Forstaff & Ors v The Chief Commissioner of State Revenue

Supreme Court of NSW|2004-07-08|Before: McDougall J, Dougall J

Introduction 1 Forstaff's business 6 The arrangement between Forstaff and workers 15 The terms and conditions of employment 27 The arrangements between Forstaff and client 34 The parties' submissions 44 Employees or independent contractors? The relevant principles 48 The suggsted dichotomy 70 "Irreducible minimum of mutual obligation" 79 The decision in BWIU v Odco 92 Analysis: the relationship between workers and clients 99 Analysis: the relationship between Forstaff and workers 104 Conclusion 122

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Introduction 1 The business of the plaintiffs (collectively "Forstaff") includes the provision of temporary workers ("workers") to companies ("clients") in various industries. This is done pursuant to what was described in submissions as a triangular relationship that includes a contract between Forstaff and the individual worker, and a contract between Forstaff and the client. (Whether there was also a contract between the worker and the client was a matter debated between the parties, to which I must return.) 2 The question for decision in these proceedings is whether Forstaff was liable to pay payroll tax, in respect of those workers, for the financial years ended 30 June 1994 through to 30 June 1998. The parties agreed that the determination of that question involved two issues:

(1) whether the workers were employees of Forstaff at common law (ie, whether at common law there was a contract of employment between Forstaff and each worker); and

