Implied Contracts
151 We need to consider in more detail the cases in which a contract between a worker and an intermediary has been held to be ineffective and where a contract between the worker and the end-user has been implied from their conduct. There are a number of examples in the cases where attempts to interpose a third party between an employer and its employee have failed because the contractual arrangements put in place to achieve that purpose were held to be ineffective. Many of the Australian cases concern an intermediary that was a related corporation of the putative employer: Textile Footwear & Clothing Union of Australia v Bellechic Pty Ltd [1998] FCA 1465; Fair Work Ombudsman v Eastern Colour Pty Ltd (No 2) [2014] FCA 55; but see Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461 where the related company was found to be the true employer.
152 Damevski concerned arrangements made by an employer (Endoxos) to interpose between it and its employees a labour-hirer called "MLC" which would provide independent contractors. Endoxos informed the employees that there would be a restructure of its operations and that all of its employees would be offered work through the labour-hirer. Endoxos told its employees that "nothing would change", but that if they did not sign up with the labour-hirer, they would not have any work. The employees would continue to perform the same work for clients of Endoxos but do so as independent contractors of the agency. In response to a letter from Endoxos, an employee (Damevski) advised Endoxos that he agreed to accept the labour-hirer's offer, "as detailed in the information pack delivered to me". Damevski resigned from his employment with Endoxos with effect from 19 August 2001. The information pack referred to in Endoxos' letter included a "Contractor Guide" which described the labour-hirer as providing the administrative services of a contractor management agency to bona fide self-employed contractors. A document entitled "Agreement to Contract" (in terms similar to the Agreement to Contract) was included in the information pack. It was unclear whether that document was executed by Damevski. A "Hiring Agreement" was made between Endoxos and the labour-hirer under which the labour-hirer purported to supply Endoxos with its former employees as independent contractors. The rates charged by the labour-hirer included an "administration charge" and were also inclusive of the cost of the labour-hirer meeting "all statutory obligations for the contractor" (ie income tax deductions, workers' compensation insurance, payroll tax and superannuation).
153 After Damevski resigned from his employment with Endoxos on 19 August 2001, he continued to work exclusively at the direction of Endoxos, in the same manner as he had previously done as an employee of Endoxos. Damevski continued to wear Endoxos' uniform and use Endoxos' tools. He submitted timesheets to both Endoxos and the labour-hirer. Endoxos paid the labour-hirer for Damevski's services and Damevski was paid fortnightly by the labour-hirer. About two months after the new arrangement took effect, Damevski's rate of pay was increased. This occurred at the instance of Endoxos. Several months into the arrangements, Damevski registered a business name. Some six months after the arrangements took effect, Endoxos informed Damevski that he was being "taken off the job".
154 Damevski applied to the Australian Industrial Relations Commission (AIRC) claiming that he had been unfairly dismissed by Endoxos. His application was struck out on the basis that Endoxos was not his employer. The issue before the Full Court in Damevski was whether the AIRC had incorrectly determined that Damevski was not employed by Endoxos. The Full Court determined that on or after 19 August 2001, Endoxos re-employed Damevski and that Damevski was an employee of Endoxos at the time that he was informed that his services were no longer required. Marshall J (with whom Wilcox J agreed) came to that conclusion on the basis that the existence of a contract of employment between Damevski and Endoxos was to be implied from their conduct. The other member of the Full Court (Merkel J) reasoned that as the agent of Endoxos, the labour-hirer re-engaged Damevski to be Endoxos' employee.
155 In order to arrive at the conclusion that an implied contract of employment existed between Endoxos and Damevski, Marshall J considered whether or not the arrangements made as between Endoxos and the labour-hirer, and between the labour-hirer and Damevski, were legally effective. At [48], Marshall J stated that "[t]here was no clear and unambiguous contract" between the labour-hirer and Damevski, as the only evidence of any agreement (Damevski's response to Endoxos' letter) was that Damevski agreed with Endoxos to accept the labour-hirer's offer. However, assuming that there was a contract between Damevski and the labour-hirer, Marshall J concluded that it was questionable whether that contract "was ever fulfilled or exercised by either party" (at [49]). Marshall J considered that to be so because, if the terms and conditions of such a contract were to be discerned from the labour-hirer's information pack which Endoxos provided to Damevski, the arrangements there detailed bore little resemblance to what the parties actually did.
