Destroying self-employed rights - Part 1

The Australian government plans to override the High Court on contract!

In my Substack post earlier this week (2^nd October 2023) I gave an overview of what the Australian government’s proposed new Industrial relations law (the Loophole Bill) seeks to do. My analysis is that this is an intended destruction of Australia’s self-employed small businesses.  This is a pretty bold allegation but It’s supported by the actual structure and wording of the legislative proposal.

Be patient with me as I take you through this step by step in this and subsequent posts. My attempt is to provide simple clarity to what is a highly complex worded and structure 284 page Bill. (Note I’m not a lawyer. And just to be sure, nothing below should be taken as legal advice if you get my drift!)

Core background facts on what’s happening

First I need to set the scene for you.

Multi-factorial

Since about World War II,  when deciding whether a person is an employee or a self-employed independent contractor, Australian courts have used what is called the ‘multi-factorial’ test. This test involves a detailed legal analysis of all the factors and behaviours involved between the parties to a work contract.

The court process essentially looks to determine whether one person ‘has the right to’ or does ‘control’ the other person. If there is ‘control’ there is an employment contract (called contract of service). If there is ‘offer and acceptance’ where there is no ‘right to control’ the contract is a commercial contract (called contract for services).

Lawyers love this multi-factorial process because it’s complex generating big legal fees. (I apologise to my dear lawyer friends, but they do admit I’m correct on this!)   And note that the multi-factorial is the process pretty much used across the globe.   

Photo by Kelly Sikkema on Unsplash

High Court – written contract

But the Australian High Court (Australia’s highest court) has thrown a bit of a spanner into this multi-factorial machine.

In February 2022, the Australian High Court (in the Personnel case) dared to take what some consider a massive leap. The Court (Australia’s top court) declared that if a written contract is clear and comprehensive that the written contract alone should be relied on. This ruling breaks from the complexity of the multi-factorial test.

It seems that the High Court had observed the confusion, complexity, and cost associated with the prevailing legal multi-factorial processes and sought to create certainty. The court  stated;

 “… It is the task of the courts to promote certainty with respect to a relationship of such fundamental importance.” (Paragraph 58 of the HC Ruling)

I say ‘Thank damn goodness!’ What a relief to see such common sense! Thanks to all the seven judges for their unanimous agreement on this point. Isn’t ‘certainty’ something we need from the law?

But ah!, apparently not, say the big army of lawyers, academics, and (surprise) unionists who have declared the High Court’s decision a calamity! This federal Labor government has responded to their (dare I say) support base. The Loophole Bill intends to and does undo this High Court-created certainty.

The proposed law (Loophole Bill)

To repeat, the Loophole Bill will subvert and is intended to subvert the High Court Personnel ruling. It will impact ALL self-employed people and more. The words in the Bill show this. The relevant clause says

15AA Determining the ordinary meanings of employee and employer

(1)  For the purposes of this Act, whether an individual is an employee of a person within the ordinary meaning of that expression, or whether a person is an employer of an individual within the ordinary meaning of that expression, is to be determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person.

(2)   For the purposes of ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person:

          (a)   the totality of the relationship between the individual and the person must be considered; and

         (b)   in considering the totality of the relationship between the individual and the person, regard must be had not only to the terms of the contract governing the relationship, but also to other factors relating to the totality of the relationship including, but not limited to, how the contract is performed in practice.

Note:           This section was enacted as a response to the decisions of the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.

This clause is effectively a legal description of the multi-factorial test. This will override the certainty that the High Court says is of such importance. Look at the ‘note’ which states the clear intention is to override and neuter the High Court ruling. The proof of the intent is quite plain.

A straightforward explanation of employee v self-employed contract:

Let me take this understanding a touch further.

The defining difference between an employee and a self-employed independent contractor is surprisingly straightforward.

• An employee earns their income using the employment contract.

• A self-employed independent contractor earns their income using the commercial contract.

