Administrative Services Agreement”, a contract, which described McCourt as a “self-employed contractor”. Two days later he was sent to a worksite, run by a client of Construct’s, where he worked from time to time, in between stints of travel. For much of the next year, McCourt took out the bins, cleaned workspaces and moved materials.

In the Federal Court, the Full Federal Court and the High Court, barristers for the union argued that McCourt was not a self-employed contractor, as his contract said, but in fact an employee. The backpacker lost at first and lost again on appeal. Yet with a star-studded legal team behind him, including Bret Walker SC, perhaps the nation’s top barrister, and Mark Irving QC, he won in the High Court in Canberra. “For the reasons that follow,” wrote Chief Justice Susan Kiefel and justices Keane and James Edelman, “Mr McCourt was employed by Construct, and so the appeal to this Court must be allowed.”

McCourt, who has long since returned to England, will eventually receive compensation for being denied award wages and other entitlements. But despite winning the battle, the CFMMEU has lost the war. Paradoxically, in finding that McCourt was an employee, not an independent contractor, the High Court made it considerably easier for companies to avoid employment entitlements in the future. The case of a young British backpacker could ultimately impact every working Australian.

The rise of Uber and other gig-economy platforms over the past decade has sharpened attention on the employee/contractor distinction. Famously, Uber drivers and delivery workers are not employees; at least, so says the Silicon Valley giant. But the proliferation of non-employed labour – outside the employment law umbrella – predates the rise of on-demand, app labour. A 2005 parliamentary inquiry report, “Making it work”, observed that “Over the last twenty years there has been growth in the number and proportions of independent contractors in the Australian workforce.” A similar case to McCourt’s had been litigated, unsuccessfully, in 1991.

In a utopian world, where there was no power imbalance in negotiating labour arrangements, none of this would matter. Some people, for valid reasons, want to be engaged as independent contractors, and accept a diminution of workplace entitlements as a result. When a pipe leaks, you call a local plumber – paid by the hour or for the job. They are ordinarily a contractor; it would be absurd for every household wanting a plumber to be required to engage them as an employee, for the hour or two it takes them to fix the plumbing.

For individuals running their own business, a lack of employment protections is the price to pay for freedom and flexibility. But increasingly, traditionally employed workforces are being replaced by contract labour. First, it was the builders, then the Uber drivers. Any sector could be next. In the modern labour market, it is increasingly difficult to tell the difference between employees, with all the protections available at law, and their second-class counterparts who might share a uniform, a desk and a job title with them.

Until February, the common law stood in the way of this trend. Courts and tribunals deployed a multi-factorial analysis to determine whether someone was a contractor or an employee (if they invoiced with an ABN, that pointed towards being a contractor; if they wore a uniform, that pointed towards being an employee). While no single factor was determinative, the focus of the inquiry was on the reality of the circumstances. As one judge famously said, “the 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”.

That is no longer the case. In McCourt’s case, the High Court focused solely on the terms of the contract. “In cases such as the present,” wrote Kiefel, Keane and Edelman (with two other justices largely agreeing), “there is no reason why the legal rights and obligations so established should not be decisive of the character of the relationship.” In other words, it’s the contract, stupid.

“It is a very, very conservative approach,” explains Professor Andrew Stewart at the University of Adelaide. Given it is almost always the hiring organisation that writes the contract, they can dictate the nature of the relationship in law, whatever the subsequent practical reality. “There can be no mistake that the impact of this decision is very favourable to businesses.” If a company uses the contractual framework of a duck, then it is a duck as a matter of law – no matter how much it crows.

Stewart is damning of the judgement, which he says undermines Australia’s system of labour standards and overlooks power imbalances. “I don’t think it is consistent with having protective labour statutes to have a loophole in those statutes where employers can set up arrangements that look on paper like they’re independent contracting, but in a practical, functional sense are employment.” McCourt won because Construct’s lawyers had been sloppy: despite the label, the nature of the contract itself indicated an employment relationship. The next “contractor” won’t be so lucky.

The alarm is not universal. “Not Apocalypse Now, as some would have us believe,” quipped one barrister in response to the High Court’s ruling, which was delivered together with that of a related case involving two truck drivers. While McCourt at least had a pyrrhic victory, not so the truck drivers – they had challenged their classification as independent contractors, after working exclusively for the same company for three decades, having previously been employees, but lost on the High Court’s new approach. Yet in both rulings, the judges left open a number of exceptions to the general rule, including where the contract is a sham.

“The decision does afford greater certainty,” says Amanda Lyras, a partner at law firm Clayton Utz. But, she adds, “the principle remains that independent contractors should be properly engaged as such.”

Given the forthcoming election and possible law reform – Labor has indicated its dissatisfaction with the decision – Lyras does not expect an immediate rush towards more contracting. “We expect that most organisations will continue to tread carefully in this space,” she says. Indeed, it is unlawful to directly shift an existing employee on to a contracting arrangement. “There are ways around that, but it is highly risky,” adds Stewart. Instead, he says, the change will be slower but no less radical. “Over time, I would expect we will see an increase in the number of contractors as a result of these decisions.”

Watching on amid this upheaval is Jordan O’Reilly, chief executive of Hireup. O’Reilly and his sister, Laura, founded the disability services provider in 2015 after being dissatisfied with the support provided to their disabled brother, Shane. Like Uber, Hireup adopted a platform-model, whereby the company matches disability support workers with those who need support. However, its workers – all 11,000 across Australia – are employees, not contractors.

“We were told we were crazy,” O’Reilly says. Hireup’s competitors in the National Disability Insurance Scheme–funded sector all use a contractor model. “We were coming from a values-based perspective.” To label the average disability support worker as a small business owner, as is increasingly the case, is “a bit of a stretch”, he says.

Asked about the High Court’s decision, O’Reilly sighs. It has left him perplexed. “The fact that you can have someone working in the same job, in the same industry, under identical circumstances, and the fact that person can be treated as an employee or a contractor, with all the ramifications that come with that, depending on the whims of the organisation – it just seems total madness,” he says. “It’s a huge loophole. It’s creating a two-tier system for worker rights and entitlements.”

O’Reilly and his company have done the right thing – their workers enjoy award entitlements and all the rights that come with being employees. But workplace protections should not be voluntary, subject to the goodwill of an employer. In McCourt’s submissions to the High Court, his barristers cautioned: “The practical effect [of this approach] is that engagers of labour can opt out of the award system covering workers of any description.” The High Court did not heed their warning.

Kieran Pender

Kieran Pender is a writer and lawyer. He is an honorary lecturer at the Australian National University College of Law.

 

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