156 Part of that disparity between the arrangements as documented in the material in the information pack and the actuality of what occurred was that Damevski was not a "bona fide" independent contractor (at [50]). At [53]-[56] under the heading "Was Mr Damevski an independent contractor?", Marshall J said:
53 There is no evidence in the current case of Mr Damevski providing his services as an independent contractor, using the introduction and administrative services of MLC.
54 The arrangement detailed in the information pack would have Mr Damevski as an independent contractor running his own cleaning business, calling MLC when he was available for work and being directed to various companies holding contracts to clean government and private premises. In running his own business, Mr Damevski would presumably also build his own contacts and provide cleaning services outside of his arrangement with MLC. To maintain consistency in his workflow he would "stay in contact" with MLC.
55 To argue that the above occurred in the present case is to defy reality.
56 The only evidence used to show that Mr Damevski actually performed the role of an independent contractor is that, as requested, he registered a business name 18 days before he was allegedly terminated. There are no other indicators that would suggest Mr Damevski was engaged in his own "economic enterprise": see Country Metropolitan Agency Contracting Services Pty Ltd v Slater (2003) 124 IR 293 and Dacas v Brook Street Bureau (UK) Ltd [2003] IRLR 190.
157 Merkel J also considered whether any contracts made between Endoxos and the labour-hirer, and between the labour-hirer and Damevski, were effectual. At [172], his Honour concluded that Endoxos had failed to achieve its intended outcome that its workforce would perform its work as independent contractors. In that respect, Merkel J made a number of observations about the conduct of the parties, including (at [172(3)]):
All of the relevant features of Damevski's employment, save for the manner and quantum of payment, remained unchanged. Damevski did not supply any of the equipment required to perform his services. Viewed as "a practical matter" Damevski did not conduct his own business or enterprise or have any independence in the conduct of the cleaning services he provided to Endoxos. Little skill or training was necessary for him to carry out his services. Neither Damevski, or his putative agent AICA/MLC, had any real scope for bargaining for rates of remuneration. Damevski could not take work or annual leave as and when he wanted. His tools and equipment were provided by Endoxos, which controlled and directed where, when and how he was to work. Applying the factors relied upon in the joint judgment in [Hollis] it is clear that, notwithstanding the labels employed by the parties, Damevski provided his services to Endoxos as from 19 August 2001 as an employee, rather than as an independent contractor.
158 In Damevski, Marshall J held that the existence of a contract of employment was to be implied from the conduct of Damevski and Endoxos. At [81]-[88], his Honour considered contractual formation by reference to a range of authorities including Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 and Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309. Marshall J noted that whilst the existence of a contract is not to be lightly implied, informality in contractual formation is not uncommon. The law takes a practical approach to contractual formation despite the technical and schematic nature of the doctrine of contract. The existence of an intention to create contractual relations, offer, acceptance and consideration may be evinced from conduct, with post-contractual conduct being admissible on the question of whether a contract was formed. Marshall J largely relied on the fact that Damevski returned to work for Endoxos in circumstances where the labour-hirer had no relevant role and nothing had changed. Endoxos continued to maintain control over Damevski. It directed his work and provided his equipment and attire. His Honour concluded that by their conduct, each of Endoxos and Damevski evinced an intention to re-enter an employment relationship on the same terms and conditions under which Damevski and previously worked for Endoxos.
159 Not long after Damevski was handed down, the first of a series of judgments on implied contracts arising out of triangular work arrangements was delivered by the English Court of Appeal. The most prominent of those judgments are Brook Street Bureau, Cable & Wireless, and James.
160 Those authorities were discussed and followed by Neave and Kellam JJA and Forrest AJA in Homecare Direct Shopping. The issue before the Victorian Court of Appeal was whether a worker engaged in selling products on behalf of a retailer was the employee of the retailer. Two formal standard form contracts prepared by the retailer were considered. The first, between the retailer and an individual designated as the retailer's "Area Manager" provided that the Area Manager was an "independent Agent" of the retailer who would buy and resell, either directly or through "Sub-Agents (Distributors)", the retailer's products to the public in a defined region. By an agreement made between the Area Manager and the worker, the worker was appointed as an "independent Sub-Agent/Distributor" for the stated purpose of soliciting sales of the retailer's products on the Area Manager's behalf.
161 By the time the litigation reached the Court of Appeal, it was not disputed that the worker was an employee. The only issue was whether she was employed by the Area Manager or the retailer. The trial judge found that a contract of employment existed between the worker and the retailer. The trial judge reasoned that the Area Manager, as the agent of the retailer, had effectuated an employment contract between the retailer and the worker. Alternatively, the trial judge was satisfied that an implied contract of employment was made between the retailer and the worker.
