Australia: Unfair dismissal claim by 457 visa holders fails on jurisdictional grounds

In a recent decision of Commissioner Bissett of the Fair Work Commission (the Commission) in Melbourne on 14 February 2014, Leanne Smallwood failed in an application seeking relief for unfair dismissal pursuant to Section 394 of the Fair Work Act 2009 against Ergo Asia Pty Ltd (Ergo) on the basis that Ergo was held not to be her employer and accordingly the jurisdictional objection raised by Ergo was successful1.

Relevant Fact Situation

The applicant sought employment with the respondent in August 2012, and at the same time she engaged with Geoffrey Nathan Consulting (GNC) which provides migration services including 457 Visa sponsorship and the on-hiring of individuals to organisations. Notwithstanding that the respondent, Ergo, sent a letter of offer of employment to the applicant on 22 September 2012, the letter was in the context that the applicant's 457 Visa sponsorship would be assumed by GNC. Appropriate documents were prepared by GNC offering the applicant an employment contract with GNC on the basis that she would be placed with Ergo to provide services.

On 6 October 2012 the applicant signed an employment contract with GNC and GNC then arranged for the transfer of her 457 Visa to itself as the sponsor and on or about 31 October 2012 she commenced employment with Ergo as labour supplied pursuant to a "Workplace Services Agreement" between Ergo and GNC. GNC invoiced Ergo on a fortnightly basis and GNC met all PAYG and superannuation obligations for the applicant and supplied her with pay slips and group certificates.

In September 2013 the applicant's employment was terminated by GNC following a complaint about her conduct in the workplace by Ergo.

The Applicant's Claim

The applicant submitted that Ergo was the applicant's employer based on the letter of offer made to her by Ergo on 22 September 2012. Alternatively the applicant contended that even if she were employed by GNC, GNC could not in accordance with the 457 Visa requirements on-hire her services to a third party.

The applicant primarily relied on two cases being the Federal Court decision in Damevski –v- Giudice and Ors2 on the basis that a reasonable person would conclude that a contract of employment had been entered into between the applicant and Ergo and in regard to consideration relied upon the decision of Kitchen Design Systems Pty Ltd3 in which the Full Bench of the Commission found that consideration need not be paid directly by the employer to the employee.


Contractual Principles

The Commissioner analysed the applicant's claim by reference to the principles relevant to formation of contract.

  1. Intention to Create Legal Relationship

In deciding that there was no valid contract of employment between the applicant and Ergo, the Commissioner reviewed the requirements for the formation of a contract of employment and held that in relation to the requirement of intention to create a legal relationship the facts did not demonstrate any mutual intention to create such a relationship on the basis that the evidence of the respondent was if it entered into the Workplace Services Agreement with GNC, then GNC would become the employer and the sponsor and that the applicant would be provided to the respondent on a labour hire basis. Moreover the Commissioner found that the actions of the applicant viewed on an objective basis showed she did not intend to enter into a legal relationship with Ergo given that she knew she could only work for a 457 Visa sponsor and that neither she nor Ergo had claimed that it was such a sponsor.

  1. Offer and Acceptance

In relation to the requirement for offer and acceptance, the Commissioner found that the offer of employment made by Ergo was based on inadequate understanding of the process and that it was evident that based on the conditions attached to the 457 Visa that the applicant accepted the employment offer from GNC because she knew she had to be employed by the sponsor.

The Commissioner found that the decision in Damevski was unhelpful on the basis that unlike that case, there was not any attempt to mislead the applicant by the respondent.

  1. Valuable Consideration

As to the issue of valuable consideration it was not in dispute that all of the applicant's wages and entitlements had been paid by GNC and she had never received any remuneration directly from the respondent. As for the reliance on the Kitchen Design case the Commissioner distinguished that case on the basis that there was no suggestion that GNC and Ergo were related organisations such that the payments by GNC could be regarded to be payments made by the respondent as was the case in Kitchen Design since GNC invoiced the respondent based on the Workplace Services Agreement. Similarly, the Commissioner distinguished the facts from the Damevski case which concerned an independent contractor being supplied through an agency whereas in this case it was clear to the applicant was not regarded as a contractor.

  1. Illegality

In regard to the issue of illegality the Commissioner reviewed the relevant provisions of the Migration Act 1958 and particularly the object of the Act in section 4 and offences in relation to work arising under section 235 as well as the applicable Regulations to the Act. The Commissioner found the applicant was not at any time in breach of her visa obligations and held that if Ergo had employed her then it would breach the visa conditions and would have committed a criminal offence pursuant to section 235(1) of the Act. The Commissioner then examined authorities such as Yangar Pastoral Co Pty Ltd –v- First Chicago Aust Ltd4 and Australian Meat Holdings Pty Ltd v Kazzi5 and held that the Migration Act 1958 impliedly prohibits a contract of employment between the applicant and the respondent and on the basis of those authorities a contract would be invalid if it was in breach of a statute such as the Act and accordingly the contract was unenforceable.


On the basis of this reasoning the Commissioner dismissed the applicant's unfair dismissal claim for want of jurisdiction given that Ergo was not the employer of the applicant.

Other Findings

The Commissioner also went on to find that the submissions by the applicant that GNC cannot legally on-hire the applicant on the basis that this will be in breach of the 457 Visa sponsorship arrangements was not correct because the Migration Act 1958 allows for a labour hire agreement to be entered into between an employer and the Australian Government if the employer is a recruitment company seeking to sponsor skilled workers to be on-hired to another business and the occupations are on the consolidated occupations list which applied to GNC.


This decision is a clear an unambiguous explanation of the capacity of an applicant to bring an unfair dismissal claim where the applicant is on a 457 Visa in circumstances where the applicant is employed by a labour hire firm which is the sponsor of the Visa rather than directly by the client of the labour hire firm. It is also authority for the proposition that an employment contract will not be binding if the existence of the contract is in breach of a statute and in such circumstances the employment contract will be rendered wholly invalid.

Organisations which utilise labour hire firms to provide s457 visa holders to end users should be made aware of this decision as should their clients which utilise outsourcing arrangements. The impact of this decision is that where the employer entity provides the outsourced services with its own employees, such employees cannot in any circumstances be regarded as employees of the entity which engages that provider.


1Leanne Smallwood v Ergo Asia Pty Ltd U2013/14383 [2014] FWC 964

2[2003] FCAFC 252

3[2007] AIRCFB 403 [unreported]

4(1978) 139 CLR 410

5[2004] QCA147

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.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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