(2) whether the workers were what might conveniently be called deemed employees of Forstaff because the relationship between Forstaff and those workers was caught by s 3A of the Pay-Roll Tax Act 1971 (NSW) ("the Act"). 3 For the financial years in question, Forstaff has paid $3,892,425 purportedly as payroll tax in respect of those workers. Forstaff accepts that, if it is to succeed in these proceedings and obtain recovery of the amount so paid, each of the issues that I have described must be answered in its favour: ie, each must be answered "no". 4 The defendant ("the Chief Commissioner") agreed that the two issues that I have described were the only issues to be decided in the proceedings. That is to say, the Chief Commissioner took no technical point: for example, whether there had been a "decision" that had been the subject of an "objection" in respect of which the Chief Commissioner had made a "determination"; or as to any relevant time limit. The Chief Commissioner accepted that, if the two issues were answered "no", then Forstaff would be entitled to judgment in the amount in question, together with interest. 5 For reasons that appear sufficiently from my reasons for judgment given on the first day of the hearing, 8 June 2004, the parties agreed that I should determine, as a preliminary question, the first issue: ie, whether the workers were employees at common law. Accordingly, an order pursuant to Pt 31 r 2 was made that I should decide as a preliminary issue in the proceedings the following question: "Whether the workers to whom the plaintiffs made payments in the financial years ended 30 June 1994 to 30 June 1998 inclusive in respect of which the plaintiffs claim a refund of payroll tax under paragraph 5 of the Amended Summons dated 8 June 2004 were employees of the plaintiffs according to ordinary concepts." Forstaff's business 6 Mr Sean McClelland, the Customer Service Manager of Forstaff, described the business of Forstaff as follows (affidavit sworn 13 October 2003, paragraph 4): "Forstaff is a casual labour hire firm involved in the blue-collar sector. The bulk of its workers are employed as storeman [sic], forklift drivers, labourers or process workers. The client base of Forstaff includes pharmaceutical companies … , logistics companies … and manufacturers … . Forstaff also operates an engineering division, an office division, as well as an aviation division, although the aviation division mainly operates out of Victoria." 7 Mr Bruce MacDonald, a director of the first plaintiff ("the trustee"), explained the structure of Forstaff's business. In essence, the business was operated through a unit trust of which the trustee was trustee. The trustee held all the issued shares in a company known as Forstaff Holdings Pty Ltd, which in turn held all the issued shares in the second to tenth plaintiffs. Mr MacDonald said (affidavit sworn 13 October 2003, paragraph 8) that the operating subsidiaries (ie, as I understood him, the second to tenth plaintiffs): " … were established for workers' compensation and management purposes. Each Subsidiary represents either a certain region or a particular industry in which workers are placed. For example, Forstaff Hospitality Pty Ltd deals mainly with waiters and restaurant staff, and Forstaff Commercial Personnel Pty Ltd deals with secretarial and accounts staff. A worker was only placed in one Subsidiary and was not ordinarily moved to another Subsidiary even if there [sic] role changed." 8 The management of the business of Forstaff was carried on by persons employed by one of two companies, Norkondi Pty Ltd or Pardero Pty Ltd, which between them held equally the issued units in the unit trust and which had entered into service agreements with the trustee. Thus, those two companies employed, and provided to the trustee, management, accounting, sales and administration staff. On any view, those persons were employees for the purposes of the Act. It was not suggested that any part of the allegedly overpaid payroll tax was paid in respect of those persons. 9 Forstaff recruited, tested and in some cases entered into contracts with workers. There were two broad categories of worker. The first comprised people who wanted full time casual work, both because it offered higher hourly rates of pay and because it offered flexibility in working hours. The second category comprised people who were out of work and who wished to do casual work whilst seeking full time work. 10 If someone contacted Forstaff seeking casual work, a "Telephone Screening Form" would be completed recording some brief details of the nature of the work sought, hours of availability and qualifications. Thereafter, the person would be interviewed, would complete a number of forms, and might undertake a number of tests (including aptitude tests designed to identify the kinds of work for which the person was suited). A person who claimed to have particular skills, poor performance of which might lead to industrial accidents, was required to undertake specific practical tests. Those skills included matters such as forklift driving, welding and general engineering tasks. 11 If the person were regarded as appropriately qualified and meeting Forstaff's requirements, he or she would be placed on Forstaff's books as available to work. The nature of the terms pursuant to which this was done will be examined separately. 12 If a client contacted Forstaff seeking a casual worker with particular skills, or to fill a particular position, the work would be offered to a worker on Forstaff's books who was thought to possess the necessary qualifications. If that person accepted the placement, he or she would report to the client's premises and would perform the relevant work, for the time required by the client and under the direct supervision of the client. On other occasions, the worker might contact Forstaff, either regularly or on specific occasions, and be offered a placement; nothing turns on this. 13 Once the worker was placed with a client, Forstaff's continuing involvement was limited. If there were problems between the worker and the client (for example, problems relating to occupational health and safety matters, or problems relating to industrial matters, or problems relating to the worker's aptitude and abilities), either the worker or the client might contact Forstaff and Forstaff would seek to resolve the problem. Otherwise, the worker would prepare and lodge with Forstaff time sheets showing the time spent at the client's premises. Those time sheets were used both to enable Forstaff to invoice the client (the details of the relationship between Forstaff and clients will be considered separately), and to enable Forstaff to calculate the remuneration due to the worker. (I interpose, at this stage, that responsibility for remunerating the worker rested exclusively with Forstaff, and the worker's entitlement to be paid was in no way dependent upon Forstaff's being paid by the client. The client had no obligation to pay the worker.) 14 According to Mr MacDonald, it is the trustee that enters into contracts with clients for the provision of workers. (I will look at the details of those arrangements later.) However, he said, it is the relevant subsidiary (ie, presumably, the subsidiary on whose books a particular worker is listed) that provides the worker to, and invoices, the client; and whom the client pays. The net revenues of the subsidiaries are taken by the trustee as management fees. The arrangements between Forstaff and workers 15 According to Mr McClelland, it was not until about 1996 that Forstaff entered into written contracts with workers whom it decided to place on its books. Up until at least 30 September 1996 (that being the date of a letter from the trustee to a Mr F O'Brien), the only document from Forstaff to a worker was a letter. Mr O'Brien's letter confirmed that his "recent application for casual employment with Forstaff has been successful". It required him to provide a tax file number and bank account details. It informed him that he was "required to undertake a training course relating to Good Manufacturing Practice". It informed him that "upon completion of assignments" he should "contact Forstaff Service Desk so we can provide you with continuity of work". 16 Mr McClelland said that in about 1996 Forstaff produced a document entitled "Terms and Conditions of Employment" that it required workers to sign. He produced an example of that document. Mr Wayne Lyons (an Operations Supervisor employed by Forstaff and formerly a worker on its books) produced another form of "Terms and Conditions of Employment". 17 All the documents that were proved referred to the relationship between Forstaff and workers as one of "employment" and described the worker as an "employee". It is clear that Forstaff, until it became aware of the decision of Balmford J in Drake Personnel Limited v Commission of State Revenue (Vic) (1998) ATC 4915, took the view that the workers were employees in respect of whom it was obliged to pay, and did pay, payroll tax. (I note that the decision of Balmford J was varied on appeal: Drake Personnel Ltd v Commissioner of State Revenue (2000) 2 VR 635.) 18 The evidence does not make clear which company in the Forstaff group entered into contracts with workers. As I have noted, Mr MacDonald's evidence was that workers were "placed" with subsidiaries. However, the letter of offer of employment that is in evidence is on the letterhead of the trustee. Again, the form of application for employment that Mr Lyons proved, in relation to his initial engagement as a worker, is under the name of the trustee. The forms of terms and conditions of employment that have been proved are neutral: that proved by Mr Lyons is headed "Forstaff Commercial Division", but otherwise contains no indication of who the "employer" is. That proved by Mr McClelland gives no indication at all of who the "employer" is. The evidence otherwise treats the workers as employees of, or contractors to, "Forstaff": a generic term apparently used (as I have used it) to describe the plaintiffs without distinguishing between them. 19 I set out below at paras [29] to [33] the relevant terms from the terms and conditions of employment. Mr McClelland said, without objection, that before the written terms and conditions of employment were introduced "the same terms and conditions … were conveyed to applicants prior to the use of these documents", so that "[a]s a result the change from oral to written contracts governing the arrangement between Forstaff and its workers did not result in any change in the terms and conditions governing that relationship" (affidavit sworn 13 October 2003, para 21). Mr McClelland said further that, after Forstaff commenced to use the written terms and conditions of employment, it nonetheless "continued to issue successful applicants with letter [sic] of acceptance" (ibid, para 22). 20 I have referred in paras [9] to [11] above to the way in which Forstaff recruited workers, and I have outlined in paras [12] and [13] above the way in which a worker, once on the books of a Forstaff company, might be offered an assignment with a client. It is, however, necessary (having regard to the way in which the parties argued the case) to look in greater detail at the way in which Forstaff dealt with its workers, and at the terms and conditions of employment. 21 Forstaff agreed an hourly rate with each worker who was placed on its books. That hourly rate was said to be consistent with any relevant award or site or enterprise agreement. It was also said to include what was in effect a loading (although not differentiated or characterised as such) to reflect the lack of any entitlement on the part of the worker to sick leave, annual leave or long service leave. 22 As I have noted, Forstaff was responsible for payment of workers (upon submission of appropriate time sheets). It deducted PAYE tax from those payments and (according to paragraph 25 of the affidavit of Mr Stephen Stubbs, Forstaff's Finance and Administration Manager, sworn 13 October 2003) amounts on account of superannuation. However, the position in relation to superannuation is not completely clear. As will be seen, the terms and conditions of employment provided (among other things) for payment of "Occupational Superannuation" in accordance with "the appropriate legislation, Award, Site or Enterprise Agreement" (clause 12). 23 Mr Stubbs said further that workers were not entitled to overtime. This does not seem to be correct. The terms and conditions of employment provided that overtime, shift penalties and other allowances would be calculated (and, I infer, paid) where they were "provided for in a relevant Award, Site or Enterprise Agreement" (clause 10). In the absence of clear evidence to the contrary, I would accept the terms and conditions of employment over Mr Stubbs' unsupported assertion on this point. 24 Forstaff provided some protective clothing (principally, I think, equipment such as brightly coloured safety vests) to some workers. That equipment was branded with the Forstaff logo. It also made available to its workers the opportunity to buy polo shirts, branded with the Forstaff logo, for $10. There was no obligation on workers to buy or wear those polo shirts, and the evidence does not show what percentage of the total number of workers on Forstaff's books took up the offer for the relevant years. 25 Some other items of safety equipment (including some items of clothing and footwear) were from time to time provided by workers for their own use. Generally, however, safety equipment was provided by the client. It does not appear that workers provided or used their own equipment or tools of trade. To the extent that such things were needed, they were provided, or made available, by the clients. 26 One matter upon which Forstaff laid stress was that workers were not required to accept any particular offer of work. Indeed, the evidence was that this element of flexibility was valuable to at least some workers. However, if workers did accept an assignment, they were required to complete that assignment (subject of course to the right of the client to bring it to an end at any time and for any reason, and subject to any problems of illness or occupational health and safety difficulties). There was no suggestion that any worker who consistently refused offers of work would be penalised, although commonsense suggests that Forstaff would not place such workers at the top of the list of those to whom suitable work was to be offered. The terms and conditions of employment 27 As I have said, there were two separate forms proved. There is only one significant difference between them. One form, proved by Mr Lyons ("the Lyons form"), was said to be earlier in time. The other, proved by Mr McClelland and relating to a Mr Flanagan ("the Flanagan form"), was said to be later. However, there is no evidence that this is so; and there is some basis, in comparing the two documents, to think that the Lyons form may have been a development of the Flanagan form. I refer to the words in clause 3 to "as provided for in Point 2 above" which, as will be seen, makes sense in the Flanagan form but does not make sense in the Lyons form. This suggests to me that clause 2, as it appears in the Flanagan form, may have been revised, and that the person undertaking this task did not appreciate the need to make a consequential revision to clause 3. I do not, however, regard that as a sufficient basis for finding that the Lyons form is in fact a later version than the Flanagan form of the terms and conditions of employment, especially having regard to the contrary indication to which I refer in para [33] below. 28 Each document is described as a "Temporary Employment Agreement" and is headed "Terms and Conditions of Employment". In addition, at the very top, the Lyons form has the words "Forstaff Commercial Division". 29 I set out the wording of the Lyons form and shall then indicate the respects in which the Flanagan form is different: "This Temporary Employee Agreement is to be signed by all temporary applicants upon registering for employment with Forstaff. As a temporary employee, some conditions of your employment may be set by a relevant Award, Site or Enterprise Agreement, but the conditions as stated in that Award, Site or Enterprise Agreement shall not form any part of your common law contract of employment. Please read the following carefully and sign this form to confirm your understanding of the terms and conditions of your temporary employment. I have read, understood and agreed to the conditions set out below:- 1. My employment with Forstaff is as a temporary on an assignment by assignment basis, with each assignment constituting a discrete period of employment. I may accept or reject any offer of an assignment from Forstaff. On completion of an assignment, whether satisfactory or otherwise, Forstaff is under no obligation to offer me further assignments; 2. I understand that Forstaff does not control the length of any assignment. I accept that Forstaff may indicate the potential length of an assignment period or terminate my attendance at an assignment at their absolute discretion; 3. I accept that if a client of Forstaff varies the length of an assignment period or terminates my attendance at an assignment, as provided for in Point 2 above, Forstaff has the right to discontinue my employment and to not offer me further assignments with other clients in the future. Where notice of termination is necessary, such notice shall be in accordance with the terms of the relevant Award, Site or Enterprise Agreement; 4. I accept that I am under the care, control and supervision of Forstaff's client during the period of any assignment in regard to defined working arrangements and the manner and proficiency in which my work is to be performed. I acknowledge the right of Forstaff's client to direct my work activities; 5. I agree to adhere to all Occupational Heath [sic] and Safety policies of Forstaff and Forstaff's client, and to obey all lawful and reasonable orders of Forstaff's client with regard to the use of safety equipment, the wearing of protective clothing and noise protection devices, where appropriate, and with regard to methods of performing work tasks; 6. Payment for my work will be made by Forstaff on a weekly basis only on receipt of a Forstaff time sheet, correctly completed with an appropriate authorisation by an approved client supervisor, or by some other method defined by Forstaff; 7. Payment to me by Forstaff may be made at Forstaff's discretion by Electronic Funds Transfer to the bank account nominated by me; 8. My remuneration by Forstaff is on an hourly basis according to my classification and is subject to all relevant provision of any appropriate Award, Site or Enterprise Agreement; 9. My hourly rate is subject to change from the effective implementation date of any decision by an authorised tribunal to amend wage rates; 10. Where overtime, shift penalties or other allowances are provided for in a relevant Award, Site or Enterprise Agreement, such payments will be calculated according to the terms of that Award, Site to [sic] Enterprise Agreement; 11. Payment for public or trade holidays is governed by the appropriate Award, Site or Enterprise Agreement; 12. Payment of Occupational Superannuation is governed by the appropriate legislation, Award, Site or Enterprise Agreement; 13. On any assignment I will be paid by Forstaff for a minimum of four hours, or such other minimum period stipulated by a relevant Award, Site or Enterprise Agreement; 14. I understand that it is my responsibility to provide an authorised Forstaff time sheet to the Forstaff office and acknowledge that I will not be paid if the time sheet is not provided; 15. I understand that future payments may be adjusted if actual working hours or other details differ from information provided on authorised time sheets received by Forstaff and I further agree to allow Forstaff to deduct any overpayment from future payments; 16. I understand that if I am absent from an assignment for whatever reason I am required to give the Forstaff Personnel sufficient notice so they are able to inform the client as soon as possible; 17. I agree to keep confidential any information obtained during any assignment with Forstaff's client, which may be considered sensitive or confidential to Forstaff or its client including customer details, trade secrets and other confidential information; 18. For a period of six months from the cessation of my last assignment, I agree that I will not seek or accept a direct offer of employment whether temporary, contract or permanent from any client, former client, employee or former employee of Forstaff to whom I am introduced without first notifying Forstaff; 19. I agree that I will not see [sic] or accept a direct offer of employment from another agency for placement with a customer of Forstaff whilst currently employed with Forstaff or for a period of two weeks from the cessation of my last assignment with that customer, if I have been introduced to that customer by Forstaff; 20. I agree to complete an Employment Declaration (Australian Taxation Office Form) with Forstaff this financial year if I have not already done so; 21. I accept that on some types of assignments I may be required to undertake a medical examination or hearing test; 22. Forstaff is responsible for statutory Workers [sic] Compensation Insurance and, in the even [sic] of any injury occurring during an assignment, I will contact Forstaff with details immediately; 23. My employment with Forstaff is subject to a two week probationary period. During the probationary period I or Forstaff can terminate the employment relationship with four hours [sic] notice; I declare that the employment related information which I have provided to Forstaff is true and correct. I have read and I understand the Terms and Conditions of my employment as detailed above and accept Forstaff's and/or its customers' rules covering union membership, medical requirements, safety regulations, time of attendance at work, and any other conditions on the work site to which I am assigned from time to time.