162 The Court of Appeal agreed that the retailer had contracted with the worker through its agent the Area Manager. The Court also set out its conclusions as to whether the trial judge was correct to find an implied contract and concluded that it was open for the trial judge to have done so.
163 Forrest AJA (with whom Neave and Kellam JJA agreed) began his Honour's consideration of that issue by noting at [62] that whether a contract exists between two parties is a question of fact which has to be determined within a legal framework which recognises that a contract may be implied between parties. His Honour then considered the legal principles, including those dealt with by the English authorities to which we have already referred, in an analysis with which we respectfully agree. At [64]-[70], his Honour said:
[64] The law has recognised for centuries that the objective assessment of the conduct of the parties may lead a Court to infer that the parties intended to create a contractual relationship. For instance, in Young v Moller, a bill of lading case, Baron Parke said:
No doubt where a cargo is received under a bill of lading, that, though not necessarily raising a contract in law, is evidence from which a jury may infer a contract to pay freight, in consideration of the captain giving up his lien on the goods.
Over the years, there have been many such cases in which contracts have been inferred between parties other than those originally party to a particular bill of lading. Those authorities were assembled and considered by the English Court of Appeal in The Aramis in which Bingham LJ concluded:
These cases may be said to decide no more than that whether a contract is to be implied is a question of fact and that a contract will only be implied where it is necessary to do so.
[65] In recent years in the United Kingdom that line of authority has been applied to cases involving the outsourcing of labour by the use of labour hire arrangements. On occasions courts have considered the implication of a contract of service between labour hire employees and those whose workforce they had been integrated into absent any express contract - in a situation where it is accepted that the employee has a parallel enforceable contract with the labour hire organisation.
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[66] In Brook Street Bureau (UK) Ltd v Dacas the English Court of Appeal was required to determine whether a person engaged as a cleaner pursuant to a labour hire agreement was an employee of either the labour hire company or the end user, a local council. Although the case turned on establishing a 'contract of service', there was a thorough analysis by the Court of the implication of a contract in the context of the performance of work by one person for another. Mummery LJ said:
The statutory definition of a contract of employment as a "contract of service" expressly includes an "implied" contract. This should not be overlooked. I think that it has been. Like other simple contracts, a contract of service does not have to be in any particular form. Depending on the evidence in the case, a contract of service may be implied - that is, deduced - as a necessary inference from the conduct of the parties and from the circumstances surrounding the parties and the work done. As already indicated, the overall situation under consideration is shaped by the triangular format used for the organisation of the work: the applicant, the employment agency and the end-user are all involved. Each participant in the triangular situation may have an express contract with either one of, or with each of, the other two parties.
The critical point is that, although the construction of the contractual documents is important, it is not necessarily determinative of the contract of service questions, as contractual documents do not always cover all the contractual territory or exhaust all the contractual possibilities. In determining the true nature of the relationship (if any) between each of the respective parties, it is necessary to consider the total situation occupied by the parties. The totality of the triangular arrangements may lead to the necessary inference of a contract between such parties, when they have not actually entered into an express contract, [either written or oral, with one another. Although there was no express contract] between the applicant and the end-user in this case, that absence does not preclude the implication of a contract between them. That depends on the evidence, which includes, but may not be confined to, the contractual documents. (My emphasis.)
[67] These statements are consistent with what was said by the High Court in Ermogenous: the search for whether a contract exists may not be confined to an examination of the terms of a particular contractual document. In certain cases, of which I think this is one, it is the whole of the circumstances viewed objectively that will determine whether a contract exists or not. Indeed, this has consistently been the approach of the High Court in determining the characterisation of contracts where one party carries out work for the benefit of another: Dietrich v Dare; Stevens v Brodribb, Hollis v Vabu. Moreover, the Act itself, by s 5, envisages a contract of service being either express or implied.
[68] It is, therefore, both permissible and, in this case, I think, necessary to look outside the express terms of the distributor agreement to determine whether there was a separate contractual arrangement between Homecare and the respondent in relation to the work carried out by her for Homecare's benefit.
