79 Majik Markets concerned a franchise agreement and a lease of premises. Majik Markets was a company within the Caltex group of companies. It entered into franchise agreements with independent contractors who were either corporate entities or individuals for the operation of convenience stores on land owned by the franchisor and for the sale of motor fuel purchased from the franchisor. The agreement was expressed as a "licence and authority to operate a Majik Market convenience retail store and petrol service facility at the premises and to use in connection therewith the Trademarks and the Majik Market System and other property provided by the company". A condition precedent to the operation of the agreements was that persons nominated in the agreements should have completed a relevant training programme, details of which were set out in a schedule to the agreements. Those nominated persons were, under the terms of the agreements, required to:
Devote ... their full time personal attention and effort to the conduct, operation and management of the Business and at all times whilst the premises are open for business, ..maintain adequate personnel to facilitate the checking out and handling of orders, including the dispensing of motor fuel and other needs of customers so as to avoid any unnecessary delay to and on the part of customers.
80 Other provisions of the agreement provided that the franchisees staff the premises with:
Uniformed, competent and adequately trained personnel who shall maintain a high standard of sanitation cleanliness and demeanour.
81 Mahoney JA held that the "purpose" of the agreements was that the nominated persons should perform work in the activities referred to in the agreements. His Honour added (at 459):
I am conscious that the franchise agreements contemplate and intend that the franchisees will become the proprietors of businesses, that they may acquire assets, and that they will, as proprietors or otherwise, be involved with the operation of those businesses. But the work to be done in the industry in which the business is to operate was, in my opinion, to be done not merely as a means of carrying out another purpose, viz, the setting up and conduct of a business by the franchisees but was, in the relevant sense, the purpose which the agreement sought to achieve: it was, in my opinion,
the purpose of Majik that that work should be done and accordingly the petroleum and other products should be sold and it was the purpose of the franchisee that they would do or cause to be done such things.
Mr Conti QC did not, I think, contest that it had been held that the section applied in cases where the work to be done was to be done by independent business persons or contractors. The arrangement referred to in, for example, Caltex Oil (Australia) Pty Ltd v Feenan [1981] 1 NSWLR 169, involved or contemplated such things. In Stevenson v Barham , the share farmer in question would or might well have been, in this sense, an independent businessman or contractor.
82 A submission made on behalf of Majik Markets before the Court of Appeal was that a contract for the outright sale of a business to a proprietor who intends to be a working proprietor is not within s 88F (a predecessor provision to s 106). It was also submitted that the franchise agreements did not have an "industrial colour or flavour" and were not entered into as stratagems to avoid employment relationships. It was further submitted that they were akin to agreements for the outright sale of a business. The Court of Appeal found otherwise. Handley JA said on the issue (at 464-465):
The franchisees are independent contractors conducting retail businesses on land of the franchisor and selling motor fuel purchased from the franchisor. The franchisees, or in some cases their employees, work in the businesses both in consequence of the agreements and in fulfilment of them. The form of agreement requires the franchisee to perform work in the retail industry either personally or through employees and therefore it leads directly to the performance of work in that industry. The franchisor has a real interest in the performance of that work. It results in the sale of motor fuel purchased from the franchisor and tends to maintain and improve both the value of its general goodwill, and the value of the local goodwill attached to its premises. While the franchisees, if natural persons, are working for themselves, they are also in a very real sense working for the franchisor. If the business was not operated by some franchisee, the franchisor would either have to employ staff of its own or sell or lease the site to an independent purchaser or lessee. In my opinion the decision of this Court in Production Spray Painting and Panel Beating Pty Ltd v Newnham establishes that the franchise agreements
are contracts whereby work is performed in an industry either by, or on behalf of, the franchisees. Indeed so far as jurisdiction is concerned the present agreement, in my opinion, is indistinguishable from that in Caltex Oil (Australia) Pty Ltd v Feenan , where this Court and the Privy Council upheld the jurisdiction of the Commission. The matters relied upon by Mr Conti may establish that the agreements are not unfair or within any of the other grounds for relief under s 88F, but they do not establish that these are not agreements whereby work is performed in an industry.
83 The terms of the licence, which required the Feenans to carry on business "for any period during lawful trading hours on any day", substantially mirrors cl 9.6 of the SDC under which the respondent must be able to deliver to customers seven days a week and at times of the day and night which meet the reasonable requirements of the designated customers of the contractor. Like the Feenans, the respondent also carried on business for itself as an independent contractor. Through the Trust it employed operators, including Mr Reilly, to perform the work. Like the licence under which the Feenans operated their business, persons were employed in the respondent's business to deliver the appellant's products.