I accept the terms and conditions of the offer of employment as detailed above." 30 Clause 2 of the Flanagan form read as follows: "2. I understand that Forstaff does not control the length of any assignment and I accept that whilst Forstaff may indicate the potential length of an assignment with a customer in good faith, the customer may vary the length of an assigned period or terminate my attendance at an assignment at their absolute discretion;". 31 The words "where appropriate" in clause 5 of the Lyons form did not appear in clause 5 of the Flanagan form. 32 Clause 16 of the Lyons form is not found in the Flanagan form; clause 16 of the Flanagan form reads as follows: "16. I agree to notify the Forstaff office as soon as practicable, but no later than normal start time on any day, that I am unable to attend during any period of an assignment;". 33 The word "client" where it appears in the Lyons form reads "customer" in the Flanagan form. Somewhat curiously, clause 19 of the Lyons form uses the word "customer" rather than "client"; a similar usage may be found in the declaration at the end of the Flanagan form. This may, perhaps, indicate (contrary to what I have said in para [27] above) that the Lyons form is an evolution or revision of the Flanagan form. The arrangements between Forstaff and clients 34 I have outlined in paras [12] and [13] above the way in which Forstaff placed workers with clients. It is, however, necessary to look in greater detail at the arrangements between Forstaff and its clients. 35 Mr Stubbs said that the arrangement between Forstaff and its clients was governed by a document which he described as a "Proposal". He proved an example, being a proposal dated 12 February 1998 by Forstaff to Coates Australia. The hourly rate payable by the client to Forstaff was a matter for negotiation, although, from Forstaff's perspective, it was necessary that the rate include both what it was obliged to pay the worker, on costs (such as workers' compensation insurance) and an allowance for administration and profit. The proposal specified information on:

(1) the services offered by Forstaff to its workers and clients (including training and compliance with occupational health and safety requirements);

(2) the kinds of workers available and their qualifications;

(3) the personnel within Forstaff whom the client could contact both to request workers and if there were dissatisfaction, or other problems, with a particular worker;

(4) the hourly rates (by category) and, where applicable, the way in which overtime and other applicable payments would be charged, together with provision for change if there were a change in any relevant award or enterprise or site agreement; and

(5) what was included in the hourly rates. 36 On this last matter, the proposal in evidence specified that the hourly rates included payroll tax; annual leave; workers' compensation; superannuation (at the rate of 6%); sick leave; tool allowance; safety footwear and apparel; and payroll, financial and administration advertising, interviewing and selection costs. 37 Forstaff "guaranteed" that it and its workers were covered for workers' compensation and public liability and that it would comply with any relevant "Industrial Relations Program and Award Conditions relevant to" the client. 38 The proposal further stated that if the client wished to offer full time employment to a Forstaff "employee" there would be, in effect, a fee equivalent to 10 weeks' minimum hire payable. 39 The proposal also contained the following: " TERMS & CONDITIONS All salaries, income tax deductions, casual loading, payroll tax, worker's [sic] compensation and superannuation are paid by Forstaff. All employees assigned to your company or organisation must be paid for a minimum of 4 hours per day, unless otherwise advised, regardless that the employee may have worked for less than the nominated period. Acceptance of the services of our temporary staff will be deemed acceptance of our terms and conditions. Clients shall not entrust Forstaff employees with unattended premises, cash, negotiable or other valuables. Forstaff shall not be liable and the Client indemnifies it against all claims for injuries, losses or damages caused by Forstaff employees operating client owned or leased vehicles, and the client warrants that its vehicles shall at all times be registered and insured for third party personal injuries in accordance with State Legislation. The client acknowledges and agrees that it accepts and adopts as part of its agreement with Forstaff in addition to these conditions, those terms and responsibilities as may have been previously communicated to it in writing by Forstaff. Received and understood as an "information document" but not as a written contract." 40 There was provision for a signature at this point. 41 The proposal also stated that the client should:

(1) instruct, direct and supervise Forstaff workers in the proper and safe performance of their duties;

(2) provide a safe working environment in accordance with the Occupational Health and Safety Act and other applicable legislation; and

