Australia: High Court closes loophole on independent contractors

Last Updated: 21 December 2015
Article by Emily Slaytor and Shawn Skyring

Use of labour hire arrangements can amount to sham contracting.

In a unanimous judgment, the High Court has ruled that employers cannot avoid the sham contracting provisions in the Fair Work Act 2009 (Cth) ("the FW Act") through the use of third party labour hire arrangements.

In Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd1 the High Court overturned an earlier Full Federal Court decision and held that Quest South Perth Holdings Pty Ltd ("Quest") had breached the FW Act's sham contracting provisions when it misrepresented an Odco-style independent contractor arrangement.


The Odco system of contracting involves engaging workers on independent contractor agreements (contracts for services) via a third party so that there is no direct contractual relationship between the worker and the entity or person for whom they are performing the work.

This system of contract labour hire is widely licensed to labour hire agencies throughout Australia, who provide independent contractors to companies in an extensive range of industries.


Although since 1991 the courts have viewed the Odco system as legitimate, the FW Act's commencement in 2010 brought with it stricter "sham contracting" provisions which specifically prohibit an employer (or prospective employer) from (amongst other things) misrepresenting that a contract of employment is a contract for services (section 357(1) of the FW Act).


Two housekeepers were originally employed by Quest in cleaning roles.

Quest entered into a contractual arrangement with Contracting Solutions Pty Ltd ("Contracting Solutions"). Pursuant to this arrangement, the housekeepers would cease to be Quest employees and subsequently be engaged by Contracting Solutions as independent contractors. Contracting Solutions would then provide the services of the housekeepers back to Quest under a labour hire arrangement.

Contracting Solutions met with Quest's housekeepers and provided them with a "sign up pack" which included a contractor application form. There were a number of representations made to them to encourage them to sign up and the benefits of "converting" to independent contractors.

The fact that the housekeepers would lose statutory employment entitlements upon becoming independent contractors was not discussed with them.

Importantly, at this meeting Quest represented to the housekeepers that "upon accepting Contracting Solutions' proposal, they would continue to perform work at Quest but would do so as independent contractors of Contracting Solutions and not as employees of Quest."

In reality, the housekeepers continued to perform exactly the same work at Quest in the same manner as they had always done.

The FWO commenced proceedings alleging that Quest had contravened section 357(1) of the FW Act.


Although the housekeepers were ultimately found to continue to be Quest employees, on the question of whether Quest had breached section 357(1) of the FW Act, the Full Federal Court of Australia2 interpreted this section in such a way that it did not cover Quest's representation to the housekeepers about their arrangement with Contracting Solutions.

This is because the representation by Quest was about the contract between the housekeeper employees and Contracting Solutions, and not about the contract between the housekeeper employees and Quest.

The majority said that a "representation made by an employer to its employee that he or she is providing work as an independent contractor under a contract for services made with another person is not actionable."

This interpretation meant that an employer could avoid the sham contracting provision by introducing a third party (a labour hire company) into the contractual arrangement between the employer and the worker who was, in fact, the employee.

The FWO appealed to the High Court.


The High Court allowed the appeal and accepted the FWO's argument that section 357(1) prohibited the misrepresentation that a contract of employment is a contract for services with a third party.

The focus was very much on the fact that the purpose of the sham contracting provisions is to protect a person, who is in truth an employee, from being misled about his or her employment status.

The High Court said that there was nothing in the language of section 357(1) that warranted the section to be construed such that representation prohibited by the section was "confined to a representation that the contract under which the employee performs or would perform work as an independent contractor is a contract for services with the employer."

Importantly, the High Court went on to state:

"To confine the prohibition to a representation that the contract under which the employee performs or would perform work as an independent contractor is a contract for services with the employer would result in s 357(1) doing little to achieve its evident purpose... That purpose is to protect an individual who is in truth an employee from being misled by his or her employer about his or her employment status. It is the status of an employee which attracts the existence of workplace rights."

The effect of the High Court's decision is that the prohibition in section 357(1) will extend to employers who interpose a third party into the sham arrangement.


A third party labour hire arrangement will not permit an employer to avoid the sham contracting provisions where the substance of the relationship between the engaging entity and the worker is, in truth, that of employer and employee.

This decision is significant for any business which uses the Odco system of contracting. It is the nature of the relationship between the parties that is the principal consideration. As the Courts have said in this country on numerous occasions, 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."

While each situation turns on its own facts, employers need to be mindful of potential liability under the FW Act, but also under a range of other employment related legislation, such as tax, superannuation and workers compensation.


1 [2015] HCA 45
2 Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] FCAFC 37.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.