84 On the other hand, there are distinguishing features. The respondent, under the SDC, is not required to exclusively deliver the appellant's products. As the appellant had sought to emphasise in its submissions, no individual person is required under the SDC to devote their full time and attention to the performance of its terms. The respondent is not prohibited from operating other businesses concurrently with the delivery of the appellant's products, although, under cl 13.2, the appellant's prior written consent (which could not be "unreasonably withheld") is necessary before the respondent can sell or deliver any other products. The SDC is also one step removed from the licence agreement the subject of the judgments in Caltex. The Feenans, as parties to the agreement, performed work as independent proprietors. Mr Reilly's role, as a director of the respondent working as an operator, may be characterised as that of independent proprietor but he was not, like the Feenans, a party to the contract.
85 Majik Markets also exhibits a number of features in common with the SDC. It is an authority for a proposition that s 106 contemplates that persons performing work under a contract may be business proprietors or independent contractors. The respondent here is a corporation, however, this feature did not assume any particular significance for the Court of Appeal (or the Privy Council) in Majik Markets, as some of the franchisees were clearly corporate entities as well as natural persons. Moreover, the franchises, in some cases, employed persons to work in the business. This fact was not considered to be capable of impacting on a positive finding of jurisdiction in McDonald's Australia Holdings Ltd v Industrial Relations Commission of New South Wales (2005) 144 IR 219 at [99]; see also Caterpillar of Australia Pty Ltd v Industrial Court of New South Wales (2009) 255 ALR 131 (at [137], [139]).
86 McDonald's concerned a grant of licences to use the McDonald's system. McDonald's granted licences and lease agreements to McLaughlin's Family Business (MFB) and Max William McLaughlin (Mr McLaughlin). Mr McLaughlin was the sole director of MFB, and was identified as the Principal in each licence and lease agreement. Under the licences, the McDonald's system included proprietary rights in trademarks, design and colour schemes for restaurant buildings, signs, equipment layouts, formulae and specifications for certain food products and bookkeeping and manuals covering business practices and policies. The licensee was required to adhere strictly to the system. One condition of entry into the agreements was that the licensee must work full-time at the McDonald's restaurant business. The licences contained provisions for the payment of the licences and service fees. The service fee was computed in accordance with undertakings set out in the licences which the licensee was obliged to give including operating the restaurant in a clean, wholesome manner, making necessary repairs and replacements to ensure the restaurant building and parking areas were in good condition, operating the restaurant seven days a week throughout the year, and causing all employees to wear uniforms of a type and design specified by the licensor.
87 Clause 6.05 of the licence agreements required the licensee, "or where the licensee is a company, Principal", to personally devote "his full time and attention to and devote his best efforts in the operation of the restaurant". Under cl 10 of the licence agreement, the licensee could assign his interest in the agreement but not without the prior written consent of the licensor. Clause 19 dealt specifically with corporate licensees requiring it (and the Principal) not to amend its constitution without the prior written consent of the licensor.
88 Under the leases, the lessee was obliged to use and occupy the lessor's premises only for a McDonald's System restaurant. The leases also contained provisions for the payment of rent which included adjustment with respect to gross sales.
89 Spigelman CJ, in the minority, found himself bound by earlier High Court authorities which had examined the issue of jurisdiction. His Honour referred to Stevenson v Barham (1977) 136 CLR 190 and Brown v Rezitis (1970) 127 CLR 157 which his Honour said "were decided at a time when courts were prone to apply a more narrowly literalist approach to the task of statutory interpretation than is the case today". The correct approach, his Honour said, was purposive. The failure to adopt a purposive approach, his Honour said (at [6]), was made plain by Barwick CJ in Stevenson v Barham. In that judgment, Barwick CJ said:
Notwithstanding the wide language of s 88F, I have found difficulty in becoming convinced that it was within the contemplation of the legislature that agreements for business ventures, of which the present may be a specimen, freely entered into by parties in equal bargaining positions, should be so far placed within the discretion of the Industrial Commission as to be liable to be declared void. However, I have come to the conclusion that the language of s 88F of the Act is intractable and must be given effect according to its width and generality. The legislature has apparently left it to the good sense of the Industrial Commission not to use its extensive discretion to interfere with bargains freely made by a person who was under no constraint or inequality, or whose labour was not being oppressively exploited.
