Secretary, Attorney-General's Department v O'Dwyer

Federal Court of Australia|2022-10-07|Before: Goodman J

The appeal be allowed.
The decision of the Administrative Appeals Tribunal dated 15 July 2021 be set aside.
The proceeding be remitted to the Administrative Appeals Tribunal for re-hearing according to law. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

introduction 1 On 30 July 2019, voluntary administrators were appointed to Ralan Property Services Pty Ltd (RPS). RPS was a member of the Ralan Group of companies, which included Ralan Group Pty Ltd (RGPL). The group was controlled by Mr William O'Dwyer. William's three younger brothers - Allan, Bryan and Robert (the respondent to this appeal) - worked in various roles for entities in the group, including RPS. I will refer to these gentlemen by their first names for convenience and without intending any disrespect. 2 On 17 December 2019, RPS was wound up. 3 Robert subsequently made a claim for financial assistance pursuant to the Fair Entitlements Guarantee Act 2012 (Cth) (FEG Act) on the basis that he had been an employee of RPS. On 25 March 2020, that claim was denied by the applicant. Robert then sought internal review of the applicant's decision pursuant to s 38 of the FEG Act. On 11 May 2020, the applicant notified Robert that following an internal review, the applicant had affirmed its original decision. The basis of the denial of Robert's claim was that he was ineligible because he was an "excluded employee" by dint of Bryan being an employee and director of RPS at relevant times. 4 On 27 May 2020, Robert filed an application for review of the internal review decision with the Administrative Appeals Tribunal. On 15 July 2021, the Tribunal set aside the applicant's decision and remitted it to the applicant, and published its Reasons for doing so: O'Dwyer and Secretary, Attorney-General's Department [2021] AATA 2346. The critical finding made by the Tribunal was that Bryan was not employed by RPS at relevant times, with the consequence that Robert was not an "excluded employee". 5 The applicant appeals from the decision of the Tribunal, pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). The essential contention in the appeal is that the Tribunal erred in law in the way that it determined whether Bryan was an employee of RPS, in light of the subsequent decisions of the High Court of Australia in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1; (2022) 96 ALJR 89 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2; (2022) 96 ALJR 144. For the reasons set out below, the appeal should be allowed.

statutory Framework 6 One of the objects of the FEG Act, as described in s 3 of that Act, is to provide for the Commonwealth to pay advances on account of unpaid employment entitlements of former employees of employers in cases where the employers are insolvent; where the end of the employment of the former employees was connected with that insolvency; and where the former employees cannot obtain payment of the entitlements from other sources. 7 Part 2 of the FEG Act concerns eligibility for advances. Within that Part, s 10 sets out a series of conditions of eligibility, all of which must be established to the satisfaction of the applicant. Sections 11 to 13 then set out a series of exclusions from eligibility. Of present relevance is s 11(1), which provides: 11 Exclusion for personal connection with employer (1) A person is not eligible for an advance for the person's employment by an employer if: (a) section 556 of the Corporations Act 2001 applies to the winding up of the employer; and (b) the person is an excluded employee under that section in relation to the employer. 8 The definition of "excluded employee" in s 556 of the Corporations Act 2001 (Cth) is, in so far as is presently relevant, as follows: "excluded employee", in relation to a company, means: (a) an employee of the company who has been: (i) at any time during the period of 12 months ending on the relevant date; or (ii) at any time since the relevant date; or who is, a director of the company; … (c) an employee of the company who is a relative (other than a spouse) of an employee of the kind referred to in paragraph (a). 9 The "relevant date" is defined in s 9 of the Corporations Act as meaning the day on which the winding up is taken because of Division 1A of Part 5.6 of that Act to have begun. "Relative" is defined in s 9 of the Corporations Act in terms which include a brother.

matters in issue 10 The effect of s 11 of the FEG Act is that it excludes Robert from eligibility for an advance under that Act if two criteria are met. The first criterion is that s 556 of the Corporations Act applies to the winding up of RPS. It is uncontroversial that this is so and that the first criterion is satisfied. 11 The second criterion is that Robert is an "excluded employee" under s 556 of the Corporations Act in relation to RPS. The definition of "excluded employee" includes an employee who is a "relative" of another employee of RPS where that other employee was at any time since the date 12 months prior to the "relevant date" also a director of RPS. 12 It is uncontroversial that: Robert was an employee of RPS; Robert, as a brother of Bryan, was a relative of Bryan for the purposes of ss 9 and 556 of the Corporations Act; the relevant date for the purposes of s 556 of the Corporations Act is 30 July 2019, being the date of appointment of voluntary administrators to RPS (s 513C of the Corporations Act); and Bryan was a director of RPS during the period from 24 July 2018 until it was placed into liquidation. 13 Thus, the only matter of controversy is whether Bryan was an employee of RPS. As noted above, the central issue on the appeal is whether the Tribunal erred in the approach it took in deciding this question.

