[2013] FWCFB 9605

FAIR WORK COMMISSION

REASONS FOR DECISION


Fair Work Act 2009
s.604 - Appeal of decisions

FP Group Pty Ltd
v
Tooheys Pty Ltd
(C2013/5651)

VICE PRESIDENT HATCHER
VICE PRESIDENT CATANZARITI
COMMISSIONER RIORDAN

SYDNEY, 17 DECEMBER 2013

Appeal against decision [2013] FWC 2813 of Deputy President Sams at Sydney on 31 July 2013 in matter numbers U2011/15073; U2012/176; U2012/177; U2012/178; U2012/179; U2012/180; U2012/181; U2012/182; U2012/183; U2012/184; U2012/185; U2012/186; U2012/187; U2012/200; U2012/201; U2012/203; U2012/204; U2012/4104; U2012/4341; U2012/4631.

Introduction

[1] This appeal by FP Group Pty Ltd (FP Group) against a decision of Deputy President Sams issued on 31 July 2013 1 (Decision) was heard by us on 18 November 2013. Having heard FP Group’s submissions, we announced that we had decided to refuse permission to appeal and would issue our full reasons for that decision in writing at a later time. This decision sets out those reasons.

[2] The proceedings before the Deputy President arose out of applications for unfair dismissal remedies lodged by ten persons, Brian Henry, David Hulbert, Graeme Robinson, George Wilczewski, Andrew Sands, Ian Luke, David Blackley, Dennis Llagas, Bruce Hancock and Mark Coombes (the applicants). Unusually, each applicant lodged two unfair dismissal remedy applications - one nominating FP Group as the employer, and the other nominating Tooheys Pty Ltd (Tooheys) as the employer. FP Group and Tooheys each made a jurisdictional objection to the application made against them on the basis that the other had, prior to dismissal, been the actual employer of the applicants. These jurisdictional objections having been allocated to the Deputy President for hearing, the question he had to determine was whether FP Group or Tooheys had been the employer of the applicants at the time of dismissal. The Deputy President determined that FP Group had been the employer, and ordered the dismissal of the applications made by the applicants against Tooheys 2. FP Group challenged that outcome in its appeal.

Factual background

[3] The facts are set out in their entirety in the Decision, and we do not intend to repeat them in full. However a skeleton summary of factual background is necessary for the purpose of this decision. Tooheys has at all relevant times operated a major brewery at Lidcombe in Sydney. Until 1991, all electrical trades work at the brewery was conducted internally by persons who were indisputably employees of Tooheys. Tooheys became dissatisfied with union-endorsed work practices and the level of productivity at the brewery, and sought significant change. Tooheys advanced a proposal to Mr Trevor Gorman, an existing electrical tradesperson employed by Tooheys and the workplace delegate for the Electrical Trades Union, that he should establish a new company which would provide Tooheys with its required electrical services and labour in a more flexible and efficient way. Arising out of this, a new company, Feyman Pty Ltd (Feyman), was established with Mr Gorman and Mr Dennis Gaffney, another existing electrical tradesperson then employed by Tooheys, as initial directors, and it entered into a five year contract with Tooheys for the provision of electrical services and labour. On Friday, 19 November 1991, Tooheys terminated the employment of approximately 19 electrical tradespersons at the Lidcombe brewery and paid them generous redundancy entitlements. The following Monday, the 19 tradespersons continued work at Lidcombe, but on the basis that they were now the employees of Feyman, and were being supplied by Feyman pursuant to its contract with Tooheys. It was not in dispute that Tooheys met the establishment costs of Feyman.

[4] After further restructuring at the brewery which involved a significant number of production personnel being made redundant, Tooheys in April/May 1994 entered into an arrangement with another company, Proden Pty Ltd (Proden), to supply casual production labour to the brewery. The directors of Proden were Mr Gorman, Mr Gaffney and a Mr Mosten. FP Group was incorporated in June 1994 with Mr Gorman, Mr Gaffney and Mr Mosten as directors. FP Group replaced Feyman as the entity providing electrical services to Tooheys under the 1991 contract.

