When is an Overseas Contractor in Fact an Employee entitled to Compensation?

Legal Directions

WC 124 of 2020 Williams v East Business Services Pty Limited and WC 207 of 2020 Williams v IT Newcom Pty Limited

The Industrial Court of the ACT recently grappled with complicated contractual arrangements to identify the employment relationship assessed under the provisions of the Workers Compensation Act 1951 (ACT) (the Act) and, for the first time, considered whether the conduct of the applicant (Williams), in relocating to the United Kingdom, had relevantly stopped living in Australia as contemplated by s44(1) of the Act so as to preclude an entitlement to weekly compensation payments which would otherwise be payable.

Background

Contracts

IT Newcom Pty Limited (ITN) [insured by Allianz] held a contract to supply labour to the Department of Defence (Defence).

In the period between November 2018 and 17 January 2020 Williams performed work for Defence. That work was undertaken under tripartite contracts between Williams and East Business Services Pty Limited (EBS) [insured by CGU] and between EBS and ITN. ITN prepared both contracts and, after engaging Williams for the work, introduced her to EBS telling her that EBS was a ‘payroll company’ which would assist with her tax affairs, administer her superannuation entitlements and maintain a workers compensation policy.

The contract between Williams and EBS was expressed in language which identified Williams to be an independent contractor to rather than an employee of EBS. That contract specified the substantive terms of the relationship including the work to be undertaken, the remuneration, the obligations of EBS, the fee of EBS payable by Williams for its services, and the period of the contract. Drafted by ITN, that contract had the effect of providing that EBS was responsible for ensuring that Williams performed services in accordance with the terms of ITN’s contractual obligations to Defence.

The contract between EBS and ITN was a ‘services contract’ where EBS was required to supply a ‘key person’ [being Williams] to undertake work for Defence as directed by ITN [as was specified in the contract between Williams and EBS].

Williams also executed a deed poll explicitly stating that the intention of the contracts was not to create an employee/employer relationship with ITN.

In fact, EBS had no involvement in the work Williams undertook or the contractual arrangements by which that work was undertaken. ITN was solely in control of that work, providing weekly directions to Williams, negotiating an extension of the period of her contract with EBS without involving EBS in those discussions, to June 2020 [but ultimately terminating the contract in November 2019].

The only contact Williams had with EBS was to provide an account of the hours she worked each month to facilitate EBS raising an invoice to ITN and EBS paying Williams in accordance with the agreed contractual rate [as specified in its contract with Williams, such terms having been agreed between Williams and ITN].

The sole director of EBS gave evidence that it only took out a workers compensation policy to satisfy the requirements of its contractual obligations to ITN.

The Injury and the Claims

Williams sustained a psychological injury in the course of her work on 17 January 2020. At the time of her work for Defence she resided in the ACT, Australia.

Williams lodged a claim for workers compensation benefits under the Act upon CGU, in its capacity as the workers compensation insurer of EBS. CGU rejected the claim on the basis that it was not William’s employer.

Williams then lodged a claim for workers compensation benefits upon Allianz, in its capacity as the workers compensation insurer of ITN. ITN rejected that claim for compensation also on the basis that it was not William’s employer.

Williams filed separate proceedings against EBS and ITN, seeking an award of compensation under the Act. Magistrate Taylor heard the applications concurrently on 7 and 8 September 2020 and delivered judgment on 5 November 2020.

The Hearing

Her Honour was satisfied that the applicant suffered a compensable injury under the Act, and that she had been totally incapacitated for work since
17 January 2020.

The issues for determination were whether Williams was a ‘Worker’ as defined by the Act and, if so, whether EBS or ITN was her ‘employer’. Also, it was necessary to determine whether William’s relocation to England disentitled her to compensation.

Employment

Williams argued that she was either a direct employee of either EBS or ITN and, in the alternative that she is appropriately taken to be a worker of either EBS or ITN under the ‘labour hire’ provisions of the Act.