Factual findings 14 The Tribunal made the following factual findings of present relevance: (1) RPS was incorporated in 1999 and operated RGPL's rent roll business (Reasons [1]); (2) Bryan was a founding shareholder of RPS (Reasons [26]), who held a single Class H (non-voting) share in RPS (Reasons [11(b)]; cf Reasons [2] which is a finding that Bryan held shares in RPS); (3) Bryan also held shares in other companies in the Ralan Group, including RGPL (Reasons [11(c)]); (4) prior to mid-2019: (a) there was no formal (i.e. written) contract between Bryan and RPS (Reasons [11(d), [22]]). In this regard, although there was some secondary evidence of a formal contract of employment between Bryan and RPS - namely, some internal correspondence in which Bryan was described as being "employed full-time" - that evidence was insufficient to support a finding that Bryan was employed pursuant to a written agreement prior to 30 July 2019 (Reasons [11(e)], [22]); (b) Bryan provided personal services to RPS under an oral contract with William in return for which Bryan received regular fortnightly payments (Reasons [11(d)]); (c) Bryan: (i) was engaged to perform various high-level functions by RPS (Reasons [2]); (ii) engaged directly with landlords and tenants on behalf of RPS (Reasons [11(g)]); (iii) attended to matters such as advertising and assisting tenants with fit-outs (Reasons [11(g)]); (iv) managed the administrative staff who assisted in disbursements and charges (Reasons [11(g)]); (v) did not wear a uniform with a company logo (Reasons [28]); (vi) had an office (Reasons [28]); (5) throughout the 12 months ending on 30 July 2019 and for some years prior to that, Bryan had the title of "Commercial Property Manager" and held a Class One real estate license. His business card identified him as a "Senior Associate"(Reasons [11(f)]); (6) on 24 July 2018, Bryan was appointed as a director of RPS (Reasons [11(h)]; cf Reasons [2], which is a finding that the appointment occurred in early 2018); (7) the nature of the work Bryan performed did not change after his appointment as a director (Reasons [11(i)]); (8) on 30 July 2019, being the day that administrators were appointed to RPS (Reasons [9]), Bryan was formally employed by RPS on a fixed salary under a written employment contract (Reasons [11(e), (j)]. The nature of the services provided by Bryan did not change after his formal appointment as an employee (Reasons [11(k)]); (9) Bryan regarded his status as that of an employee, including in the 12-month period prior to his formal appointment as an employee (Reasons [11(l)]); (10) on 5 December 2019, Bryan was made redundant (Reasons [11(m)]); (11) RGPL did not make provision for holiday leave, or make provision for PAYG income tax, or make any superannuation employer contributions (Reasons [11(n)]); (12) there were no deductions for payroll tax (Reasons [29]); (13) RGPL treated the payments made to Bryan as a loan to be set off against future dividend entitlements (Reasons [11(o)]); (14) Bryan did not receive holiday pay and no provision was made for sick leave and Bryan's evidence was that he had almost no superannuation, despite having been engaged with company activities since at least 1999 (Reasons [29]); (15) for income tax purposes, Bryan declared his income as dividend payments; his taxation estimates for 2014 and 2015 contained no reference to payment for wages or salary; his taxable income was listed as interest and dividends; and he received substantial franking credits in each of those years (Reasons [30]); and (16) RGPL's administrators have issued a demand to Bryan for $270,750 paid to him by way of dividends (Reasons [11(p)]).