[5] In 1997 FP Group entered into a new three-year contract with Tooheys, to commence in effect on 21 June 1998, under which it supplied mechanical as well as electrical trades services to Tooheys (1997 Agreement). It also supplied supplemental production labour under this contract, although Proden appears to have remained the vehicle for the employment of such staff. A further contract was entered into in 2002 (2002 Agreement) which commenced in effect on 1 October 2001 and had a term of 3½ years, but which continued to be applied after its term expired. All the applicants were engaged by FP Group after the commencement of the 1997 Agreement. 3

[6] In late 2011, after a number of disagreements between the parties, Tooheys decided to put out to tender the services that FP Group provided under the 2002 Agreement. FP Group was not the successful tenderer. On 24 October 2011, Tooheys notified FP Group that its services would no longer be required from 28 January 2012. However, Tooheys had slightly earlier implemented a restructure of its engineering department, and as part of this reduced the number of employees which FP Group had been contracted to provide. Consequently on 14 October 2011 all of the applicants except Ian Luke were advised by Tooheys that from that day their services were no longer required. All the other employees supplied by FP Group continued to work until 28 January 2012, and all of these except Mr Luke were then engaged by the successful tenderer, Skilled Engineering, and continued to work thereafter at the Lidcombe brewery.

[7] FP Group continued to pay the applicants up until 28 January 2012. Five of them were assigned to perform work for other clients of FP Group for whom FP Group supplied labour.

[8] The first of the unfair dismissal remedy applications was filed on 23 December 2011, and the last on 4 February 2012. Each of the applicants lodged two applications, one alleging that FP Group was the employer, and the other alleging that Tooheys was the employer. Each application identified the date the dismissal took effect as 14 October 2011 from Tooheys and 28 January 2012 from FP Group, with the exceptions of Mr Henry, who nominated his date of dismissal from FP Group as 23 December 2011, and Mr Luke, who in his application against Tooheys nominated his date of dismissal from Tooheys as 25 January 2012.

The Decision

[9] In the Decision, which is 257 pages long and contains 889 numbered paragraphs, the Deputy President, after describing the factual background and identifying the question to be determined, recited in detail the evidence given by each witness. The Deputy President then commenced his consideration by setting out the principles relevant to the question to be determined. His Honour then considered and rejected submissions made by FP Group that the 2002 Agreement was a sham, and that Tooheys and FP Group were joint employers of the applicants.

[10] The Decision then:

[11] After undertaking this process of analysis, the Deputy President then stated his conclusion at two places in the Decision:

[12] Significantly, the Deputy President made adverse credit findings against FP Group’s two main witnesses. Of Mr Gorman, the Deputy President said 4:

[13] Mr Byron Smith, who was FP Group’s General Manager, was described by the Deputy President as a “generally uncooperative witness” whose evidence was “self-serving” and “generally unhelpful and designed to preserve the facade of a concern for the applicants’ interests, rights and entitlements”. 5

[14] Equally significantly, the Deputy President raised serious questions about the motivation and bona fides of FP Group in the litigation connected with its apparent encouragement of the applicants to commence proceedings against Tooheys and the fact that the applicants had not been paid their accrued employment entitlements upon termination. 6

FP Group’s grounds of appeal and submissions

[15] FP Group submitted that the Deputy President erred in not finding that:

[16] The main propositions advanced in FP Group’s written and oral submissions were:

Consideration

[17] The following observations and conclusions may be stated at the outset. The Deputy President had the advantage of hearing the lengthy and somewhat complex evidence first hand. The Decision which the Deputy President issued is very detailed and comprehensive, both in respect of its recitation of the evidence and findings of primary fact, and in respect of its statement and application of the relevant law. We have read the Decision closely in the light of the parties’ comprehensive written appeal submissions. We have noted that the Decision is not challenged by the applicants. We consider that the conclusion which the Deputy President reached on the question of jurisdictional fact that was before him was clearly the correct one. We also generally endorse the process of analysis by which the Deputy President reached that conclusion. We are not satisfied that FP Group has demonstrated any material error in the Decision such as to justify the grant of permission to appeal in the public interest under s.400(1) of the Act.