90 Spigelman CJ emphasised the modern approach to the importance of context (to be taken into account in the first instance and not merely after ambiguity has been identified) when construing a statute. His Honour acknowledged that he remained bound by the earlier High Court authorities, but considered that the industrial context of s 106 remained pertinent when applying "the Stevenson v Barham test" (a determination as to when the requisite connection between an impugned contract and the performance of work is sufficiently "direct"). His Honour concluded (at [50] and [51]):
Unconstrained by the authority of Stevenson v Barham , I would have concluded that a contract with a person in his or her capacity as a proprietor of a business was not a contract "whereby a person performs work in any industry" within s 106 of the Act. That is not to say that the Court would not pay careful attention to the substance rather than the form of any contractual arrangement.
It would not avail parties to seek to avoid s 106 by evasions and subterfuges. (See Brown v Rezitis at 164; Solution 6 at [76].) Simply because a person was in form an independent contractor, and could be said to be running his or her own business, would not be determinative. However, the literalist test adopted in Stevenson v Barham , which this Court must apply, prevents the Court from concluding that the role performed by a proprietor of a business as such is not encompassed by the statutory formulation of "performance of work in an industry".
91 Spigelman CJ also saw no differences of any significance between the McDonald's agreements and those agreements considered in Caltex v Feenan and Majik Markets (at [65]). In particular, his Honour found that cl 6.05, which required Mr McLaughlin to devote his full-time and personal attention and to exercise his best efforts in the operation of the restaurant, was "closely analogous to a similar clause in Majik Markets". His Honour also found persuasive the "considerable emphasis" in the McDonald's licences given to the personal involvement on a full-time basis of the individuals who own the equity in the business.
92 Handley JA, with whom Mason P agreed, came to a different conclusion with regard to the McDonald's set of agreements. His Honour, in particular, focused on an aspect of the evidence which revealed that MFR, "currently employs in excess of 350 employees of which about 20 to 25 employees are full-time". In that regard, his Honour said (at [93]-[96]):
However, I am unable to agree that these four transactions, comprising leases and licence agreements, collectively or separately are contracts, agreements or arrangements (contract) whereby Mr McLaughlin performs work in an industry within the meaning of s 106(1). In his affidavit of 4 April 2005 filed in this Court Mr McLaughlin said (para 98) that his company "currently employs in excess of 350 employees of which about 20 to 25 employees are full-time".
Franchise agreements with a working proprietor or proprietors were held to be within the jurisdiction of the Commission under the predecessor of s 106 in Caltex Oil (Aust) Pty Ltd v Feenan [1981] 1 NSWLR 169 (PC) and Majik Markets Pty Ltd v Brake & Service Centre Drummoyne Pty Ltd (1991) 28 NSWLR 443; 39 IR 169. The Chief Justice holds that these cases cannot be distinguished and since the subject contracts require Mr McLaughlin to work fulltime in the business they are contracts whereby he performs work in an industry.
It seems to me, with respect, that this view involves an over literal construction and application of the section. The earlier franchise cases in the superior courts did not involve contracts with a working proprietor who employed a workforce of this magnitude.
93 Handley JA nevertheless agreed (at [99] and [100]) with Spigelman CJ that the franchise agreements in Caltex v Feenan and Majik Markets fell within s 106. His Honour's view was expressed as follows:
I have no difficulty in characterising the franchise agreements in Feenan and Majik Markets as contracts within the section although they contemplated the employment of additional staff by the franchisees. The Court could also find, without difficulty, that the terms of the contract had a recognisable and direct impact on the working conditions and remuneration of the proprietors.
No such conclusion is open on the facts of the present case. The impact of particular clauses in the leases and licenses on Mr McLaughlin's remuneration and profits would be anything but recognisable and direct.
94 The importance of industrial context within which s 106 is said to operate was also raised by Handley JA. After extracting a passage from Barwick CJ's judgment in Brown v Rezitis (which dealt with the avoidance of subterfuges as a purpose of s 88F), Handley JA said (at [101] and [102]):
Barwick CJ recognised that the section is not confined to contracts of that character but nevertheless it seems to me that its basic purpose was to provide a safety net for workers or persons in the position of workers. In my judgment the present application to the Commission attempts to turn the section on its head.