Reasoning 15 The Tribunal noted that s 556 of the Corporations Act defines "employee" as meaning a person who has been or is an employee of the company, whether remunerated by salary, wages, commission or otherwise; and whose employment by the company commenced before the "relevant date" (Reasons [13]). It also noted that the word "employee" within that definition is not otherwise defined in the Corporations Act and thus it was necessary to have regard to the common law in order to determine whether there was an employment relationship between Bryan and RPS such that the former was an employee of the latter (Reasons [12]). 16 The Tribunal described the approach required by the common law to be taken as a "multifactorial approach", citing Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; (1986) 160 CLR 16 and Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 207 CLR 21 (Reasons [15] to [18]). 17 The Tribunal noted a concession by the applicant that the records of RPS had not revealed a formal (i.e. written) employment contract between Bryan and RPS and that "at its highest", there was some internal correspondence in which Bryan was described as being "employed full-time" and paid on a regular basis which was "allocated against a shareholder's loan", then "sorted out with a dividend at years end" (Reasons [22]). 18 The Tribunal then stated that a contract for the performance of personal services under which regular payments are made for those services is not necessarily an employment contract, because the provider of such services may be an agent, an independent contractor, an employee, or a person with an interest in the general advancement of the other party. It also stated that the provision of personal services under a contract does not by itself indicate the legal relationship between the contracting parties (Reasons [23]). 19 The Tribunal found that there was no evidence to support the existence of a formal (i.e. written) employment contract between Bryan and RPS. It then described the evidence of any pre-existing contract between Bryan and RPS during the many years prior to his formal appointment on 30 July 2019 as "ephemeral" (Reasons [24]). 20 The Tribunal then recorded its acceptance of Bryan's evidence that there was an oral contract between Bryan and William (on behalf of RPS) but noted that the terms of such an oral contract were unclear (Reasons [24]). 21 After noting that the four O'Dwyer brothers fulfilled varying roles in the Ralan Group with differing degrees of power and authority, the Tribunal noted that whilst Robert had been employed on a standard employment contract specifying in considerable detail his entitlements, Bryan in contrast had no formal contract despite carrying out a more senior role. The Tribunal noted that the "family element" was a distinctive feature of this case (Reasons [25]). 22 The Tribunal recorded that there was a dearth of evidence before it as to the degree to which Bryan - who like William was a founding shareholder of RPS - was supervised or controlled in his daily activities by William (Reasons [26]). 23 After noting various submissions made by the applicant, the Tribunal noted that Bryan's role was confined to running the rent roll business, and it posed for itself the following question: was Bryan an employee or an equity owner advancing his own interests? (Reasons [28]). 24 The Tribunal then considered the following factors: (1) Bryan did not wear a uniform with a company logo (Reasons [28]); (2) although Bryan had an office, his business card, marked simply "Senior Associate", was somewhat anodyne and did not clearly represent anything. Bryan may have identified with the corporate group in general or RPS in particular, as fitting his role of brother of the proprietor, a shareholder, and later, a director (Reasons [28]); (3) whilst Bryan gave evidence that he saw himself as an employee, there were no deductions for payroll tax, or provision for superannuation contributions or leave loadings. Further, Bryan did not receive holiday pay and no provision was made for sick leave and Bryan's evidence was that he had almost no superannuation, despite having been engaged with company activities since at least 1999 (Reasons [29]); and (4) for income tax purposes, Bryan declared his income as dividend payments; his taxation estimates for 2014 and 2015 contained no reference to payment for wages or salary and his taxable income was listed as interest and dividends and he received substantial franking credits in each of those years (Reasons [30]). 25 At paragraph [32] of the Reasons, the Tribunal expressed the view that the visible outward signs of an employment relationship were absent. The Tribunal then noted that Bryan's role did not change after his appointment as a director or after his formal appointment as an employee and found that this was inconclusive as it was consistent both with Bryan having been an employee for the whole time and with Bryan being an entrepreneur building the business (Reasons [33]). The Tribunal then expressed its conclusions, at paragraphs [34] to [38] of the Reasons, as follows: 34. The present case sits on the borderline where the multifactorial approach does not produce any single clear answer. 35. This case seems to be more aligned with that of Jeremy Taylor v Auto Loans Group Pty Ltd T/A AutoCarLoans.com.au [2018] FWC 1950 (5 April 2018) … 36. I am not satisfied that the manner in which Bryan performed the duties of his office marked him as an employee, as well as a director and shareholder. He represented the company but that is consistent with his role as a shareholder powerfully connected with the proprietor. 37. On the basis of the evidence before the Tribunal, I find that Bryan provided his services under an oral agreement to take responsibility for certain operational matters. He was a shareholder who received regular dividend payments, which were declared for income tax purposes. He was essentially an equity partner. He was in it for the profit, and not just in anticipation of receiving a regular wage. 38. I find that Bryan was not employed by RPS during the 12 months prior to the relevant date. Therefore, neither he, nor the Applicant, is an 'excluded employee' under the FEG Act. (emphasis added)