[18] In that circumstance, we do not consider it necessary in these reasons for decision to engage in a full re-analysis of the twenty year factual matrix of this case. Were we to do so, the questions raised by the Deputy President concerning FP Group’s motives and bona fides in this litigation in connection with the initiation of the proceedings by the applicants and the non-payment of accrued entitlements might require further consideration by us. It is sufficient to outline, by reference to the matters raised in FP Group’s appeal submissions, the main reasons why we consider that the Deputy President reached the correct conclusion.

Identity of the true employer in a labour hire arrangement

[19] The starting point for the consideration of the position here is that the mere existence of an arrangement under which a first company provides labour to a second company does not point to the second company being the employer of the labour so provided. The general position was stated by Buchanan J in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd as follows: 7

[20] A similar observation was made by Merkel J in Damevski v Guidice 8:

[21] The formal or “paper” arrangements here indisputably identified FP Group as the employer of the applicants rather than Tooheys. The applicants were recruited by FP Group, had employment agreements (which included confidentiality and restraint obligations) with FP Group and/or other documents acknowledging FP Group as their employer, were paid by FP Group, had income tax deducted and remitted to the Australian Taxation Office by FP Group, received group certificates and payslips from FP Group, received leave entitlements from FP Group, had superannuation contributions made on their behalf by FP Group, and were treated as FP Group’s employees for workers’ compensation purposes. 9 Clause 9 of the 2002 Agreement provided among other things that nothing in that agreement would be taken as constituting the workers supplied by FP Group as employees of Tooheys. Clause 9 of the 1997 Agreement was to the same effect.

[22] It is correct, as FP Group submitted, that the formal arrangements and the labels used in those arrangements, although always a relevant consideration, will not be determinative if other factual matters demonstrate that those arrangements and labels do not conform to the reality of the working relationships. 10 A critical consideration in determining whether the formal arrangements represent the reality of the situation is what might be described as the commercial authenticity of those arrangements. If the supplier of the labour in the arrangement is not truly conducting a business of its own, and the arrangement lacks “commercial practicality” from the perspective of the labour supplier, then that may indicate that the labour supplier is not truly the employer of the workers it supplies.11

[23] The evidence concerning the history of the relationship between Tooheys on the one hand and FP Group, Feyman and Proden on the other dispels any notion of artificiality or pretence in the arrangement. Although Tooheys undoubtedly materially assisted in the creation of Feyman, FP Group’s legal predecessor in the arrangement with Tooheys, we consider that it is plain that at an early point in the history, and certainly well before the time of the employment of the applicants, FP Group and its related companies had together established themselves as a fully independent business. FP Group, in terms of its directors and shareholders, was at all times legally and structurally independent of Tooheys. It had its own premises at Glendenning with a number of permanent administrative staff located there. FP Group’s directors and/or shareholders derived substantial financial benefits from the arrangement and from their conduct of the business as a whole. Although Tooheys undoubtedly remained at all relevant times the mainstay of FP Group’s business, nonetheless FP Group and/or its related companies became a supplier of labour to a range of other businesses which were independent of Tooheys. FP Group presented itself to the world at large as an independent supplier of labour and services. The 2002 Agreement came about after a tender process conducted by Tooheys involving a number of other businesses, and was negotiated on a commercial basis and at arm’s length. The commercial interests of Tooheys and FP Group increasingly diverged over time, as evidenced by FP Group’s various complaints concerning Tooheys’s commercial conduct including that Tooheys failed to properly adjust the rates it paid to FP Group in line with increasing costs incurred by FP Group, and failed to pay FP Group’s invoices on time. This culminated in FP Group losing the Tooheys work in a further tender process which occurred in late 2011. The picture that clearly emerges is of FP Group as an independent business consistently trying to advance its own distinct commercial interests.