[69] I return to Brook Street Bureau and what was said by Sedley LJ:
The argument for Wandsworth proceeds from the fact that it had no written agreement of any kind with Mrs Dacas to the submission that there was accordingly nothing into which any terms could be implied. This, however, misses the critical point that there are more means of expressing mutual intentions than putting them in writing. In the field of employment it is not uncommon to find that a contract of employment has come into being through the conduct of the parties without a word being put in writing or even, on occasion, spoken. In particular, conduct which might not have manifested such a mutual intention had it lasted only a brief time may become unequivocal if it is maintained over weeks or months. Once the intention to enter into an employment relationship is so expressed, the common law will imply a variety of terms into it and simultaneously will spell vicarious liability out of it; and statute will add a series of other rights and obligations. (My emphasis.)
[70] Brook Street Bureau has subsequently been considered on several occasions by English courts [Cable & Wireless; Hudson Contract Services v Her Majesty's Revenue and Customs [2007] EWHC Civ 73 (Ch); and James]. My analysis of these cases is that there has been no departure from the principles set out in Brook Street Bureau. The question in these subsequent cases, as here, is whether the facts, including the nature and terms of any written agreements, support the implication of a contract between the relevant parties.
164 The factual matters which Forrest AJA regarded as supportive of an implied contract between the retailer and the worker included that the worker sold the retailer's products for the retailer's benefit; the retailer determined whether the worker would sell its products, where she would work and what goods she would sell; all the goods, catalogues and documentation for the sales were prepared and provided by the retailer; if the worker engaged in activities prejudicial to the retailer's interests, she was in breach of her distributor agreement; the worker's mode of selling, rate of commission and accounting for her sales was determined by the retailer; it was up to the retailer to decide whether it accepted sales orders obtained by the worker; on occasions the worker would account directly to the retailer for the sale of its products; there was no re-selling of goods by the Area Manager to the worker. In that setting, Forrest AJA reasoned, there were mutual benefits to both the retailer and the worker - the retailer sold its products and the worker received payments for such sales.
165 The judgments of the English Court of Appeal in Brook Street Bureau and Cable & Wireless had earlier been considered by this Court in Wilton v Cole & Allied Operations Pty Ltd (2007) 161 FCR 300. In Wilton, the central issue was whether workers working in a coal mine were employees of the operator of the coal mine or employees of the labour-hirer engaged by the operator to supply supplemental labour. Conti J rejected the contention that the workers were employees of the operator. His Honour concluded (at [187]) that "in substance and reality" each of the workers was an employee of the labour-hirer. Whilst a range of matters may have been indicative of a direct employment such as the workers working side by side with, in the same manner as, and under the same control as, the direct employees of the operator, those circumstances were regarded by Conti J as explained by the labour-hire contractual arrangements in place as between the workers and the labour-hirer and the labour-hirer and the operator. There was no suggestion in that case that the labour- hirer arrangements were either artificial or ineffectual. Conti J distinguished the conclusion of implied contracts arrived at in both Damevski and in Cable & Wireless. His Honour regarded the approach taken in those cases as instructive of the approach to be taken by a court where an employer has sought "to restructure an existing employment relationship into a framework of labour hire" (at [172]-[173]).
166 In Wilton, Conti J expressed reservations about the "notion of implied relationships of employment" at [182] and considered that there was no good reason for imputing that notion to the circumstances of that case and more generally to the "context of labour hirer arrangements". As we read his Honour's reasons, the reservations are twofold. First, his Honour expressed some concern about whether the approach taken in Brook Street Bureau as to the need to demonstrate intention to create legal relations was out of step with the approach in Australia, including as explained in the High Court in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95. With respect to his Honour, consistently with the view of the Victorian Court of Appeal in Homecare Direct Shopping (at [63], [66] and [67]), we do not consider the observations of Mummery LJ in Brook Street Bureau to be inconsistent with what was said in Ermogenous. Secondly, the doubt expressed at [182] by Conti J about the applicability of an implied contract analysis to establish a contract between a worker and end-user in a labour-hire setting is a doubt, as we see it, about the capacity for such an implication to be made where the hallmarks of a genuine labour-hire arrangement exists. So much may be gleaned from [183] where Conti J relied upon the distinction made by Merkel J in Damevski at [174] between the facts of Damevski and the facts of cases in which courts have found an effective contractual relationship between labour-hirer and worker. At [174] of Damevski, in a passage also referred to by Buchanan J in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174 at [68] to make the same point, Merkel J said:
However, the present case differs in significant respects from those cases. In those cases, in general, the hiring agency interviewed and selected the workers, and determined their remuneration, without reference to the client. Usually, a client requesting a worker with particular skills was provided with one, who may or may not have been "on the books" of the hiring agency at the time the order was placed. The workers of such hiring agencies were usually meant to keep the agency informed of their availability to work, and in many cases were not to agree to undertake work for the client which had not been arranged or directed by the hiring agency. Equipment was either supplied by the worker themselves, or by the hiring agency, except for specialist safety equipment which the client often supplied. Dismissal of a worker was only able to be effected by the hiring agency. The client can only advise the hiring agency that the particular worker is no longer required by it.