(3) provide "consumable protective items eg. disposable hats, gloves, eye protection when and if required". 42 When a worker accepted an offer of an assignment to a particular client, the worker was required to travel to the premises of the client and report to some nominated person. Thereafter, the worker would work at the premises of the client on whatever tasks the client might specify. (If the client sought to impose on the worker some task beyond the worker's skill or training so as to give rise to occupational health and safety issues, the worker could take the matter up with Forstaff.) The worker was directed and supervised, in the performance of his or her work at the client's premises, by the client or its representatives. Forstaff's continuing involvement was limited to receiving, checking and processing time sheets (including making payment to the worker and invoicing and receiving payment from the client) and, otherwise, dealing with any issues that might arise as between the client and the worker. For example, if the worker did not wish to continue at the client's premises, Forstaff would arrange for a replacement; and if the client wished to terminate the assignment, Forstaff would withdraw the worker. 43 Forstaff periodically attended the premises of clients to observe the safety procedures in place and, from time to time, to make recommendations as to safety. It also encouraged workers to bring forward complaints concerning work or safety matters, in which case Forstaff would seek to resolve the problem. But Forstaff did not exercise direct control or supervision of the worker in the performance of his or her duties at the premises of the client. The parties' submissions 44 There was a significant difference of principle between the parties. It is convenient to start with the approach taken by the Chief Commissioner. 45 Mr Kimber SC, who appeared with Mr Latham of Counsel for the Chief Commissioner, submitted that where one person did work for another, the relationship must be either that of employer and employee or that of principal and independent contractor. In substance, Mr Kimber submitted that these relationships were dichotomous; that there was no third, or other, category. It followed, Mr Kimber said, that if one looked at the incidents of the relationship and concluded that it was not a relationship of principal and independent contractor then, necessarily, it must be a relationship of employer and employee. 46 Mr Gleeson SC, who appeared with Mr Richmond of Counsel for Forstaff, submitted that the categories of employer/employee and principal/independent contractor were not dichotomous. He said that, particularly having regard to changes in the labour market and the workforce, it was possible for one person to do work for another and yet be neither an employee or an independent contractor. Accordingly, Mr Gleeson submitted, it was necessary to examine the incidents of the relationship to see whether they demonstrated that it was one of employer and employee. 47 The parties also differed in the importance that they attached to various incidents of the relationship. Thus, Forstaff emphasised control - in the sense of day-to-day control and direction of the worker in the course of performing his or her duties for a client - as the key factor. The Chief Commissioner, however, emphasised the terms of the documentation of the relationship - particularly, upon the fact that it was cast in terms of employment, and described the worker as an employee - and on the circumstance that, prior to the decision of Balmford J in Drake Personnel, Forstaff unequivocally had regarded the relationship between it and workers as that of employer and employee. Employees or independent contractors? The relevant principles 48 The question, whether someone is an employee of another or an independent contractor, has been examined in a great number of cases. A convenient starting point is the decision of the High Court of Australia in Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16. The Court considered whether sniggers and truckers engaged by a sawmiller respectively to move and to transport felled trees were employees of the sawmiller. Mason J, with whom Brennan J and (on the question that I have referred to) Deane J agreed, said at 23-24 (omitting citations): "The first question to determine is whether the relationship between Brodribb and Gray [the snigger] was one of employer and employee or one of principal and independent contractor. … A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it … . But the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question … . Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee". 49 At 27, Mason J rejected the "organisation test" as determinative. He said that "the fact that A is part of B's business organisation [is] additional material from which to infer that B has legal authority to control what A does." However, his Honour could not accept "that the organisation test could result in an affirmative finding that the contract is one of service when the control test either on its own or with other indicia yields the conclusion that it is a contract for services." 50 Mason J held that the men in question were not employees. He referred at 25-26 to the following considerations:

(1) Brodribb did not retain lawful authority to command the men in the performance of the work which they undertook to do.

(2) The men provided and maintained their own equipment, set their own hours of work and received payments, not in the form of fixed salary or wages, but by reference to the volume of timber which they had been involved in delivering.

(3) Both Brodribb and the men regarded their relationship as one of independent contract, not one of employment.

(4) In the case of Gray, this last factor was exemplified in his decision to delegate at least part of his functions to his son. 51 Wilson and Dawson JJ, at 35, recognised that "[t]he classic test for determining whether the relationship of master and servant exists has been one of control, the answer depending upon whether the engagement subjects the person engaged to the command of the person engaging him, not only as to what he shall do in the course of his employment but as to how he should do it." 52 However, their Honours said, "[t]he modern approach is … to have regard to a variety of criteria." Their Honours examined those criteria at 36-37 (omitting citations): "In many, if not most, cases it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee. That is not now a sufficient or even an appropriate test in its traditional form in all cases because in modern conditions a person may exercise personal skills so as to prevent control over the manner of doing his work yet nonetheless be a servant … . This has led to the observation that it is the right to control rather than its actual exercise which is the important thing … but in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which work is performed for another. … The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged, and the right to dictate the place of work, hours of work and the like. Those which indicate a contract for services include work involving a profession, trade or distinct calling on the part of the person engaged, the provision by him of his own place of work or of his own equipment, the creation by him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion, and the payment to him of remuneration without deduction for income tax. None of these leads to any necessary inference, however, and the actual terms and terminology of the contract will always be of considerable importance. Having said that, we should point out that any attempt to list the relevant matters, however incompletely, may mislead because they can be no more than a guide to the existence of the relationship of master and servant. The ultimate question will always be whether a person is acting as the servant of another or on his own behalf and the answer to that question may be indicated in ways which are not always the same and which do not always have the same significance." 53 As their Honours pointed out at 37-38 (in the course of concluding that the men in question were not employees), "[e]ven the most independent of independent contractors is subject to some direction in the performance of his work and some circumstances will justify the termination of the engagement." 54 In Hollis v Vabu Pty Limited (2001) 207 CLR 21, the majority (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ) referred at 38 [36] to "[t]erms such as "employee" and "independent contractor" and the dichotomy which is seen as existing between them … " and at [39] to "the dichotomy between the relationships of employer and employee, and principal and independent contractor". 55 Their Honours pointed out at 39 [40], "that employees and independent contractors perform work for the benefit of their employers and principals respectively. Thus, by itself, the circumstance that the business enterprise of a party said to be an employer is benefited by the activities of the person in question cannot be a sufficient indication that this person is an employee." Conversely, their Honours said, it is "the absence of representation and of identification with the alleged employer" which is "indicative of a relationship of principal and independent contractor." 56 At 41 [45], their Honours said that "guidance for the outcome is provided by various matters which are expressive of the fundamental concerns underlying the doctrine of vicarious liability. These include, but are not confined to, what is now considered "control"." 57 The question before their Honours was whether a courier company was vicariously liable for the negligence of bicycle couriers engaged by it. Their Honours concluded that the bicycle couriers were employees of the courier company and, thus, that it was vicariously liable. Their Honours, at 42-45 [48]-[57], identified seven relevant factors:

(1) The couriers were not providing skilled labour or labour which required special conditions; they could not make independent careers as freelance couriers; they did not generate "goodwill".

(2) They had little control over the manner of performing their work; they were required to be at work by a fixed time, were assigned to a work roster and were not able to refuse work.

(3) They were presented to the public and to customers of the service as emanations of the courier company in that they wore uniforms bearing the company's logo. (4) Their Honours regarded the concept of deterrence as significant. The courier company knew that its couriers presented dangers to pedestrians. It failed to adopt effective means to identify those couriers. The imposition of vicarious liability was justified, among other reasons, because it might deter future harm.

(5) The courier company superintended the couriers' finances; the couriers had no scope to bargain for the rate of their remuneration. Although the couriers were paid by delivery and not by time engaged, that was "a natural means to remunerate employees whose sole duty is to perform deliveries, not least for ease of calculation and to provide an incentive more efficiently to make deliveries" (at 44).

(6) Although couriers were required to provide their own bicycles, that did not tell against the relationship being one of employment. That was so because the capital outlay was relatively small, and because the bicycles were not just working equipment but also provided means of personal transport and recreation. In addition, the courier company provided equipment (radios and uniforms); the couriers were required to bear the cost of repairing or replacing damaged equipment provided by the company.