[24] That picture gives no support to the proposition that the reality of the tripartite relationship involving Tooheys, FP Group and the applicants was different to the way in which they were described in the formal or paper arrangements, including but not limited to the 2002 Agreement. The position may be contrasted to that in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd, where the entity purporting to be the employer (Tempus), which was interposed between the workers and the business in which they worked (Ramsey Food Processing), was described in the following way:

[25] FP Group pointed to the degree of control which Tooheys exercised over the day-to-day work of the applicants as indicative of Tooheys being the employer. The evidence does clearly demonstrate that Tooheys exercised a high degree of control over the day-to-day work of the applicants, and that it also sought to integrate them to a significant degree in its own operations. In the Decision, the Deputy President analysed in considerable detail the way in which that control was exercised and that integration was implemented. 13 FP Group criticised various details of the Deputy President’s findings in this respect as not adequately capturing the degree of control and integration which existed, and pointed to evidence to support its position in this respect. We are not satisfied that FP Group has identified any significant error of fact on the part of the Deputy President consistent with the requirement in s.400(2) of the Act in this respect. Moreover, we do not consider its submissions in this connection are to the point. In the context of a genuine labour hire arrangement - that is, one involving a labour hire company genuinely in business on its own account - the fact that a worker supplied by the labour hire company works under the direction of the hirer is not necessarily inconsistent with the proposition that the worker’s contract is with the labour hire company and not the hirer.

[26] For example, in Accident Compensation Commission v Odco Pty Ltd 14 the High Court analysed the position of Troubleshooters Available (TSA), a labour hire agency which supplied tradespersons to the building industry. The question which the Court had to determine was whether TSA was the “employer” of tradespersons for the purposes of the Accident Compensation Act 1985 (Vic).15 The Court answered this question in the affirmative. It described how TSA’s labour hire business model worked in the following terms (underlining added)16:

[27] The Court went on to say (underlining added) 17:

[28] Therefore in Accident Compensation Commission v Odco Pty Ltd the fact that control over the tradesperson in the performance of work was exercised by the hirer and not TSA did not operate to negative the proposition that the tradesperson contracted with TSA and not the hirer. Similarly in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd it was observed that the exercise of a significant degree of control by the hirer did not necessarily result in the labour hire company being displaced as employer (underlining added):

[29] 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. Without this, the arrangement would become unworkable. In our experience, labour hire arrangements almost invariably involve the hirer being able to communicate directly to the hired worker instructions concerning the performance of work without the interposition of the labour hire company. That, without more, cannot operate to render the hirer the employer of the hired worker.

[30] The practical control which the evidence demonstrated Tooheys exercised over the applicants in their daily work was not inconsistent with the contracts between Tooheys and FP Group such as to suggest some disjunct between the formality and the reality of their arrangement. The 2002 Agreement, like its predecessors including the 1997 Agreement, contained provisions which expressly facilitated the exercise of such practical control. FP Group submitted that such provisions demonstrated that Tooheys exercised “effective legal control over all the incidents of the employment relationship”, and thereby demonstrated that Tooheys was the true employer. We do not agree. The relevant provisions of the 2002 Agreement made it clear that the practical control which Tooheys was able to exercise emanated from obligations which FP Group assumed under that agreement in its capacity as employer of the hired workers. Those provisions reinforced rather than vitiated FP Group’s status as employer of those workers.

[31] For example, clauses 4 and 5.1 provided as follows:

[32] Those provisions clearly had the practical effect of giving Tooheys significant day-to-day control over the performance of work by the workers supplied by FP Group. But the provisions operated legally as obligations required to be complied with by FP Group in its predicated employment relationship with the workers. The position here, we consider, is to be analysed in the same way that the Supreme Court of NSW (McDougall J) did in relation to a labour hire company’s (Forstaff’s) arrangements in Forstaff v Chief Commissioner of State Revenue 18:

[33] A range of other obligations upon FP Group in the 2002 Agreement underlined its role as the actual employer of the workers as a fundamental feature of the arrangement. For example the 2002 Agreement required FP Group to:

[34] FP Group was not able to demonstrate that these provisions of the 2002 Agreement did not conform to the reality of the arrangement with Tooheys or that it was not required in fact to comply with these obligations. The evidence showed that, consistent with the terms of the 2002 Agreement and its predecessors, FP Group at all times up until its commercial falling out with Tooheys in late 2011 conducted itself as the employer of the applicants and the other workers it supplied to Tooheys. The most salient example of this, which was properly emphasised by the Deputy President in the Decision 19, was that FP Group in 2001 entered as employer into an enterprise agreement (the FP Group Pty Ltd Certified Agreement 2001) under the provisions of the Workplace Relations Act 1996 covering the workers it supplied to Tooheys. Proden did the same thing at about the same time. Both agreements were certified by the Australian Industrial Relations Commission. Another significant example to be found in the evidence is that as late as 2 September 2011, Mr Smith, as General Manager of FP Group and Proden, sent a long letter to Tooheys in which he articulated a range of commercial complaints concerning Tooheys’s dealings with FP Group and Proden.20 Apart from confirming that FP Group and Proden conducted an independent business with its own distinct interests and were not mere proxies of Tooheys, the letter also demonstrates the way in which the two companies had, in their commercial dealings with Tooheys, conducted themselves to that point as the employers of the workers they supplied to Tooheys. It is sufficient to refer to one part of the letter, in which Mr Smith complained that Tooheys was “poaching” FP Group’s employees, to illustrate this:

[35] As earlier stated clause 9 of the 2002 Agreement expressly negated the possibility of any employment relationship arising between Tooheys and the workers supplied by FP Group. Clause 9 of the 1997 Agreement was to the same effect. Both agreements were expressly predicated on FP Group being the employer of those workers. FP Group entered into written employment agreements with the majority of applicants which described their relationship as that of employer and employee and contained obligations usual to an employment relationship, and all the applicants were consistently described in FP Group’s business records as its employees. We consider that all those agreements and records correctly described the legal relationships to which Tooheys, FP Group and the applicants were a party.

Implied contract

[36] FP Group submitted that the Deputy President did not in the Decision address its submission that implied contracts of employment had arisen between Tooheys and the applicants. While it is strictly correct that the Deputy President did not expressly deal with that submission in the terms that it was put, nonetheless the Deputy President’s firm conclusion that FP Group was the employer of the applicants, and the findings made by the Deputy President to support that conclusion, necessarily precluded that possibility. For the reasons we have already stated, we do not consider that there was any proper basis upon which employment contracts between Tooheys and the applicants could be implied.

Agency

[37] Again, although the Deputy President did not, in express terms, deal with FP Group’s submission that it had acted as the agent of Tooheys in employing the applicants, his firm conclusion that FP Group was the true employer of the applicants effectively disposed of this submission. In any event, we do not consider that the submission can be accepted. Clause 9 of both the 2002 Agreement and the 1997 Agreement expressly negated any relationship of principal and agent as between Tooheys and FP Group, and also as earlier stated negated any employment relationship arising between Tooheys and the workers supplied by FP Group pursuant to its obligations under the agreements. No other provision of the agreements had the legal effect of creating any relationship of principal and agent as between Tooheys and FP Group. It is clear therefore that FP Group had no express actual authority to employ the applicants as agent for Tooheys.

[38] That leaves only the possibility that FP Group had implied actual authority to employ the applicants as agent for Tooheys. Although circumstances exterior to the terms of an express contract may demonstrate implied actual authority, 21 we do not consider that the circumstances here give any proper basis to imply the existence of such authority against the express terms of the 2002 Agreement or its predecessor. FP Group submitted that implied agency was demonstrated by Tooheys’s control over FP Group in the employment of the workers, its financial control over FP Group’s business, and the requirement under the 2002 Agreement that FP Group ensure that the applicants act in Tooheys’s interests and in accordance with Tooheys’s reasonable directions. We do not accept these submissions, because, for the reasons already stated, we consider that FP Group operated a genuinely independent labour hire business for which it employed persons in its own right, and that the degree of control exercised by Tooheys over the applicants in the performance of their work was consistent with both the express terms of the 2002 Agreement and the practical operation of the labour hire arrangement contemplated by the 2002 Agreement.

[39] We did not understand FP Group to put its agency argument on the basis of ostensible authority. In any event the evidence does not demonstrate that any of the applicants entered into their employment under the belief, induced by any representation or otherwise, that they would be employed not by FP Group in its own right but acting as agent for Tooheys, so no question of ostensible authority can arise.