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167 There will be limited scope for the implication of an employment contract between a worker and an end-user in a triangular setting, where the provision of a worker to the end-user is explained by the presence of a genuine labour-hire arrangement evidenced by the existence and performance of the hallmarks that such arrangements commonly bear.
168 That limitation is also recognised in the United Kingdom, where an employment contract will not be implied in a labour-hire setting where "it is not necessary to imply one in order to explain the work undertaken by the worker for the end-user": James at [51] and [52], Mummery LJ (with whom Thomas and Lloyd LJJ agreed). The reference made to necessity, as the observations at [23] and [63] of James suggest, is a reference to the necessity to "give business reality to what was happening" taken from the test of necessity for implying a contract enunciated by Bingham LJ in The Aramis (1989) 1 Lloyd's Rep 213 at 224.
169 In James at [29], Mummery LJ referred with approval to what he identified as helpful observations made by Elias LJ in the decision below (before the Employment Appeals Tribunal, published as James v London Borough of Greenwich [2007] IRLR 168) about how tribunals might approach the question of whether to imply a contract between a worker and an end-user. Of the observations made by Elias LJ, the following are most pertinent to the issues raised in this case (at [57]-[58] and [60]):
[57] …Provided the arrangements are genuine and the actual relationship is consistent with them, it is not then necessary to explain the provision of the worker's services or the fact of payment to the worker by some contract between the end-user and the worker, even if such a contract would also not be inconsistent with the relationship. The express contracts themselves both explain and are consistent with the nature of the relationship and no further implied contract is justified.
[58] When the arrangements are genuine and when implemented accurately represent the actual relationship between the parties - as is likely to be the case where there was no pre-existing contract between worker and end-user - then we suspect that it will be a rare case where there will be evidence entitling the tribunal to imply a contract between the worker and the end-user. If any such a contract is to be inferred, there must subsequent to the relationship commencing be some words or conduct which entitle the tribunal to conclude that the agency arrangements no longer dictate or adequately reflect how the work is actually being performed, and that the reality of the relationship is only consistent with the implication of the contract. It will be necessary to show that the worker is working not pursuant to the agency arrangements but because of mutual obligations binding worker and end-user which are incompatible with those arrangements.
[60] It will, we suspect, be more readily open to a tribunal to infer a contract in a case like Muscat where the agency arrangements were super-imposed on an existing contractual relationship. It may be appropriate, depending on the circumstances, to conclude that arrangements were a sham and that the worker and end-user have simply remained in the same contractual relationship with one another, or that even if the intention was to alter the relationship that has not in fact been achieved. That may be legitimate, for example, where the only perceptible change is in who pays the wages. In such a case the only effect of the agency arrangements may be to make the agency an agent of the employer for the purpose of paying wages. However, in these cases the tribunal is not strictly implying a contract as such but is rather concluding that the agency arrangements have never brought the original contract to an end.
170 Consistently with those observations, at [30] Mummery LJ said:
[30] … In the agency worker cases the problem in implying a contract of service is that it may not be necessary to do so in order to explain the worker's provision of work to the end user or the fact of the end user's payment of the worker via the agency. Those facts and the relationships between the parties are explicable by genuine express contracts between the worker and the agency and the end user and the agency, so that an implied contract cannot be justified as necessary.
171 More recently, in Tilson v Alstom Transport [2010] EWCA Civ 1308, Elias LJ (with whom Pitchford and Arden LJJ agreed) dealt with the same question of when a contract can be implied. Elias LJ confirmed (at [8]) the approach taken to that question in James. Elias LJ noted the observation of Bingham LJ in The Aramis that it would be fatal to the implication of a contract that the parties would or might have acted as they did in the absence of it. Elias LJ posed (at [45]) what might be regarded as a guiding question, namely:
Is it necessary to infer a contract to explain this divergence between contract and practice?