The appeal 26 An appeal lies to this Court on a question of law: s 44 of the AAT Act. The applicant's grounds of appeal are as follows: 1. Whether the Tribunal erred in law in approaching the question of whether Bryan O'Dwyer was an employee without reference to the terms of his contract? 2. Whether the Tribunal erred in law in concluding that Bryan O'Dwyer was not an employee (within the meaning of Corporations Act 2001 (Cth) s 556(2)) of Ralan Property Services? 27 The applicant submitted that the Tribunal erred by approaching the question of whether Bryan was an employee of RPS without reference to the terms of his contract with RPS. Its submission draws heavily upon Personnel Contracting. In Personnel Contracting, the majority justices explained a series of principles in the context of a wholly written contract. Those principles were conveniently summarised by Wigney J in JMC Pty Limited v Commissioner of Taxation [2022] FCA 750 at [16] to [27] as follows: 16 The fundamental principles established by the judgments of the majority of the justices in Personnel Contracting and Jamsek may be shortly summarised as follows. 17 First, where the rights and duties of the parties are comprehensively committed to a written contract, the legal rights and obligations established by the contract are decisive of the character of the relationship provided that the validity of the contract has not been challenged as a sham, or that the terms of the contract have not been varied, waived or are subject to an estoppel: Personnel Contracting at [43], [44], [47], [59] (Kiefel CJ, Keane and Edelman JJ), [172] (Gordon J, Steward J relevantly agreeing at [203]). The task is to construe and characterise the contract made between the parties at the time it was entered into: Personnel Contracting at [174] (Gordon J). 18 Second, in order to ascertain the relevant legal rights and obligations, the contract of employment must be construed in accordance with the established principles of contractual interpretation: Personnel Contracting at [60] (Kiefel CJ, Keane and Edelman JJ), [124] (Gageler and Gleeson JJ), [173] (Gordon J). In that respect, regard may be had to the circumstances surrounding the making of the contract, as well as to events and circumstances external to the contract which are objective, known to the parties at the time of contracting and which assist in identifying the purpose or object of the contract: Personnel Contracting at [174]-[175] (Gordon J); Jamsek at [61] (Kiefel CJ, Keane and Edelman JJ), referring to Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352. The nature of the specific job that the putative employee applied for and the nature and extent of any tools or equipment they have to supply for that job may also be relevant: Personnel Contracting at [175] (Gordon J). It is, however, generally not legitimate to use in aid of the construction of a contract anything which the parties said or did after it was made: Personnel Contracting at [176] (Gordon J). 19 Third, and flowing from the first two principles, the characterisation of the relationship between the parties is not affected by circumstances, facts or occurrences arising between the parties that have no bearing on their legal rights: Personnel Contracting at [44] (Kiefel CJ, Keane and Edelman JJ), [173]-[178] (Gordon J); Jamsek at [109] (Gordon and Steward JJ). A "wide-ranging review of the entire history of the parties' dealings" is neither necessary nor appropriate: Personnel Contracting at [59] (Kiefel CJ, Keane and Edelman JJ); see also [185]-[189] (Gordon J). For a "matter to bear upon the ultimate characterisation of a relationship, it must be concerned with the rights and duties established by the parties' contract, and not simply an aspect of how the parties' relationship has come to play out in practice but bearing no necessary connection to the contractual obligations of the parties": Personnel Contracting at [61] (Kiefel CJ, Keane and Edelman JJ) (emphasis added). 20 It follows that the fact that the parties' subsequent conduct may not have precisely aligned with their contractual rights and obligations, or the fact that a particular contractual right may have never been exercised or utilised, will generally be irrelevant when it comes to characterising the relationship. That is so unless the manner in which the parties conducted themselves after entering into the contract was such as to establish that the contract was a sham, or that the contract had been varied, or that certain rights under the contract were subject to an estoppel. 21 Fourth, the contractual provisions that may be relevant in determining the nature of the relationship include, but are not limited to, those that deal with the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax, the delegation of work and the right to exercise direction and control: Personnel Contracting at [113] (Gageler and Gleeson JJ); [174] (Gordon J), referring to Brodribb at 24 (Mason J); see also 36-37 (Wilson and Dawson JJ). … 23 Fifth, the characterisation of the relationship as one of service or employment involving an employer and employee, as opposed to a relationship involving an independent contractor providing services to a principal, often hinges on two considerations. The first consideration is the extent to which the putative employer has the right to control how, where and when the putative employee performs the work: Personnel Contracting at [73]-[74] (Kiefel CJ, Keane and Edelman JJ); [113] (Gageler and Gleeson JJ); see also Brodribb at 24 (Mason J) and 36-37 (Wilson and Dawson JJ). The second is the extent to which the putative employee can be seen to work in his or her own business, as distinct from the business of the putative employer - the so-called "own business/employer's business" dichotomy: Personnel Contracting at [36]-[39] (Kiefel CJ, Keane and Edelman JJ); [113] (Gageler and Gleeson JJ); cf [180]-[183] (Gordon J). Neither of those considerations are determinative and both involve questions of degree. … 26 Sixth, a "label" which the parties may have chosen to describe their relationship is not determinative of the nature of the relationship and will rarely assist the court in characterising the relationship by reference to the contractual rights and duties of the parties: Personnel Contracting at [63]-[66] (Kiefel CJ, Keane and Edelman JJ); [127] (Gageler and Gleeson JJ); [184] (Gordon J). The parties' "legitimate freedom to agree upon the rights and duties which constitute their relationship" does not "extend to attaching a 'label' to describe their relationship which is inconsistent with the rights and duties otherwise set forth" - to permit otherwise would elevate the freedom to "a power to alter the operation of statute law to suit … the interests of the party with the greater bargaining power": Personnel Contracting at [58] (Kiefel CJ, Keane and Edelman JJ). 