Who employs labour hire workers? Fair Work Commission rejects the concept of ‘joint employment' - Contract of Employment

In FP Group Pty Ltd v Tooheys Pty Ltd [2013] FWCFB 9605 (17 December 2013), a Full Bench of the Fair Work Commission (FWC) held that FP Group was the true employer of workers supplied by FP Group to Tooheys under a labour hire arrangement.

In reaching this conclusion, the Full Bench rejected FP Group's argument that Tooheys was a joint employer of the workers, and held that the concept of joint employment has not been endorsed by Australian authorities. The Full Bench also held that the role of the FWC does not extend to developing the common law.

In this In Brief, we examine the Full Bench's decision and explain its implications for employers who have entered into or are proposing to enter into labour hire arrangements.

FACTUAL BACKGROUND

The case concerned a brewery operated by Tooheys in Lidcombe, New South Wales. Until 1991, electrical trades work at the brewery was undertaken by workers who were employees of Tooheys.

Tooheys entered into a five year labour hire services agreement with Feyman Pty Ltd (Feyman) in 1991 (1991 Labour Hire Agreement). The arrangement was implemented by Tooheys terminating the employment of 19 electrical tradesmen, who then continued to work at the brewery on the understanding that they were now employed by Feyman and supplied to Tooheys pursuant to the 1991 Labour Hire Agreement. Two former employees of Tooheys, Trevor Gorman and Dennis Gaffney, were the initial directors of Feyman.

Mr Gorman and Mr Gaffney became directors in another related business, FP Group Pty Ltd (FP Group). In 1997, FP Group signed a new three-year contract with Tooheys under which it would now supply mechanical as well as electrical trades services (1997 Labour Hire Agreement). A further contract was entered into in 2002 (2002 Labour Hire Agreement), which had an initial term of 3 and a half years but continued to be applied after the expiry of this term. Clause 9 of both the 1997 and 2002 Labour Hire Agreements provided that nothing in the agreements would be taken as "constituting the workers supplied by FP Group as employees of Tooheys."

In 2011, Tooheys restructured its engineering department. In October 2011, Tooheys informed a number of FP Group employees that their services would no longer be required at the brewery. On 24 October 2011, Tooheys then terminated its relationship with FP Group and replaced it with another labour hire company. FP Group continued to pay the relevant employees until 28 January 2012.

Following the cessation of payments from FP Group, the dismissed employees each lodged two unfair dismissal applications: one alleging that FP Group had been their employer, and the other claiming that Tooheys was the employer.

DECISION AT FIRST INSTANCE

In the hearing of the unfair dismissal claims before Deputy President Sams of the FWC, both FP Group and Tooheys alleged that the other had been the actual employer of the applicants.

Sams DP examined the relationship between Tooheys and FP Group and the terms of the 2002 Labour Hire Agreement, and found that the "real and effective" employer of the applicants was FP Group and that no contract of employment existed between the applicants and Tooheys.

Sams DP dismissed the applications against Tooheys and referred the applicants' surviving unfair dismissal claims against FP Group to the FWC's Unfair Dismissal Unit for reallocation to another member of the tribunal.

DECISION OF FWC FULL BENCH

FP Group appealed and argued that Sams DP was in error in not finding that:

Tooheys, and not FP Group, was the true employer of the applicants;
FP Group acted as agent for and on behalf of Tooheys in employing the applicants;
Tooheys and FP Group were joint employers of the applicants.

The Full Bench (Vice President Hatcher, Vice President Catanzariti and Commissioner Riordan) found that Sams DP had reached the correct conclusion on all three issues.

FP GROUP WAS THE TRUE EMPLOYER

The Full Bench agreed that FP Group had been the true employer of the dismissed employees. The Full Bench stated that the formal arrangements identified FP Group as the employer, noting that FP Group recruited the applicants, entered into employment contracts with them, paid them and made superannuation contributions on their behalf. Furthermore, pursuant to the 2002 Labour Hire Agreement, FP Group supplied clothes and other necessary tools to the applicants, paid for their induction training and was responsible for their entitlements including salary and annual leave.

The Full Bench also noted that FP Group had entered into an enterprise agreement under the Workplace Relations Act 1996 (Cth) as an employer, and this enterprise agreement covered the applicants and other workers supplied to Tooheys. There were also other documents in existence that indicated FP Group was the true employer of the applicants.

