Odco independent contractors

30 May 2004

It is timely that ICA makes some comment on the form of labour hire arrangements that have become known as ‘Odco’. Over the last few years, Odco has been receiving considerable comment in legal journals and in the general media as a consequence of some significant legal cases.

The actual numbers of people engaged are not known, but many (perhaps thousands) of independent contractors now seem to be working through Odco-style labour hire. Hence some understanding of it is worth recording.

What is Odco independent contracting?

Odco is a form of independent contracting where independent contractors work through a very specific form of labour hire created as a consequence of Australian High Court decisions in the early 1990s. It is very different from the usual form of labour hire in which people on-hired are employees.

It should be noted that the word ‘Odco’ has been trademarked by an Australian company who supply information on a Website at www.odco.com.au.

ICA does not comment on the bona fides of the Australian trademarked operators, but draws information instead mainly from the relevant legal cases.

The key features of Odco are:

• It is a form of labour hire.
• The contracts are commercial contracts and daily hire.
• There are clear operational arrangements drawn from the court judgments.
• If the operational arrangements are complied with, the workers are independent contractors. If not complied with, the workers are likely to be found to be employees.
• There is no contract between the user of the contractor’s services and the independent contractor. There is a contract between the independent contractor and the labour hire agency. There is a separate contract between the user and the labour hire agency.

It is also clear that if you work as an independent contractor under Odco arrangements, legislative requirements determine that:

• Your PAYG tax must be paid by the agency to the ATO.
• OHS obligations continue to exist.
• Workers’ compensation insurance is required in most States. This can vary.
• Equal opportunity and anti-discrimination laws continue to apply.

These obligations must be seen within the general legislative obligations that apply to all persons, whether they are employees or not. In the context of independent contracting, these generally constitute business-type obligations not employee-type obligations.

Labour hire agencies that supply independent contractors should (normally) be expected to clearly state at the beginning of a sign-up process that they are involved in independent contractor arrangements.

Odco Court Cases and general independent contractor issues

The Odco arrangements are backed by a long line of important legal test cases of independent contractor status. It has been perhaps the most legally tested of all independent contractor systems in Australia and mostly found to be solid.

In 2003-04, however, there were at least four legal cases in which persons who were allegedly independent contractors under what appeared to be Odco arrangements were found by the courts in fact to be employees. ICA has looked at the Odco arrangements and a range of the past and current legal cases. Comment is made below on some of the cases.

The real interest for ICA, however, is that several important points from the cases were made which continue to support the true nature of independent contracting and continue to re-inforce the ‘swinging pendulum tests’ as described by ICA. (Subscribers click here)

• In each of the Odco-type cases, the courts have consistently looked at the totality of the arrangements. No one factor overrides any other and decisions are made on the balance of evidence.
• Written documents describing the contracts as those of independent contracting have only been found to be valid to the extent that the content of the documents has been consistent with the behaviours of the parties.

PAYG. Of special note is that the Odco test cases of 2004 have recognized that, under the new PAYG form of tax payments system (withholding), if tax is paid on your behalf, this is no longer a relevant pointer to determining whether one is an employee or an independent contractor. The PAYG legislation allows for withholding for employees and independent contractors under both direct and labour hire arrangements. (In short: Tax withholding under the old PAYE was tied to common-law employment. PAYG, on the other hand, applies to employment and independent contracting, and hence is now neutral as an indicator of status).

What ICA finds most important is that the ‘swinging pendulum tests’ we have summarized (click here) continue to be a valid guide to independent contractor status under common law.

The Key Odco Court Cases
The original court cases took place in the early 1990s and involved 6 judgments, with 2 of those involving appeals to the Australian High Court. These cases describe the operational arrangements of Odco.
Two of the key cases are:

• The High Court judgment Accident Compensation Commission vs. Odco Pty Ltd F.C. 90/040 of 22 October 1990.
• Odco Pty Ltd and BWIU Federal Court of Australia No VG 151 of 1988; Justice Woodward. Date of Order 24/8/89

The word “Odco” comes from the name of the company involved in the case. Odco Pty Ltd was a labour hire company supplying building tradespeople to the construction sector.

It was interesting that the High Court found that, under Victorian Workers’ Compensation legislation, Odco contractors could be within the workers’ compensation scheme even though the workers were not common-law employees.

In the late 1990s and into the 2000s, Odco arrangements emerged in areas outside the building trades and now seem to operate in a vast variety of work occupations. The arrangements have been retested on several occasions and found to be solid. The two most important and more recent cases were:

Kangan TAFE. (Kangan v Fox U No34844 of 1998)

• This was a case involving a school teacher who was found to be an independent contractor. Importantly it was the first case outside the building industry. Of most interest was the Commission’s finding that there was no contract between the independent contractor and the client with whom she worked.