Characterisation of a contract to determine whether it is within the jurisdiction of the Commission under s 106 will raise questions of fact and degree in franchise cases near the borderline and the decision may not be an easy one. However there is no difficulty in the present case where the working proprietor's company employs some 350 staff. The distinction is one of substance, not form, and the Commission, in the words of Barwick CJ in Brown v Rezitis at 164, can uncover the real transaction between the parties. The real transaction here does not have to be uncovered, and it is not a contract whereby Mr McLaughlin works in an industry.
95 The central question posed by the High Court for consideration in Fish is contained in the following extract of the judgment of the majority (Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ) (at [17]):
The central question in this appeal, and in the two other appeals heard at the same time, is whether the contract which the applicants in the Commission sought to have declared wholly or partly void, or sought to have varied, was a "contract whereby a person performs work in any industry". In this and in the other appeals, other questions arise but before identifying those other questions, it is as well to begin by identifying what, uninstructed by any of the decisions on the construction of s 106 or its legislative predecessors, is the proper approach to determining its application to particular facts and circumstances.
96 The same question arises for consideration in this appeal. We have already referred to the proper approach to the construction of s 106, identified by the majority judgment in Fish.
97 Fish was an appeal from the Court of Appeal judgment in Solution 6 Holdings Ltd v Industrial Relations Commission of New South Wales (2004) 60 NSWLR 558; 137 IR 123. The agreement under consideration in Fish was a share purchase agreement under which Nisha Nominees Pty Ltd had agreed to sell its shares in Fish Tech and Partners Pty Ltd to Solution 6 Holdings Ltd. Nicholas Terence Fish, who was a party to the share purchase agreement, made a separate agreement with a subsidiary of Solution 6 Holdings by which it was agreed that he would be employed by Solution 6 Holdings. The share purchase agreement provided that completion of the share purchase would not proceed unless Mr Fish had entered into an employment contract with Solution 6 Holdings. It was a term of the share purchase agreement that Nisha could sell its shares if Mr Fish's employment was terminated otherwise than for cause or by him. In November 2001, following the completion of the share purchase agreement, and after a substantial fall in the share price, Mr Fish was made redundant and his employment was terminated.
98 In the Court of Appeal judgment, a number of provisions of the share purchase agreement were identified. These included cl 2.1(a) which provided that a pre-condition for completion of the share purchase agreement was that Mr Fish enter into an employment contract with Solution 6 Holdings. Other provisions which dealt with pre-conditions to completion of the share purchase agreement were that key employees not resign or express an intention to do so (cl 2.1(c)) and that Nisha use its best endeavours to ensure that the conditions in cl 2.1(a) and (c) were satisfied. Under cl 14.1, Mr Fish and Nisha were obliged to use their best endeavours to ensure that contractors and employees remained contracted to or in the employ of Fish Tech (see Solution 6 Holdings at [37]). Spigelman CJ (with whom Mason P and Handley JA agreed) held that the share purchase agreement was not a contract within the meaning of s 106 "whereby work is performed in any industry". The relationship between the share purchase agreement and the performance of work was, his Honour said, "indirect or consequential, rather than direct" (at [53]).
99 The majority judgment of the High Court in Fish came to the same conclusion (at [42]and [43]):
The share purchase agreement made by Nisha and Mr Fish stipulated that Mr Fish's entering an employment contract with Solution 6 Holdings was a condition precedent to completion of the share purchase. (Nothing was said to turn on the fact that the employment agreement that was made was an agreement with a subsidiary of Solution 6 Holdings.) The employment agreement that was made and the share purchase agreement were therefore related and one may well be described as collateral to the other.
After the two agreements were made and the share purchase agreement was completed, Mr Fish performed work in an industry. But when one asks what was the "contract" whereby he performed that work, the answer does not include the share purchase agreement. Neither the share purchase agreement as a whole, nor the particular provisions of it which are now said to be or to have become unfair or against the public interest, constituted a contract, an arrangement, a related condition or a collateral arrangement whereby Mr Fish performed work in an industry. That being so, the Commission has no jurisdiction to declare the share purchase agreement or any of its particular provisions void, or to vary that agreement or any of those provisions.
100 The majority judgment in Fish also emphasised the importance of industrial context in which s 106 is intended to operate (see, for example [11]; [13]; [15]; [21]; [34]; [36]-[41]). The theme was again taken up in Caterpillar.