The Full Bench acknowledged that formal arrangements such as the labour hire agreements and the labels used in them may constitute a sham arrangement where "other facts reveal that those arrangements lack authenticity." However in this case, the arrangements and labels were accurate. Importantly, FP Group had established itself as a fully independent business, was legally and structurally independent of Tooheys, supplied labour to other businesses and had its own premises with a number of permanent administrative staff.

The fact that Tooheys exercised a large degree of control over the applicants and other workers was not considered to mean, in itself, that Tooheys was the employer. The Full Bench found that this exercise of control was not inconsistent with finding that the applicants were employees of FP Group. Indeed, the Full Bench noted that

... from a practical point of view, it is necessarily a fundamental feature of any labour hire arrangement that the hirer of the labour is able to exercise a large degree of management control over the performance of the work of the hired workers and is also able to integrate them to a significant degree into its existing work systems.

FP GROUP DID NOT ACT AS AGENT FOR TOOHEYS

The Full Bench also held that FP Group did not act as an agent of Tooheys in employing the applicants. The Full Bench noted that clause 9 of the 1997 and 2002 Labour Hire Agreements "expressly negated any relationship of principal and agent as between Tooheys and FP Group" and "no other provision of the agreements had the effect of creating a relationship of agency."

The Full Bench also found that FP Group did not have implied actual authority to employ the applicants as agent for Tooheys, reiterating that:

FP Group operated as an independent business; and
exercised a degree of control over Tooheys' employees that was consistent with both the terms of the labour hire agreements and the practical operation of the arrangement contemplated by those agreements.

CONCEPT OF JOINT EMPLOYMENT DOES NOT EXIST IN AUSTRALIA

In the first instance decision, Sams DP rejected the argument that Tooheys and FP Group were joint employers of the applicants. Sams DP stated that there were no Australian decisions which supported the existence of the joint employment doctrine in Australian law; there would be significant practical difficulties associated with the introduction of such a doctrine; and "until there is clear statutory or judicial guidance on the principles of joint employment in the Australian context, it would be prudent for the Commission to proceed with extreme caution."

The Full Bench held that the authorities submitted by FP Group did not support the existence of the joint employment doctrine in Australia, and affirmed that there has been no Australian case in which it has been found that "the exercise of control over the worker by the hirer of labour in a labour hire arrangement may render the hirer, together with the labour hire company, a joint employer of the worker."

The Full Bench stated that a conclusion that Tooheys and FP Group were joint employers would involve "a very considerable development of the common law," and such a finding was precluded by the fact that the FWC's role as a statutory tribunal does not extend to the development of the common law. Any adoption of the concept of joint employment in Australia was therefore a "matter for the courts."

The Full Bench noted that even if the concept of joint employment existed, Tooheys could not have been found to be a joint employer of the applicants as there were no express or implied contracts of employment between Tooheys and the applicants.

WHAT DOES THIS MEAN FOR EMPLOYERS?

The Full Bench decision in FP Group Pty Ltd v Tooheys Pty Ltd confirms that genuine labour hire agencies will usually be deemed to be the employers of workers supplied under a labour hire arrangement – even where the other company (the "hirer") exercises a large degree of control over those workers.

However, employers entering into labour hire arrangements should:

Ensure they engage independent, "arms length" labour hire agencies. This will reduce the likelihood of the arrangement being found to lack authenticity and to constitute a sham or a breach of other workplace laws.
Carefully review the contractual terms of labour hire agreements which designate the labour hire agency as the true employer, and ensure that these terms accurately reflect the way in which the arrangement will operate in practice.

Although the Full Bench found that the concept of joint employment does not exist in Australia, employers should monitor any potential appeal or other litigation on this issue. In other advanced economies such as the United States, joint employment has been found to exist where two separate parties are deemed to co-determine the working conditions and exercise significant control over employees,¹ and the consequences of a finding of joint employment are considerable.

Footnote

¹See for example the decisions of the US National Labor Relations Board in Goodyear Tire & Rubber Co 312 NLRB 674 (1993) and American Air Filter Co 258 NLRB 49 (1981).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


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