Qld Shearers

• This was the first test case of the Queensland ’employment deeming’ provisions and involved a union application against some 300 shearers working through Odco arrangements. After a long and high-profile case, the shearers were found in fact to be independent contractors and that it was not appropriate to call them employees.

Recent Cases: 2002-04

In the last few years, there seem to have been a string of court cases in which Odco arrangements have been found solid. There have been a few in which employment was found to exist. In some instances, the parties have openly claimed that they ‘do’ Odco as part of their legal defence. In other instances, Odco seems to have been used as a legal defence after-thought.

Endoxos: (Damevski v Guidice 2003 FCAFC 252. Federal Court) Endoxos was a cleaning company which had employees and sought to require all its employees to work through a labour hire company as independent contractors. Endoxos dismissed the cleaners and then transferred them to a labour hire company. After some time, one cleaner was no longer offered work and took an unfair dismissal action against Endoxos. After taking evidence, the court found that (a) claims that Odco arrangements were in place were not sustained (b) the ex-employee had in fact been re-engaged as an employee of Endoxos and that the labour hire agency was in fact simply a payment agency. Because the cleaner was an employee of Endoxos, unfair dismissal applied.

Staff Aid: (Josie Bianchi v Staff Aid Services, PR945924 5 May 2004 AIRC) Staff Aid was a labour hire agency supplying retail staff to Coles Myer. Staff Aid did not claim to be doing Odco, but did claim it was supplying independent contractors. Coles Myer dismissed one of its staff members who then took an unfair dismissal claim against Staff Aid. The court did not use or mention the Odco judgments, but drew instead from the Mayne Nickless decision (and others) (click here) to apply the usual (swinging pendulum) tests for independent contracting. The court found that the staff member was an employee. The written documents alleging independent contractor status were not consistent with operational processes. The court applied at least 12 of the swinging pendulum tests and, interestingly, recognized that under PAYG the payment of worker withholding tax by Staff Aid was of ‘neutral’ importance.

Tricord Personnel: (CFMEU and Personnel Contracting Pty Ltd trading as Tricord Personnel 2004 WAIRC 1145 12 May 2004) Tricord is a labour hire agency supplying workers to the building industry in WA. This case may be subject to appeal (as of May 2004), however a full bench has overturned the decision of a single judge that two building workers were independent contractors. The full bench found the workers to be employees of Tricord. It is not known if Tricord claimed it was doing Odco, but the judgment drew strongly on the Odco processes by way of comparison and testing. The judgment declared that Tricord did not operate consistently within the Odco arrangements and the workers could not be found to be independent contractors on that basis. For the purposes of this briefing note, the Commission strongly applied a good selection of the standard swinging pendulum tests and sought to look at the totality of the relationship.

ICA does, however, have concerns that the judgment relied on written documents of Tricord to find the existence of ‘control’. The documents were briefing notes to the contractors explaining obligations under OHS and the like, and in effect found that obligations imposed by legislation created control and hence created employment. This has never before been seen as a common-law technique for assessing ‘control’ and requires further comment. ICA will release additional comment shortly after careful assessment of this long judgment.

Odco independent contractor and Tax Issues

Under PAYG legislation, if you work through an Odco agency tax, legislation requires that:

• The agency must withhold tax from your income and remit it to the ATO.
• You do not have to have an Australian Business Number.

Under PSI legislation

• It is arguable that you would pass the PSI results tests. This understanding is based on the fact that the PSI legislation and associated tax rulings tie the results test to a common-law finding of independent contracting (and) that Odco is a strong independent contractor common-law arrangement.
• Using Odco would not suggest anything in relation to income-splitting or income retention. They are separate issues under PSI.

[Please note: These are the views of ICA based on our best understanding of the tax legislation and do not constitute professional advice.]

ICA comment on Odco

From all reports, the Odco arrangements are growing and have become a widely used system of engagement for independent contractors. Independent contractors have choices and can operate directly with clients or go through labour hire arrangements.

Not all independent contracting through labour hire involves Odco. Odco, however, has probably the strongest and longest history of legal cases behind it of any independent contractor arrangements in Australia (and possibly the world). But it is clear that the arrangements are only solid to the extent that the operational requirements are consistent with the eight-or-so key Odco legal decisions.

Labour hire arrangements can provide administrative benefits for independent contractors in comparison to direct engagement—for example, under PAYG. Whether you wish to use a labour hire agency or not, however, will depend on consideration of your own commercial circumstances. There are many agencies supplying Odco-type labour hire services. Labour hire agencies are service providers and some provide better service than others. If you utilize Odco arrangements, make sure that you use an agency that you feel provides good quality services to you.