(7) There was more than the right to exercise control in incidental or collateral matters. There was considerable scope for the actual exercise of control. The company retained control of the allocation and direction of deliveries. Deliveries were to be undertaken as directed. The business of the company "involved the marshalling and direction of the labour of the couriers, whose efforts comprised the very essence of the public manifestation of [the company's] business". 58 Accordingly, their Honours concluded at 45 [57] that "[i]t would be unrealistic to describe the couriers other than as employees". 59 McHugh J agreed with the majority that the appeal should be allowed. However, he did not agree that the couriers were employees of the courier company. His Honour pointed out at 47 [66] (omitting citations): "The case reveals the difficulties in applying traditional rules of liability for a worker's negligence to new and evolving employment practices. The common law has long held that a master is liable for the torts of his or her servant. But as the terminology of master and servant suggests, the common law rule developed at a time and in a context far removed from today's modern workforce." 60 McHugh J agreed with the majority that the couriers were not independent contractors of the courier company. Further, he agreed that there were some aspects of the relationship which suggested that it was that of employer and employee. However, his Honour concluded that the couriers were not employees. He said at 50 [72]: "Rather than attempting to force new types of work arrangements into the so-called employee/independent contractor "dichotomy" based on medieval concepts of servitude, it seems a better approach to develop the principles concerning vicarious liability in a way that gives effect to modern social conditions." 61 The approach taken by McHugh J was echoed (it would seem, unconsciously) by Mummery LJ in Brook Street Bureau (UK) Ltd v Dacas [2004] EWCA Civ 217. The issue in that case was whether a cleaner was an employee of an employment agency, whether she was an employee of the client of that employment agency, or whether she was not an employee at all. Mummery LJ referred at [9] to a "triangular" relationship within which "various contractual relationships are expressly created". Of present significance, his Lordship said at [18] that, within that triangular relationship, there might exist between the worker and the end user: "… an implied contract, which may be characterised as a contract of service or as a contract for services. There may be an implied contract of some as yet unclassified kind, wedged within the traditional dichotomy, such as a "semi dependent worker's contract … , or a quasi-dependent worker's contract … "." 62 His Lordship continued at [19]: "If the [worker] has a contract of service in a triangular situation of this kind, it may be with (a) the end-user, the contract usually being an implied one, or (b) the employment agency, depending on the construction of the express contract between the [worker] and the agency … or, though this is more problematical (c) more than one entity exercising the functions of an employer, namely the employment agency and the end-user jointly … " (his Lordship's emphasis). 63 Mummery LJ concluded at [64] that the express contract between the employment agency and the worker was not a contract of service. This was because the agency was under no obligation to provide the worker with work; she was not obliged to accept any work offered; the agency did not exercise any relevant day-to-day control over her or her work; that control was exercised by the end user, which furnished her clothing and materials and for whom she did the work. His Lordship's conclusion depended substantially upon the proposition that, for there to be a contract of service, there must be both an obligation to provide work and an obligation to perform it: see [49]. 64 His Lordship considered (at [64]-[68]) that there may have been an implied contract between the worker and the end user. However, since there was no issue before the Court of Appeal on that, the possibility was not explored further. 65 Sedley LJ agreed in the result, principally (at [78]) on the basis that, on the evidence, it was the end user and not the agency that was the employer. His Lordship left open "[t]he possibility … of a trilateral contract of service, meaning simply a contract in which one side's obligations are divided or shared between two of the three parties". 66 Munby J likewise agreed in the outcome. However, his Lordship expressly rejected the possibility that there could be a contract of service between the worker and the end user. He said at [89]: "If the obligation to remunerate the worker is imposed on the agency, there cannot be a contract of service between the worker and the end-user. And if, at the same time, control is vested in the end-user, then there equally cannot be a contract of service between the worker and the agency." 67 In Carmichael v National Power Plc [1999] 1 WLR 2042, Lord Irvine of Lairg LC, with whom the other members of the House of Lords agreed, referred at 2047 to "that irreducible minimum of mutual obligation necessary to create a contract of service". In the particular case, his Lordship held that because the arrangements between the appellant and the respondent imposed no obligation upon the respondent to provide, or upon the appellants to undertake, any work, then there was no contract of service. It was that to which Mummery LJ had referred in Brook Street at [49]: see para [63] above. In the same case, Lord Hoffman, although he agreed with the reasons of Lord Irvine, said in addition at 2051: "Once it is accepted that the tribunal's finding as to the lack of mutuality of obligation between the [appellants] and the [respondent] cannot be disturbed, it follows that the engagement of the [appellants] as guides in 1989 cannot have constituted in itself a contract of employment. It laid down the terms upon which it was expected that they would from time to time work for the [respondent] and it may well be that, when performing that work, they were being employed. But that would not be enough for the applicants. They could succeed only if the 1989 engagement created an employment relationship which subsisted when they were not working. On the findings of the tribunal, it did not in itself give rise to any legal obligations at all and the [appellants'] claim must therefore fail." 68 Many more cases were cited to me. With few exceptions, I do not propose to discuss them in detail. That is for two reasons. First, I think, the relevant principles have been established by the High Court in the decisions to which I have referred. Second, I do not regard decisions on similar, but not identical, facts involving similar, but not identical, documents as providing particular assistance in the resolution of the issues before me. There are, as the High Court has made clear, a number of factors to be taken into account. The significance of each of those factors, and the relative weight to be accorded to them, necessarily will vary from case to case. It does not follow that a factor that was considered to be of significance in one case must be taken to be of equal significance in all other cases with similar facts. 69 However, before I turn to analysis of the facts in the light of the principles that I think can be drawn from the authorities, it is necessary to consider the suggested dichotomy and the concept of an "irreducible minimum of mutual obligation". Further, since the submissions for Forstaff laid great stress upon it, I shall consider the decision of the Full Court of the Federal Court of Australia in Building Workers' Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104. The suggested dichotomy 70 When the majority in Hollis at 38 [39] referred to "the dichotomy between the relationships of employer and employee, and principal and independent contractor", they did so by reference to a passage in the judgment of Dixon J in Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Insurance Company of Australia Limited (1931) 46 CLR 41, 48. In that passage (which the majority cited at [39]) Dixon J analysed the difference between an independent contractor and an employee (although he did not use the word "dichotomy") and concluded that the former "carries out his work, not as a representative but as a principal". 71 The word "dichotomy" connotes, in its ordinary meaning, division into two parts (Macquarie Dictionary) or, in a more specialised sense, the division of a class into two lower and mutually exclusive classes (Shorter English Oxford Dictionary). As a matter of language, when the majority in Hollis referred to "the dichotomy between the relationships of employer and employee, and principal and independent contractor", they might be taken to have indicated that those two classes between them constitute the totality of the relationships whereby one person does work for another. 72 In Stevens, when the members of the Court analysed the relationship between the sawmiller and the workers, the only two possibilities that were considered were employer/employee and principal/independent contractor. In this, as their Honours' citations of authority showed, they were expressing no new concept, but accepting and applying the traditional division recognised by the common law. 73 Notwithstanding the observations of McHugh J in Hollis, I do not think that it is open to me to conclude that, in a bilateral relationship, the relationships of employer/employee and principal/independent contractor are not dichotomous. In other words, if the question only arose for consideration as between two parties, one of whom performed work for the other, I would feel compelled to conclude that the relationship must be classified as one or the other. Is it also the position where (as was the case in Brook Street and in BWIU v Odco, and as is the case here) the relationship is not bilateral but trilateral (or triangular, to use the word of Mummery LJ)? 74 I think that the approach to this problem is to be found in what the majority said in Hollis at 38 [36] where their Honours, having referred to the dichotomy that was seen to exist between the words "employee" and "independent contractor", said that those words "do not necessarily display their legal content purely by virtue of their semantic meaning". The question is not so much whether those terms are dichotomous (in either a bilateral or a trilateral relationship) but whether, between them, they explain or define the complete range of relevant relationships. 75 Further, to approach the analysis with the presumption of a dichotomy - a class of two, mutually exclusive, members - is, as Windeyer J said in a different context, "to invert the order of inquiry": Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432, 458 (an observation cited with approval by the majority in Hollis at 38 [37]). The real question in the present case is not whether workers of Forstaff are employees or independent contractors, but whether they are employees. It is only if, first, a negative answer to that real question means that they must be independent contractors and if, second, they manifestly cannot be independent contractors that a difficulty arises. A presupposition of that difficulty - which is, in effect, the position for which the Chief Commissioner argued - is in my view apt to distract attention from the real question. 76 As the courts have observed, the nature of work, and of the relationships pursuant to which work is done, are changing. Thus, in Stevens, Deane J said at 49 that "t]he distinction between "employee" and "independent contractor" has become an increasingly amorphous one as the single test of the presence or absence of control has been submerged in a circumfluence of competing criteria and indicia." In Hollis, the majority observed at 37 [34] that "[t]he nature of employment relationships has changed greatly since the age of feudal status." McHugh J, as I have noted in para [60] above, thought that it was undesirable to seek to "force new types of work arrangements into the so-called employee/independent contractor dichotomy". Again, as I have noted in paras [61] and [62] above, Mummery LJ in Brook Street identified a need for the law to adapt to recognise the different kinds of contractual obligation that might exist within a triangular relationship. 77 I therefore conclude that, in the situation with which I am concerned, the relationship between the concepts of "employee" and "independent contractor" may not be dichotomous. The workers are either employees (of whom, is a question to be considered) or they are not. If they are not, they may be, but are not necessarily, independent contractors (to whom, is again a question to be considered). 78 Accordingly, I think that the correct approach in principle is to analyse the matter as Mr Gleeson submitted I should, namely by asking whether the workers were employees of Forstaff. Further, and contrary to the submission of Mr Kimber (or its necessary consequence), I do not think that a negative answer must necessarily be given to that question if it were shown that workers were independent contractors to Forstaff. "Irreducible minimum of mutual obligation" 79 The decision in Carmichael (see para [67] above) suggests that it is necessary, for there to be a contract of service, that the contract must impose obligations on the putative employer to provide, and upon the putative employee to accept, work. If that represents the law in Australia, then it would provide a strong, and perhaps irrefutable, reason for thinking that the relationship between Forstaff and workers was not that of employer and employee. 80 In Automatic Fire Sprinklers Proprietary Limited v Watson (1946) 72 CLR 435, Dixon J said at 465: "A contract for the establishment of the relation of master and servant falls into the same general category of agreements to pay in respect of the consideration when and so often as it is executed and is, therefore, commonly understood as involving no liability for wages or salary unless earned by service, even though the failure to serve is a consequence of the master's wrongful act." 81 In BWIU v Odco, the Full Federal Court at 114, basing themselves on what Dixon J had said in Automatic Fire Sprinklers, put the matter as follows: "The element of consideration which is essential to a contract of employment is the promise by the presumptive employer to pay for service as and when the service is rendered." 82 As Dixon J said in Automatic Fire Sprinklers at 466, this raises the question of what is meant by "service": "Some difficulty has been felt in saying what is the service which carries wages. A master who sends his servant upon a holiday upon full pay can be sued for wages under the contract, although not on a common count for work and labour done. They also serve who only stand and wait. Difficulties, too, arise from the fact that a refusal to work on the part of a servant, who neither leaves his master's service nor is discharged, may disentitle him to wages for the period of the refusal. That is for non-fulfilment of the conditions by which wages are earned. But, broadly speaking, it is enough to say that wages are for the service reasonably demanded under a subsisting relationship of master and servant." 83 In Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, the Court of Appeal said at 342: "Ordinarily an employee cannot demand to be given work and the obligation of the employer is limited to payment of the agreed remuneration: Turner v Sawdon & Co [1901] 2 KB 653. As Dixon J said, this is an application of the principle that "they also serve who only stand and wait": see Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 467. However there is well-established exception to this general rule in the case of actors and others in a similar position who are vitally interested in opportunities to perform or exercise a skill or talent in public." 84 In Turner v Sawdon [1901] 2 KB 653, it was held that an employer was not obliged to provide its employee with work, although, the employment being for a term of years, it was obliged to (and did) pay wages in accordance with the agreement. A L Smith MR said at 656-657: "The real question which the plaintiff thought to raise, and which was raised, was whether beyond the question of remuneration there was a further obligation on the masters that, during the period over which the contract was to extend, they should find continuous, or at least some, employment for the plaintiff. … It is within the province of the master to say that he will go on paying the wages, but that he is under no obligation to provide work. The obligation is said to arise out of the undertaking to engage and employ the plaintiff … . To read in an obligation of that sort would be to convert the retainer at fixed wages into a contract to keep the servant in the service of his employer in such a manner as to enable the former to become au fait at his work. In my opinion, no such obligation arose under this contract … ." 85 Vaughan Williams LJ agreed. He found nothing in the contract which "throws any further obligation on the master" over the obligation to pay wages (see at 658). Stirling LJ felt more doubt. He specifically raised the situation "of an actor who accepts an engagement" for whom it might be "an important consideration … to have an opportunity of displaying his abilities before the public" (at 659). Nonetheless, he was not prepared to dissent from the Master of the Rolls and Vaughan Williams LJ. 86 It does not appear that the decision in Turner was cited to the House of Lords in Carmichael. Nor does it appear that it was cited in Brook Street. However, it was considered in one of the two cases upon which Lord Irvine relied: Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612. In that case, Stephenson LJ, at 623, referred to Turner as authority for the proposition that "[a]n obligation to provide work was not implied by this court in a salesman's contract". 87 Stephenson LJ continued by referring to the judgment of MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, 515. MacKenna J said that three conditions were required for there to be a contract of service:

(1) The servant agrees to provide his work and skill, for the service of the master, in consideration of a wage or other remuneration.

(2) The servant agrees to accept the master's control and direction in the performance of that service.

(3) The other provisions of the contract are consistent with it being one of service. His Lordship said, with reference to the first point, that "[t]here must be a wage or other remuneration. Otherwise there would be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill." 88 That led Stephenson LJ to say: "There must, in my judgment, be an irreducible minimum of obligation on each side to create a contract of service. I doubt if it can be reduced any lower than in the sentences I have just quoted … ". [In referring to "the sentences I have just quoted", his Lordship was referring to the quotation from MacKenna J that I have extracted.] 89 The other decision referred to by Lord Irvine was Clark v Oxfordshire Health Authority (1998) IRLR 125. In that case, Sir Christopher Slade, sitting as the Employment Appeal Tribunal, did no more than refer at [22] and [23], to the decision in Nethermere, including specifically to the passage from Stephenson LJ that I have referred to. 90 It therefore seems, if I may say so with respect, that the "irreducible minimum of mutual obligation necessary to create a contract of service" to which Lord Irvine referred should be expressed, not as an obligation on the one side to provide and on the other to perform work, but as an obligation on the one side to perform work (or provide service) and on the other side to pay. That would be entirely consistent with the approach of the Full Federal Court in BWIU v Odco (see para [81] above). 91 In any event, having regard to what was said in Automatic Fire Sprinklers, BWIU v Odco and Curro, I think that, for there to be a relationship of employer and employee, it is essential that the putative employer be obliged to pay the putative employee in accordance with the terms of the contract for services reasonably demanded under it, and that the putative employee be obliged to perform such services. That is as much so where the service consists of standing and waiting as where it is active. The decision in BWIU v Odco 92 Odco, which carried on business under the name Trouble Shooters Available, and which was known as "Troubleshooters", carried on the business of supplying labour to builders and others in the building industry. Each worker signed a contract with Troubleshooters under which (I quote from the headnote at 105): "(1) the worker acknowledged that there was no relationship of employer-employee with [Troubleshooters], that the worker was self-employed and that the worker was not bound to accept any work through [Troubleshooters]; (2) the worker agreed to work for a fixed rate; (3) the worker's personal insurance was the responsibility of the worker; (4) [Troubleshooters] was forbidden to make deductions in respect of PAYE taxation; (5) the worker had no right to holiday pay, sick pay, long service leave, etc; (6) [Troubleshooters] had no liability or responsibility other than to pay the worker in accordance with condition (2); (7) the worker guaranteed the work done against faulty workmanship and covered the work for all insurance; (8) the worker had to be a member of the trade union covering the worker's trade; (9) the worker would provide all relevant equipment." 93 The Full Court, affirming the judgment of Woodward J, held that:

(1) There was no contract of employment, nor any contract of any kind, between a builder and a worker provided to it by Troubleshooters.