Williams argued that the terminology used in the contracts describing her as a ‘contractor’ was not determinative of the relationship and, properly considered, she was a ‘Worker’ directly employed or at least the relationship was properly assessed as a ‘labour hire’ as contemplated by the Act.

EBS/CGU argued that the contract it had with Williams could not be construed to give rise to a relationship of employment and, by giving the tripartite contracts their natural meaning, if a ‘labour hire’ relationship arose, that was between Williams and ITN. EBS primarily relied on the facts of ITN’s control/supervision of Williams’ work, that her work fulfilled ITN’s contractual obligations to Defence and the absence of any direct involvement by EBS in Williams’ work. EBS, submitted that it provided only payroll services to Williams for a fee as an adjunct to her work for ITN.

ITN argued that it had no contract with Williams at all and that she had executed a Deed which, on its terms, identified that Williams was not its employee. ITN asserted that Williams was a contractor and that, if she was a worker in any sense contemplated by the Act, the relationship giving rise to an entitlement to compensation was with EBS. It noted that the contracts contemplated this situation in requiring EBS to take out workers’ compensation insurance.

Her Honour found that Williams was not a direct employee of either EBS or ITN. She then turned to consideration of whether the contracts gave rise to a labour hire relationship.

Section 12 of the Act, relating to labour hire arrangements, provides:

For this Act, an individual is taken to be a worker employed by a person (the labour hirer) if-

  • The individual has been engaged by the labour hirer under a contract for services to work for someone other than a labour hirer; and
  • There is no contract to perform the work between the individual and the person for whom the work is to be performed; and
  • The individual personally does part or all of the work; and

The labour hirer is a corporation – the individual is not an executive officer of that corporation.’

Her Honour was:

‘not satisfied that the terms of the contractual agreement truly reflect the practical reality of the relationship between the parties. I do not consider that the terms of the contractual documents are determinative’.

Her Honour referred to the High Court Authority of Hollis v Vabu HCA 41 [2001] at [58] which held that contractual terms are not of themselves determinative as parties cannot deem the relationship to be something it is not. Rather, her Honour looked to the substance of the relationships created by the arrangements between the parties.

Her Honour found that the evidence could not support the view that EBS had any involvement in the oversight or assessment of delivery of the services and there was no evidence of any direct contact between EBS and Defence.

Her Honour concluded that the nature of the evidence suggests that whatever the label ITN might wish to put on the relationship, there was a contract of service between ITN and Williams and said:

It would be a peculiar outcome indeed if ITN were able to, for all intents and purposes, behave as if in control of the engagement [of Williams] (including recruitment, setting remuneration, monitoring performance, attendance; monitoring leave and working from the United Kingdom arrangement; client satisfaction, re-negotiation of terms; terminated the engagement and deriving a benefit from the engagement by virtue of their contract with the Department of Defence) and yet avoid the establishment of a contractual relationship [with Williams] by by virtue of the engagement of what was effectively payroll support services [with EBS].

Her Honour held that s12 of the Act applied as between Williams and ITN, the appropriate characterisation of their relationship being a labour hire employment. Thus, the Allianz policy underwritten in favour of ITN responds meet any liability for compensation under the Act.

Her Honour then turned to the second issue.

Entitlement to Compensation

EBS and ITN argued that, regardless of the notional entitlement to compensation, Williams’ relocation to England triggered s44 of the Act as regards weekly compensation. Section s44(1) of the Act provides:

A worker who is otherwise entitled to receive weekly compensation is not entitled to the compensation if the worker stops living in Australia.

This litigation was the first judicial consideration of this section and, as such, there was no guiding authority as to the test to be applied in assessing the entitlement. Her Honour noted that no assistance with construction of s44(1) was provided in the explanatory memorandum of the Act nor the first reading speech.

