FEDERAL COURT OF AUSTRALIA

Fair Work Ombudsman v Eastern Colour Pty Ltd [2016] FCAFC 187

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The cross-appeal be allowed.

3.    The orders made by the primary Judge on 3 March 2016 be set aside.

4.    There be a new trial of the appellant’s claims in the proceeding.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    This is an appeal, and a cross-appeal, against orders made by a single Judge of the court on 3 March 2016 in a proceeding brought by the Fair Work Ombudsman (“the Ombudsman”) against Eastern Colour Pty Ltd (“Eastern Colour”), SB Employments Pty Ltd (“SB”), NB Employments Pty Ltd (“NB”) and Louisa Baronio. In those orders, the primary Judge imposed penalties upon Eastern Colour, SB, NB and Mrs Baronio in respect of their contraventions of certain provisions of the Workplace Relations Act 1996 (Cth) (“the WR Act”): a single joint penalty of $50,000 upon the three companies and a penalty of $10,000 upon Mrs Baronio. The contraventions related to Eastern Colour’s failure to pay overtime to three workers, and public holiday penalties to four workers, who, according to her Honour’s findings, were employed by it. SB, NB and Mrs Baronio were held to be liable as accessories under s 728 of the WR Act.

2    The appeal is brought by the Ombudsman, and relates to the primary Judge’s treatment of Eastern Colour, SB and NB as “one” for the purposes of imposing a single penalty on them, to the operation of s 719(2) of the WR Act and to the sufficiency of her Honour’s reasons. On the respondents’ cross-appeal, the only issue which arises is whether the primary Judge was in error to have held that these four workers were employed by Eastern Colour. If they were, there is no challenge to her Honour’s conclusion that the WR Act was contravened as alleged by the Ombudsman. If the cross-appeal succeeds, it is common ground that her Honour’s judgment cannot stand, and that the appeal would necessarily be dismissed. If the cross-appeal fails, the appeal will need to be considered.

3    The employment question which arises on the cross-appeal is not whether the workers concerned were employees rather than independent contractors. It is common ground that they were employees. It also appears to have been uncontroversial that they were “engaged and paid on an hourly basis”, and thus casual employees, within the meaning of cl 4.4.1 of the Fruit and Vegetable Growing Industry Award – State 2002 (Qld) (“the Award”), a “notional agreement preserving State awards” within the meaning of the WR Act. Both before the primary Judge and on appeal the controversial issue was, and is, by whom these workers were employed. As mentioned above, the primary Judge held that they were employed by Eastern Colour. The respondents contend that they were employed by SB and (in the case of three of them) NB. But it is not suggested that the workers were employed by both of these companies at any one time. Rather, it is suggested that each was engaged under a very specific arrangement: that he or she would be employed by SB for the first 40 hours of work in any one week, and would thereafter be employed by NB.

4    The purpose of this unusual arrangement, the respondents freely accepted, was to eliminate Eastern Colour’s exposure to the added expense of paying for the hours worked by these workers at overtime rates, such as would be their entitlement to the extent that they worked in the employ of one employer for more than 40 hours in a week. Although they were not employed by the week, cl 6.4.2 of the Award entitled them to be paid at overtime rates for hours worked in excess of 40 in any seven-day period. If the arrangement worked as intended, that entitlement would never arise, since they would never work for more than 40 hours for the one employer. But the primary Judge held, in each case, that the arrangement was a sham, and that the workers’ employer had been Eastern Colour throughout.

5    According to the findings of the primary Judge, Mrs Baronio and her husband Antonio were the sole directors and shareholders of Eastern Colour. One of their two sons, Stephen Baronio, was the sole shareholder and director of SB, while their other son, Nathan Baronio, was the sole shareholder and director of NB. In its capacity as trustee for the Eastern Colour Family Trust (a family trust established for the benefit of the Baronio family), Eastern Colour conducted the business of the Eastern Colour farm (“the farm”) at 244 Aerodrome Road, Applethorpe, Queensland. The farm produced capsicums, stone fruit and apples.