(2) The relationship between Troubleshooters and a worker with whom it contracted was not that of employer and employee. 94 The Full Court considered the first matter at 114 to 115 and 119. Their Honours laid stress upon the fact that, under the relevant conditions of contract, it was Troubleshooters and not the builder that was liable to pay workers sent by Troubleshooters to the builder. In this, they relied upon the judgment of Dixon J in Automatic Fire Sprinklers at 465 (see para [80] above). Further, the Full Court held that Troubleshooters was not the agent or intermediary of the builder to pay the worker. The builder had no liability to pay the worker in the event that Troubleshooters did not. 95 Their Honours held further, at 115-116, that Troubleshooters was not the agent of either the builder or the worker so as to bring about a contract of employment between them. They held further, at 117, that where the builder and the worker varied the assignment for which Troubleshooters has sent the worker to the builder, the worker was acting on behalf of Troubleshooters so as to vary its agreement with the builder. 96 As to the second conclusion, the Full Court held, at 123-125, that Troubleshooters had no right of control or direction of workers in the performance of their work for builders. Further, their Honours held that the terms of the contract, which indicated an express mutual intention that the relationship was not to be regarded as that of employer and employee, were significant. Their Honours said that the declaration of the parties could not be conclusive: Australian Mutual Provident Society v Allan (1978) 52 ALJR 407, 409; Narich Pty Ltd v Commissioner of Pay-Roll Tax (1983) 2 NSWLR 597. However, as their Honours said at 126, some significance had to be attached to the actual terms of the engagement: relying on Wilson and Dawson JJ in Stevens at 37. 97 In concluding that Troubleshooters lacked the requisite degree of control, their Honours said, at 125: "It is easier to impute the requisite degree of control, in the sense of the right to exercise it, to a putative employer who maintains a body of workers paid by the week, whom he lends or "charges out" by the day or part of the day to contractors or others requiring work to be done. The evidence in this case revealed that other participants in the Victorian building industry, including the firms known as Skilled Engineering and Kirbys, operated in precisely this way. It has been accepted on all sides that the relationship between these labour hire firms and the workers whom they make available is one of employer and employee. These firms occupy the position of the "general employer" discussed by the House of Lords in Mersey Docks and Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1 … . In our view there was no reservation of a power in Troubleshooters to require one of its workers to move from one site to another, or to work beyond the initial agreed day, sufficient to permit the imputation of a right to control that worker which would satisfy the test enunciated by Mason J in Stevens … ." 98 As to other criteria, their Honours said at 126: "The application of the other criteria to the features of the relationship between Troubleshooters and its workers is, we consider, inconclusive except in respect of those criteria which reflect the intention of the parties to the relationship. Standing alone, the mode of remuneration being payment at an agreed hourly rate is equally applicable, on the evidence, to persons who are concededly subcontractors as to casual employees picked up for a day or part of a day. However, the agreement that Troubleshooters workers are not to receive annual leave or sick leave or any payment referable to those entitlements and that no deduction of income tax is to be made from their remuneration signifies a mutual intention that they are not to be regarded as employees." Analysis: the relationship between workers and clients 99 In my judgment, there is no contract, whether of employment or otherwise, between a worker on the books of Forstaff, who is assigned to work for a client of Forstaff, and that client. That is because, as the Full Court said in BWIU v Odco, "[t]he element of consideration which is essential to a contract of employment", being "the promise by the presumptive employee to pay for service as and when the service is rendered, is absent". I do not think that, when Forstaff pays a worker, it does so as agent or intermediary for the client. It is correct to say that, as between Forstaff and the client, Forstaff acknowledges that it is liable to pay the worker: see the "Terms and Conditions" set out in para [39] above. However, there is nothing either in those terms and conditions or in the relationship otherwise (so far as the evidence proves it) to suggest that Forstaff is doing so other than as principal. More importantly, there is no basis for saying that, even if the client has no primary liability to pay a worker, nonetheless it has some residual liability should Forstaff fail to do so. 100 Forstaff submitted that a contract came into existence between the worker and the client either on the basis of agency or on the basis of trust - Forstaff being, as the case required, the agent or the trustee. But if that were so, it would have to be a contract on the basis of the "temporary employment agreement" subsisting between Forstaff and the worker (either the written document or, before the written forms were introduced, the oral equivalent). I do not think that this can be correct. It would, I think, be inconsistent with the relationship established between Forstaff and the client, including the terms and conditions to which I have referred, to hold that there was a mutual intention that Forstaff should, upon the introduction of a worker, bring the client into a contractual relationship with that worker. 101 The terms of the contract between the worker and Forstaff require the worker to accept the care, control, supervision and direction of the client whilst the worker is working for the client. The client does not need to have a direct contractual relationship with the worker to obtain the benefit of that promise. It is sufficient for the client to be able to call upon Forstaff to require the worker to perform or, as a last resort, to send the worker home. The right of the client to do this is recognised explicitly in the Flanagan form and, I think, by implication in the Lyons form. 102 Equally, the worker has no need of a contract with the client. The client is obliged, by its contract with Forstaff, to provide appropriate instruction, direction and supervision, and a safe working environment. If the worker has reason to believe that these obligations are not being met, he or she can call upon Forstaff to require the client to rectify the matter and, as a last resort, can leave the client's premises. 103 For similar reasons, I do not think that it is either necessary or appropriate to call upon the doctrine of third party contractual rights, of the kind recognised by the High Court of Australia in Trident General Insurance Co Limited v McNiece Bros Proprietary Limited (1988) 165 CLR 107. Analysis: the relationship between Forstaff and workers 104 I do not think that a contract comes into existence between Forstaff and a worker at the time that the worker completes and signs an application for employment, or at the time the worker is taken onto the books of Forstaff. That is because there is no obligation on Forstaff to offer any work to the worker, and no obligation on the worker to accept any work that is offered. There is no mutuality of obligation. 105 However, I think that a contract does come into existence between Forstaff and the worker whenever Forstaff offers work to the worker and the worker accepts that offer. Assuming that no special terms are negotiated at the time of any such offer and acceptance, the contract would be on the terms and conditions that had earlier been acknowledged (either orally or in writing, as the case may be). See Accident Compensation Commission v Odco Pty Ltd (1990) 64 ALJR 606, 609. The question, therefore, is whether that contract is a contract of employment. 106 I think it is clear that, when a worker accepts an offer of work and goes to the client's premises to perform that work, the worker is subject to the immediate control and supervision of the client. The client must:

(1) Explain to the worker the precise nature of the work to be done.

(2) In most cases, supply the worker with appropriate clothing (including safety clothing) and tools and equipment.

(3) Direct or control the worker in the performance of his or her work. 107 The direction and control that the client has arises, I think, de facto rather than de iure. That is because, for the reasons that I have just given, there is no contractual relationship between the client and the worker. The worker is bound, by the terms of his or her contract with Forstaff, to accept "the care, control and supervision of [the] client" and acknowledges "the right of [the] client to direct my work activities." If the worker does not accept the care, control and supervision, or direction, of the client then the client may terminate the assignment. But the client is doing so pursuant to its contract with Forstaff, the effect of which the worker acknowledges in his or her contract with Forstaff. 108 The only "control" that Forstaff exercises over a worker is the right of ultimate control: to withdraw the client from an assignment at the request of a client and, if necessary, to terminate its "employment" of the worker. (I use the word "employment" because it is used in clause 1 of the "Terms and Conditions of Employment": see para [29] above.) 109 The work performed by a worker for a client is done for the benefit of Forstaff, because it is done for the purpose of Forstaff's business and enables Forstaff to derive remuneration from the client: ACC v Odco at 610. (The same concept was expressed slightly differently at 609, where the Court said that the worker agreed to perform work for the respondent "even though the builder is the ultimate beneficiary of that work".) However, for the reason given by the majority in Hollis at 39 [40] (see para [55] above), this is not determinative. 110 Some of the circumstances referred to by the majority in Hollis would support the conclusion that the contract that is formed when a worker accepts an offer of work from Forstaff is one of employment. The workers were presented to clients as emanations (and, it may be, employees) of Forstaff; and this is so whether or not they wore safety vests or polo shirts bearing Forstaff's logo. Forstaff "superintended" the workers' finances. There is no evidence that the workers bargained for the rate of their remuneration, as opposed to accepting a rate that Forstaff offered. A fortiori from the facts in Hollis, the workers were paid by time and not on a "piece work" basis. 111 Again a fortiori from the facts in Hollis, the workers were not required to provide their own equipment. 112 Others of the circumstances referred to by the majority in Hollis might indicate the contrary view. Some of Forstaff's workers were possessed of particular skills and could, presumably, make independent livings utilising those skills on their own account. However, there is no basis for thinking that any of those workers generated goodwill. 113 The workers had some degree of control over their work, in that they were able, without penalty, to accept or reject assignments. When they did accept an assignment, however, they had little control over the manner of performing their work for the client, and were under the control, supervision and direction of the client (including, I would infer, as to the hours during which work was to be performed). 114 I do not think that the control test is dispositive in the present case. It may be acknowledged readily, as the cases that I have referred to indicate, that the control test is in many cases dispositive and in most, if not all, cases significant. However, historically, the control test has been considered in the context of a bilateral, rather than trilateral (or multilateral) relationship. Significantly, in the cases that do involve a trilateral relationship (ACC v Odco, BWIU v Odco and Brook Street), the control test has not been regarded as dispositive. That, I think, reflects the reality that in a changing workforce, with evolving relationships, including those of the kind presently under consideration and those considered in the cases just referred to, the concept of control is not readily susceptible of analysis according to the traditional master/servant matrix. The true meaning and nature of the relationships that are embodied within the word "control" will vary, of necessity, according to the factual and contractual context within which control is located and exercised. 115 But even if the matter were to be resolved by the application of the control test, then I would conclude that the contract formed whenever a worker accepts an offer of work from Forstaff is a contract of employment. That is because:

(1) The control that the client exercises over the worker is, as I have said, de facto rather than de iure control; and the client's ability to exercise that de facto control arises not from any contractual relationship that it has with the worker but from its contractual relationship with Forstaff.

