Roosters v Ducks: Extension of the Sham Arrangements Provision to Triangular Arrangements

In Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45, the High Court of Australia considered the operation of s 357 of the Fair Work Act 2009 (Cth) (Act) which prohibits employers from misrepresenting to an individual that the contract of employment under which they are employed is one of an "independent contractor".

Quest had employed two individuals as housekeepers for some years. Quest then entered into an arrangement with a third party (Contracting Solutions) by which (a) Contracting Solutions engaged the individuals as independent contractors; and (b) the individuals were then contracted out to Quest under a labour hire agreement between Quest and Contracting Solutions (described as a "triangular contracting" arrangement). However, the individuals continued to perform the same work for Quest as when they had been employees.

The Full Federal Court held s 357 only applied to an employer misrepresenting the position regarding the employee's employment with the employer itself; it did not apply to triangular contracting arrangements. The High Court disagreed, finding (a) there was nothing in the language of s 357 that limited its operation in this way; and (b) the narrower construction would defeat the purpose of the provision to protect individuals who in truth are employees being misled about their employment status. In so finding, the High Court referred to the statement in the Explanatory Memorandum that parties "cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck."

The decision is an important development in the protection of employees' rights. Employers must be aware that they can no longer avoid the sham arrangements provisions under the Act by using a triangular arrangement to disguise the true nature of the employment relationship.

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