Williams argued that s44 only operated if she had determined to permanently leave Australia. She submitted that the court should place significant weight on her stated intention to return to Australia, in concluding that she had not relevantly stopped living in Australia.

Williams testified that she held both Australian and British passports, had lived in the United Kingdom and Brussels for approximately 10 years prior to moving to Australia to work in 2017, had returned to England after her workplace injury to ‘reconnect’ with her children however her intention was to return to Australia for work at an unspecified time in the future. Williams asserted that her intention to return to Australia was complicated by the impact of COVID-19 in the increased expense and lack of availability of travel, and the cost and inconvenience of quarantine on arrival.

Although Williams gave evidence that her residential address was in the ACT, she conceded in cross examination that she had not ever lived at that address, asserting that it was available should she return to Australia. She also conceded that she had signed a residential lease in the UK commencing on 16 April 2020, had taken her furniture out of storage to furnish that home, and had a registered car in the United Kingdom.

EBS referred the court to authorities provided in ‘Electoral cases’ that dealt with a person’s ‘place of living’. The critical element being to establish regularity or continuity which, it was argued, was on the facts consistent with a finding that Williams was domiciled in England. Although not directly analogous, EBS asserted that they provided some guidance as to approach and, based on an objective assessment of William’s conduct, she was ‘settled’ in England.

Magistrate Taylor concluded that the ‘Electoral cases’ were decided in a different context and she could not place significant weight on that reasoning. Her Honour also decided that despite Williams’ submission, the intention of the individual was a factor, but not the only factor in that it is not sufficient for an applicant to have a vague ‘intention’ of returning to Australia.

Her Honour concluded that s44(1) applied from the date on which an objective consideration of the facts results in the conclusion that the applicant, has stopped living in Australia. The fact that an applicant periodically lives outside Australia does not, of itself, disentitle the applicant from receipt of weekly benefits under the Act. A person can “live” in a particular place but remain a resident elsewhere, as for example is the position of a foreign diplomat.

However in Her Honours view the critical question to ask was what decisions Williams had made about her present living situation. She accepted that Williams left Australia in early 2020 with the intention to return, however, she had since remained in England and taken steps, such as signing a residential lease and furnishing that home, to stabilise that position.

Her Honour concluded that the weight of the evidence supported the ‘inescapable conclusion’ that the Williams had relevantly stopped living in Australia from the date upon which she executed the residential lease in April 2020. Williams was precluded from receiving any weekly compensation from that date.

Conclusion

The decision confirms that the ‘rebadging’ of a relationship between parties will not be determinative of its character at law. Parties cannot deem a relationship to be something it is not and the court will look to the substance on the evidence to decide whether an employment situation is in existence regardless of the contractual documents.

The decision is particularly relevant in the context of the ACT noting the frequency of ‘government contactors’ fulfilling their obligations by entering into contracts with ‘payroll services’ providers. However, ‘payroll services’ providers operate in different ways. Each case will turn on its facts and the case should not be taken to relinquish a payroll company from maintaining a workers compensation policy.

The decision on s44 is interesting. On one view the judgment is harsh on Williams who was, on the evidence, totally incapacitated by her injury and returned to England with a view to recovery and returning to work in Australia when her plans were interrupted by the COVID 19 pandemic and UK lockdowns. It remains to be seen whether applicants facing this situation in future claims will endeavour to bring themselves within the proviso to the preclusion contained in s44(2) where by the entitlement to weekly benefits is maintained if a medical practitioner certifies that the incapacity arising from the injury is likely to be permanent and the absence from Australia is likely to help the applicant recuperate. Thus, a ‘foreign worker’ who is significantly injured and returns to their country of origin to receive family support necessitated by the injury would arguably not be disentitled to weekly benefits of compensation.

Moray & Agnew acted for the successful defendant, EBS/CGU.

Further information / assistance regarding the issues raised in this article is available from the author, Prue Loader – Special Counsel or your usual contact at Moray & Agnew.


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