6    Beyond that, it is not, with respect, always easy to discern from the primary Judge’s reasons what were her findings of fact in areas which were relevant, and in a number of respects important, in her conclusion that the four workers were the employees of Eastern Colour. Those reasons were structured in a way that laid out the substance of the evidence given by the various witnesses at trial, but that evidence was not always to the same effect. Indeed, there were some critical conflicts in the evidence which were not resolved. What follows below is based on her Honour’s reasons and, being largely organised witness-by-witness, at times displays some chronological discontinuities. The primary Judge referred first to the evidence of Mrs Baronio.

7    The vast majority of the work available at the farm was seasonal picking and packing. The farm required few permanent staff, but during peak periods (when the fruit was ripe), a large volume of work was required to be performed. At such times, the workforce consisted of backpackers, itinerant workers and unskilled local residents. In her affidavit, Mrs Baronio said (here speaking, as we understand it, of the period prior to the establishment of the special arrangements which became the focus of attention in court):

The workers engaged at the farm would regularly say that they wanted to work more than 40 hours per week. The workers were always extremely disappointed when I told them that we could not offer them more than 40 hours per week. Almost all of the workers I spoke [sic] stated that they were prepared to forego their entitlement to overtime if we could provide them with further hours. I would always explain to the workers that … we could not offer them more than 40 hours per week.

8    Generally Mrs Baronio was responsible for the operations in the packing shed, and her husband was responsible for the operations in the field. In 2006, the farm engaged Corrado Rizzato as shed manager. Mrs Baronio shared the role with him for 12 months so he could learn how to allocate work to employees and how to determine how many workers would be required each day.

9    Originally, the farm engaged workers as casuals for a maximum of 40 hours per week. As a general rule, once a group of workers had exceeded 40 hours, the farm employed another group of workers, who would also be permitted only to work up to 40 hours each week. Those additional workers were recruited from labour hire companies, as well as being workers who had already worked 40 hours at other local farms. The use of labour hire companies was, however, more expensive for Eastern Colour than the use of direct labour paid at ordinary time rates.

10    As a result of legal and industrial relations advice which they were given in 1994, the Baronios decided to set up their own labour hire companies. Two shelf companies were purchased for this purpose, Farmlink Pty Ltd (“Farmlink”) and Agro Pty Ltd (“Agro”). Stephen Baronio became shareholder and director of Farmlink and his sister Karen Baronio became shareholder and director of Agro. The arrangement which was agreed between these entities and Eastern Colour had characteristics which Mrs Baronio described as follows:

(a)    Farmlink and Agro would provide labour to Eastern Colour;

(b)    Eastern Colour would pay Farmlink and Agro for the costs of that labour;

(c)    John and myself would be entitled to act as agents of Farmlink and Agro;

(d)    when a new worker started at the farm they would be offered employment with Farmlink and Agro;

(e)    the worker would be free to accept employment with one or both employers;

(f)    at the commencement the employee would be advised that their first 40 hours of work would be with Farmlink and that any subsequent hours worked on the farm would be with Agro;

(g)    John and I (and any other nominated employees of Eastern Colour, Farmlink or Agro) would have authority to offer employment with Farmlink and Agro and to dismiss employees; and

(h)    John and I (and any other nominated employees of Eastern Colour, Farmlink or Agro) would have authority to direct and control the labour provided by Farmlink and Agro.

New employees would sign a separate commencement letter and tax file declaration form for each of the two companies, and each week complete a separate timesheet for each of the two companies.

11    Due to changes within the Baronio family, in 2000 two new labour hire companies replaced Farmlink and Agro: Louanda Pty Ltd and Jasak Pty Ltd. Notwithstanding this development, the farm’s operations continued exactly as they had under the arrangements which had involved Farmlink and Agro.

12    In 2005, SB and NB were created to replace Louanda Pty Ltd and Jasak Pty Ltd. It was agreed as between Mr and Mrs Baronio and their sons Stephen and Nathan (as directors of SB and NB respectively) that Eastern Colour, SB and NB would continue the same arrangements as had been used as between the previous labour hire companies and Eastern Colour.