Joint Employment

[40] The Deputy President’s conclusions in respect of FP Group’s alternative submission that both it and Tooheys were joint employers of the applicants was as follows:

[41] We consider that this was the correct approach. We would emphasise two points. Firstly, the application of a concept of joint employment to labour hire arrangements would involve a very considerable development of the common law. The cases in which Australian courts have analysed labour hire arrangements have invariably involved the identification of which one of two putative employers is in fact the employer. In no case has an Australian court approached the analysis on the basis 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. This is at odds with United States law (from which the conception of joint employment has been derived) where the analysis proceeds on this very basis. 22 We would respectfully adopt the description of the position by the South Australian Industrial Relations Commission (Hampton DP) in Costello v Allstaff Industrial Personnel (SA) Pty Ltd and Bridgestone TG Australia Pty Ltd23 as follows:

[42] FP Group submitted that the “doctrine of joint employment has received consideration and support in Australia”, and went on to say in its written submissions:

[43] That submission puts the position far too highly. We do not consider that the two cases cited by FP Group in support of it articulate any such proposition. 24 The current state of consideration concerning the concept of joint employment in Australian law was stated by the Federal Court (Collier J) in Fair Work Ombudsman v Eastern Colour Pty Ltd25, in the context of a determination concerning whether a pleading of joint employment should be struck out, as follows:

[44] Although this Commission is frequently required, in the course of exercising its jurisdiction under the Act, to apply common law doctrines and principles, we do not consider that the Commission’s role as a statutory tribunal extends to engagement in the development of the common law. That is a matter for the courts. Accordingly we cannot find that jurisdiction exists for the Commission to hear the applicants’ claims against Tooheys on the basis of joint employment absent any firm adoption of that concept in Australian law by the courts.

[45] Secondly, and in any event, it must be the case as the Deputy President pointed out that for Tooheys to have been a joint employer of the applicants, there must still have been express or implied contracts of employment between Tooheys and the applicants. For the reasons already stated, there were no such contracts.

Conclusion

[46] For the above reasons we ordered that FP Group be refused permission to appeal.

VICE PRESIDENT

Appearances:

M. Seck of counsel with D. McEvoy, solicitor, for FP Group Pty Ltd

F. Parry SC with Y. Shariff of counsel for Tooheys Pty Ltd

Hearing details:

2013.

Sydney:

18 November.

 1   [2013] FWC 2813

 2   PR526026

 3   Some of the applicants had earlier been employed by Feyman or FP Group but had left and later returned.

 4   Decision at [828]

 5   Decision at [882]

 6   Decision at [868]-[880]

 7   (2011) 198 FCR 174

 8   (2003) 133 FCR 438

 9   Decision at [877]-[878]

 10   See Dalgety Farmers Ltd t/as Grazcos v Bruce (1995) 12 NSWCCR 36 at 47; Re of C&T Grinter Transport Services Pty Ltd (in liq) & Grinter Transport Pty Ltd (in liq)(controller appointed) [2004] FCA 1148 at [20].

 11   See Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174 at [63], [67]

 12   (2011) 198 FCR 174 at [120]

 13   Decision at [837]-[840], [845]-[856]

 14   (1990) 34 IR 297

 15   The Accident Compensation Act deemed certain non-employment relationships to be employment relationships for the purpose of the Act. In other litigation, it was determined that TSA engaged its tradespersons under contracts for services, not employment contracts: Odco Pty Ltd v Building Workers’ Industrial Union of Australia [1989] FCA 483 and on appeal Building Workers’ Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104.

 16   At 299

 17   At 301

 18   (2004) 144 IR 1 at 23-24

 19   Decision at [819]-[827]

 20   Appeal Book 2710-2717

 21   Homecare Direct Shopping Pty Ltd v Gray [2008] VSCA 111 at [48]-[50]

 22   See Morgan v Kittochside Nominees Pty Ltd (2002) 117 IR 152 at [74]

 23   [2004] SAIRComm 13

 24   The State of Queensland v Whiteman [2006] QSC 325 at [4]; Australian Salaried Medical Officers' Federation (New South Wales) o-b Bruce Milne Hall v Sydney South West Area Health Service (No 2) [2007] NSWIRComm 243 at [75].

 25   [2011] FCA 803

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