27 The characterisation of a relationship as being either one of employer and employee, or one involving the engagement of an independent contractor, is ultimately an evaluative judgment that takes into account the totality of the parties' contractual rights and obligations. The exercise may not necessarily be straightforward because, in some cases at least, the parties' contractual rights and obligations may point in different directions. The evaluative exercise also should not be approached on the basis that there is some checklist against which ticks and crosses may be placed so as to produce the right answer. Some degree of uncertainty is unavoidable, particularly in the case of many modern-day work or service contracts. (emphasis added) 28 In the present case, the Tribunal found that there was no written contract, but did find that there was an oral contract. The Tribunal then did not take the approach set out in Personnel Contracting and Jamsek of considering whether the terms of that contract gave rise to an employment relationship. Instead, the Tribunal applied the "multi-factorial approach" that was disapproved in Personnel Contracting and Jamsek. This is seen in particular in the Tribunal's adoption of the multifactorial approach at paragraphs [16] to [18] of the Reasons and its subsequent application of that approach, which led to the conclusion expressed at paragraph [36] of the Reasons that: "I am not satisfied that the manner in which Bryan performed the duties of his office marked him as an employee…". 29 Thus, the appeal turns on whether the approach to be taken to determining whether an employment relationship has been created as explained in Personnel Contracting and Jamsek is limited to written contracts or extends to oral contracts (as in the present case) or to contracts which are partly written and partly oral. In my view, the approach taken in Personnel Contracting and Jamsek also applies where there is no wholly written contract, for the following reasons. 30 First, the foundational reasoning of the plurality in each of Personnel Contracting and Jamsek (Kiefel CJ, Keane and Edelman JJ) is that the focus of the inquiry is upon the legal rights and obligations created by the contractual relationship between the parties, rather than upon the history of the relationship between them (including the manner of performance of the contract). 31 Secondly, in the context of that foundational reasoning, there is no reason to distinguish between wholly written contracts and other contracts. This is so despite there being greater scope in the case of oral contracts for subsequent events to be considered as part of the process of identification of the terms agreed between the parties (see Personnel Contracting at 130-131 [177], 132-133 [183], 134-135 [188] and 135 [190] per Gordon J). 32 Thirdly, in Personnel Contracting at 108 [57], the plurality noted that Hollis involved a contract that was partly oral and partly in writing and approved an observation that Hollis "does not alter or even challenge the orthodox principle that courts are not concerned with what has 'actually occurred' in a relationship, but rather with 'the obligations by which the parties [are] bound'". See also Gordon J at 135 [190]. Further, at 108 [59], the plurality stated that a reason why a wide-ranging review of the entire history of the parties' dealings is unnecessary and inappropriate is that the task of the court is to enforce the parties' rights and obligations, not to form a view as to what a fair adjustment of those rights might require. These observations apply with equal force to contracts which are not wholly in writing. 33 Thus, the fundamental task - the ascertainment and construction of the terms of the legal rights and obligations of the parties, rather than an assessment of the history of the relationship between the parties throughout the life of the contract, including the manner of performance of the contract - remains the same regardless of the form of the contract in question. 34 In these circumstances, the Tribunal erred in law in failing to consider whether the rights and obligations created by the oral contract gave rise to an employment relationship and instead adopted an approach which was not confined to a consideration of those rights and obligations and included factors such as the manner of performance of the contract. The approach taken by the Tribunal was understandable in light of the authorities at the time of the Tribunal's decision. As Wigney J noted in JMC at [14], numerous decisions of the Full Court of this Court had applied the "multifactorial" approach. Nevertheless, it constituted an error of law. 35 The applicant submitted that if it succeeded on the first ground of appeal then the matter should be remitted to the Tribunal for redetermination. I agree that this is the appropriate course. The result of the first ground of appeal also renders it unnecessary to deal with the second ground of appeal.

Conclusion 36 For the reasons set out above, the appeal should be allowed. I note that the applicant does not seek costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.

Corporations Act 2001(Cth)s 556(2))

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