(2) Forstaff retains ultimate control, in that it can withdraw the worker from an assignment thereby terminating the current contract. If necessary, it can, ultimately, terminate its relationship with the worker.

(3) On the facts of this case, and on the legal incidents of the contractual relationships that are established, Forstaff's ultimate control is the sanction for, and source of, the client's ability to exercise de facto control over the worker. 116 The facts in the present case are far removed from those in both BWIU v Odco and ACC v Odco (in the latter case, it was apparently accepted that workers were not employees at common law; the question was whether they were "workers" because of the extended definitions of "employer" and "worker" in the relevant legislation). Contrary to the submission for Forstaff, I do not regard those cases - in particular, BWIU v Odco - as supporting, let alone, compelling, the conclusion that in this case the workers are not employees. Indeed, in BWIU v Odco, it was the terms of the parties' express characterisation of their relationship that persuaded both Woodward J at first instance and the Full Court to regard it as one of principal and independent contractor. That characterisation does not appear in the terms and conditions of employment between Forstaff and workers. 117 Under the contract that comes into existence when a worker accepts an offer of work from Forstaff:

(1) Some conditions of the "employment" may be set by a relevant Award, Site or Enterprise Agreement, but those conditions do not "form any part of [the] common law contract of employment".

(2) The length of the assignment, and the relative roles of Forstaff and the client, are as discussed above.

(3) Forstaff is, and the client is not, liable to pay the worker (subject to compliance with requirements for time sheets and the like).

(4) Forstaff deducts PAYE tax from payments due to the worker.

(5) Remuneration "is subject to all relevant provisions of any appropriate Award, Site or Enterprise Agreement".

(6) The worker may have entitlements to overtime, shift penalties, public or trade holidays or other allowance in accordance with any "relevant Award, Site or Enterprise Agreement".

(7) The worker may be entitled to "Occupational Superannuation" in accordance with "the appropriate legislation, Award, Site or Enterprise Agreement".

(8) Forstaff arranges workers' compensation insurance under which, presumably, the worker has rights in the event of injury. 118 Many of the incidents of the terms and conditions of employment suggest that the relationship is one of employer and employee: in particular, the undertakings of, or obligations on, Forstaff to deduct PAYE tax, to arrange (and apparently either pay for or deduct) occupational superannuation, and the obligation on Forstaff to arrange workers' compensation insurance. The worker's entitlements to overtime, shift penalties, public and trade holidays and other allowances might likewise be seen as more characteristic of the relationship of employer and employee than of the relationship of employer and independent contractor. 119 There are indications the other way. Thus, the worker has no entitlement to annual holidays, sick leave or other similar benefits that are ordinarily incident to a contract of employment. It was suggested (although the evidence is not compelling) that the hourly rate negotiated between Forstaff and workers was set at a level to compensate the worker for the absence of these benefits. 120 In circumstances where the criteria are balanced, I think that it is appropriate, as the Full Court did in BWIU v Odco, to pay close regard to the way in which the parties have characterised their relationship. In this case, the parties have characterised the relationship as one of employment. The terms and conditions of employment are described as a "Temporary Employment Agreement" and apparently were thought to give rise to a "common law contract of employment". Clause 1 itself is consistent with the legal position as I have analysed it in para [105] above. The worker acknowledges that his or her "employment with Forstaff is as a temporary on an assignment by assignment basis, with each such assignment constituting a discrete period of employment". 121 If the facts were inconsistent with the parties' characterisation of their relationship, then the characterisation could not prevail. In the present case, I think that the facts, overall, are consistent with the characterisation. But even if I were wrong in this, the facts could only be seen at best (from Forstaff's perspective) as balanced. In those circumstances, I would still conclude that decisive weight (in the sense that it is weight sufficient to decide the question) should be accorded to the terms of the parties' bargain. That is particularly so where (as in my opinion is the case) the frequently decisive consideration of control is at least not inconsistent with, and on one view consistent with, the conclusion that the relationship is one of employer and employee. Conclusion 122 I therefore conclude that a contract of employment comes into existence between Forstaff as employer and a worker as employee whenever Forstaff offers to the worker, and the worker accepts, an assignment to a client of Forstaff. 123 It follows that the preliminary question should be answered "yes, but only in respect of any contract of employment that comes into existence upon the acceptance by the worker of Forstaff's offer of assignment to a client of Forstaff". 124 The only order that I make at this stage is to stand the proceedings over to a date to be arranged by the parties with my associate, to enable directions to be given for the further conduct of these proceedings.

Last Modified: 08/11/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Pay-Roll Tax Act 1971(NSW)

CITATION : Forstaff & Ors v The Chief Commissioner of State Revenue [2004] NSWSC 573 revised - 11/08/2004 HEARING DATE(S) : 8/6/04, 9/6/04, 10/6/04 JUDGMENT DATE : 8 July 2004

CATCHWORDS : TAXATION AND REVENUE - payroll tax - where plaintiff provides temporary workers to clients - where triangular relationship consisting of contract between plaintiff and worker, and contract between plaintiff and clients - whether plaintiff liable to pay payroll tax in respect of workers - whether workers were employees of plaintiff at common law - whether at common law there was a contract of employment between worker and plaintiff - when contract of employment formed - employees and independent contractors - "dichotomy" between employees and independent contractors - "irreducible minimum of mutual obligation" LEGISLATION CITED : Pay-Roll Tax Act 1971 (NSW) Drake Personnel Limited v Commission of State Revenue (Vic) (1998) ATC 4915 Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16 Hollis v Vabu Pty Limited (2001) 207 CLR 21 Brook Street Bureau (UK) Ltd v Dacas [2004] EWCA Civ 217 Carmichael v National Power Plc [1999] 1 WLR 2042 Building Workers' Industrial Union of Australia v Odco Pty Ltd (1991) 29 FCR 104 Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Insurance Company of Australia Limited (1931) 46 CLR 41 Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 CASES CITED : Automatic Fire Sprinklers Proprietary Limited v Watson (1946) 72 CLR 435 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Turner v Sawdon [1901] 2 KB 653 Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 Australian Mutual Provident Society v Allan (1978) 52 ALJR 407 Narich Pty Ltd v Commissioner of Pay-Roll Tax (1983) 2 NSWLR 597 Trident General Insurance Co Limited v McNiece Bros Proprietary Limited (1988) 165 CLR 107 Accident Compensation Commission v Odco Pty Ltd (1990) 64 ALJR 606 Forstaff Pty Limited (First Plaintiff) Forstaff Logistics Pty Limited (Second Plaintiff) Forstaff Warehouse Personnel Pty Limited (Third Plaintiff) Forstaff Hospitality Pty Limited (Fourth Plaintiff) Forstaff Gosford Pty Limited (Fifth Plaintiff) PARTIES : Forstaff Engineering Personnel Pty Limited (Sixth Plaintiff) Forstaff Kingsgrove Pty Limited (Seventh Plaintiff) Forstaff Blacktown Pty Limited (Eighth Plaintiff) Forstaff Commercial Personnel Pty Limited (Ninth Plaintiff) Toncarna Pty Limited (Tenth Plaintiff) The Chief Commissioner of State Revenue (Defendant) FILE NUMBER(S) : SC 50095/03 COUNSEL : J T Gleeson SC/M Richmond (for Plaintiffs) M J Kimber SC/I C Latham (for Defendant) SOLICITORS : Corrs Chambers Westgarth (for Plaintiffs) Crown Solicitor's Office (for Defendant)

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