Whether the employment or commercial contract is being used is determined at common law through the process decided on by the courts. The common law is often referred to as the ‘ordinary meaning’ which is the expression in the Bill above.  

This diagram shows it all!

This simple fact (above) is often lost in the confusion created through a lot of legal and political commentary.

Take another step.

The employment contract is regulated through industrial/workplace relations statutes. The commercial contract is regulated through commercial and competition statutes.

Again this is a simple fact that is often shrouded in confusion.

This split between the employment and commercial contract permeates and is critical to, the operation of the Australian economy and any free market economy. This is why the High Court referred to this as a “relationship of such fundamental importance”.

Clause 15AA of the Bill (referenced above) seeks to do something never before done under Australian statute. That is, the clause would remove common law (as ruled by the High Court) as the defining difference between the commercial contract and the employment contract for the purposes of federal workplace relations statute/s. It’s a killer of a core structure of commercial law

Implication – Clash with competition law

The consequences of this are major.

Have no doubt. This is a trashing of a fundamental part of commercial activity. For those people in our society who aspire to ‘smash capitalism,’ this is a pretty good strike in that direction. It smashes the right of people to ‘be their own boss’ and to engage in society as ‘mini-capitalist’  to use such terminology.

Photo by Daniel Páscoa on Unsplash

But I’m no ‘capitalist.’ Pure capitalism aspires to allow monopoly. Free markets (my bag) allow for the aspiration of monopoly but always frustrate its achievement! That’s good.

This is where competition law and industrial/workplace relations law have fundamentally opposed objectives driving their different processes.

Competition (commercial) law and regulation are about the prevention of price-fixing, anti-competitive collusion and monopoly in the economy.

Industrial/workplace relations are about the reverse, the implementation of price-fixing (wages) and collusion to enforce that price-fixing.

These two regulatory and legal environments are total opposites. The Loophole Bill seeks to, and will, destroy one side, commercial/competition law to favour the other employment/monopoly law. 

Further, 15AA of the Bill creates an irreconcilable clash that cannot be resolved.

A contract could readily be declared a commercial contract based on common law and subject to competition and commercial statute and regulation, yet the same contract could be declared ‘employment’ under 15AA and subject to the statutes and regulation of industrial/workplace relations law. This will create victims who will be caught in a vice between competition and employment regulation that is, ‘self-employed’ people.

In other words, self-employed, independent contractors (as defined by the High Court at common law) and the businesses/persons that engage them could (and will) find themselves subject to competition law, yet at the same time be forced or required under industrial/workplace relations laws to breach competition law.

There’s heaps more to say on the issue. In this post, I’ve covered just one page of the 284-page Loophole Bill. I’ve lots more analysis to follow.

But I’ll finish this post with further words of legal fact and common sense wisdom from the High Court in creating certainty. 

The High Court said

…. It is the task of the courts to promote certainty with respect to a relationship of such fundamental importance. Especially is this so where the parties have taken legitimate steps to avoid uncertainty in their relationship. The parties’ legitimate freedom to agree upon the rights and duties which constitute their relationship should not be misunderstood. (at 58)

Moreover, such certainty is established:

Where the parties have comprehensively committed the terms of their relationship to a written contract the validity of which is not in dispute, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations of the parties under that contract. (at 59)

The Court said that certainty cannot be changed, modified, or revisited based on social or psychological concepts because such concepts are not law:

The employment relationship with which the common law is concerned must be a legal relationship. It is not a social or psychological concept like friendship. There is nothing artificial about limiting the consideration of legal relationships to legal concepts such as rights and duties.

By contrast, there is nothing of concern to the law that would require treating the relationship between the parties as affected by circumstances, facts, or occurrences that otherwise have no bearing upon legal rights. (at 22)

In removing certainty the Loophole Bill seeks to apply social and psychological concepts in the creation of a new economy, a new order, a new world. Confused? In my next post I’ll explain further how the Loophole Bill races in this direction.

Photo by OSPAN ALI on Unsplash