13    To this point in the narrative, the primary Judge’s reasons read as though nothing being referred to was factually controversial. The position reached as at 2005, it seems, was that Eastern Colour had, for more than 10 years, used in-house labour hire companies, in pairs, to meet its casual labour requirements, the second of which, in each pair, provided the labour of workers who had already worked, in the employ of the first in the pair, for 40 hours in a particular week.

14    Dealing with Eastern Colour’s modus operandi under arrangements which involved SB and NB, the primary Judge commenced by setting out the following passage in Mrs Baronio’s affidavit:

67    Throughout the existence of NB and SB the process for hiring new employees was as follows:

a)    the prospective employee would be interviewed by either John, Stephen, Corrado or myself. If we formed the view that the prospective employee was suitable we would advise them that there was work available and refer them to Ms Adela Caruso in the office;

b)    Ms Caruso would give the prospective employee: an employee detail form for SB, a tax file number declaration form for SB, an employee detail form for NB, a tax file number declaration form for NB, and a one page work document (in relation to each of SB and NB) about their workplace health and safety obligations;

c)    Ms Caruso would then explain to the worker that they would work for SB for up to 40 hours per week. If they wished to work more than 40 hours they would then start working for NB. It was made clear to the worker that any work that was done for NB was voluntary additional hours at the same rate of pay as work done for SB;

d)    if the employee was content with those terms they would then sign the forms and commence working. So the position was abundantly clear to the employees, the forms for SB were white in colour and the forms for NB were green in colour. It has always been our practice to have different coloured forms for each labour hire entity.

68    At the end of each week the employees would be required to sign two timesheets, one for the hours that they have worked with SB and one for the hours they have worked with NB. The employees would then receive payment from SB and NB respectively.

69    It was part of Ms Caruso’s responsibility to ensure that each new worker understood and agreed to the arrangements at the farm. Further, Ms Caruso was responsible for ascertaining whether a new worker wished to work more than 40 hours per week. If they did not wish to work more than 40 hours per week then they were only to accept employment with SB.

70    When Ms Caruso ceased working in the administrative office in the middle 2007 [sic] we decided that her responsibilities, in respect of new employees, would be undertaken by Mr Rizzato, in respect of packing shed workers and Stephen, in respect of field workers.

71    At no time were employees forced to accept employment with SB or NB. Further, no employees were forced to work in excess of 40 hours per week. All work undertaken by employees was done so on a voluntary basis.

15    At some point, the administration of the payroll was made the responsibility of Eastern Colour’s solicitor and accountant, Vince Catanzaro. It seems that he picked up what he considered to be deficiencies in some of the paperwork being used, for example in relation to choice of superannuation funds, the result of which was that, in June 2007, the employees of SB and NB were asked to sign, and did sign, a second set of “employee engagement” paperwork. At a meeting of workers, Mrs Baronio took them through the new paperwork and repeated her earlier explanation to them of how they worked their core hours for SB and their voluntary additional hours for NB. In her evidence, she said that she took special care to ensure that the workers understood the reason and purpose behind the new forms, which replicated the existing arrangements, and how the employment arrangements involving SB and NB worked.

16    The primary Judge then turned to the evidence of Adela Caruso, who worked in the office at the farm from 1999 to June 2008, although she ceased performing any payroll or roster duties in June 2007. During the period when she had duties of that kind, her responsibilities included providing commencement forms and explaining employment arrangements to new employees, collecting the commencement forms and tax file number declaration forms from new employees, preparing each employee’s timesheet for each company based on their weekly run sheets, and ensuring that each employee checked and signed their timesheets, and understood the pay arrangements.

17    In her evidence, Ms Caruso said that, in early 2006, Mrs Baronio convened a meeting of all of the farm’s workers in the packing shed. She advised them that the two existing labour hire companies were being wound up and that two new companies, SB and NB, would be incorporated and thereafter be responsible for employing all of the workers on the farm. She invited them to accept employment with SB and NB on the same arrangement as with the two previous companies, and told them that those who did would work their first 40 hours in each week for SB, with any subsequent work being for NB. She told them that, if they did not wish to work for more than 40 hours in a week, they could accept employment solely with SB.

18    Ms Caruso gave evidence that, subsequently, her general practice was to explain to new employees that they would be employed by both SB and NB. If a new employee wished to work for more than 40 hours in a week, they would need to accept employment with both companies, working the first 40 hours for SB and any additional hours for NB. She made it clear to them that, if they accepted employment with both SB and NB, they would not be paid overtime. She would provide an employee who accepted these conditions with a set of white commencement forms for employment with SB, and a set of green commencement forms for employment with NB. If a supervisor, instead of Ms Caruso herself, had given the forms to a new employee, she would ensure that she explained the employment arrangements to them when the forms were returned to her.

19    Ms Caruso gave evidence that each work crew at the farm had a run sheet listing all of the employees in that crew. At the end of each day, each worker recorded the total hours he or she had worked for that day. Her practice was to use the run sheets to create weekly time sheets of the work performed by each worker for SB and NB. She would record up to 40 hours of work by a worker for SB and the balance for NB. She would ask each worker to review his or her weekly timesheet in the office, and sign it if it was accurate. Her practice was to reiterate the details as to why the worker was being paid by two companies. She could not recall any employee expressing confusion about the SB and NB arrangements.

20    The primary Judge received evidence from Jennifer Crook, the inspector who had carriage of the investigations which led to the proceeding before her Honour from 2008. Based on the transcript of an interview which she had had with Wendy McDonald, a former shed manager at the farm, on 16 December 2008, she said that Ms McDonald told her that she was instructed to tell new employees that the reason they had to fill out two tax file declaration forms was that they would work 40 hours under one company, followed by 40 hours under the other company; and that they would “pay less tax”. When the employees had to sign new tax file declaration forms for SB and NB, the rest of the staff were told that they were “changing pay companies”.

21    The primary Judge then laid out the evidence of the four workers in relation to whose circumstances contraventions of the WR Act were alleged, and of other witnesses who dealt with those circumstances. The first such worker was Gordon Peter Falconer (to whom we shall refer as “Mr Falconer Snr”).

22    Mr Falconer Snr’s evidence was that the manager of an employment centre in Stanthorpe told him to go to Eastern Colour’s farm and to speak to John Baronio, who had a position for a forklift driver (for which task Mr Falconer held the required licence). He did so. In the conversation which followed, Mr Baronio said words to the following effect:

Are you willing to work long hours because you’ll have to work as long as it takes each day to pack the day’s goods. You should expect to be working at least 50 hours a week. You will have to work at least six days per week and sometimes seven days per week.

Mr Falconer’s response was that that was not a problem. Mr Baronio told him he would start off on a casual basis, probably over the weekend. Mr Baronio did not discuss wages with him or which law would apply to his employment. Mr Falconer Snr did not recall Mr Baronio saying anything to him about labour hire companies offering 40 hours of work with SB and working any additional voluntary hours at the same rate of pay with NB.

23    In his evidence-in-chief, Mr Baronio said that Mr Falconer Snr told him that he needed as much work as he could get, as he needed to bring his family out from the United States. In the conversation between them when Mr Falconer was offered employment, Mr Baronio said words to the following effect:

Here at Eastern Colour, we use labour hire companies. Those labour hire companies offer 40 hours of work with SB. If you want to work additional hours, they will be with NB as additional voluntary hours at the same rate of pay.

Mr Baronio then said that Mr Falconer should see Ms Caruso in the administration office, who would explain to him the details for the employment arrangements on the farm.

24    There was an obvious conflict between the evidence of Mr Falconer Snr and Mr Baronio on the matter of this conversation. The primary Judge did not resolve it, and made no credibility finding adverse to either witness.

25    Mr Falconer Snr said that he was later contacted by Mrs Baronio and asked to commence work on 27 November 2005. He went to the farm that day, and completed some paperwork, a copy whereof was admitted into evidence before the primary Judge. There were two documents which were identical, save that one was under the name and address of SB, while the other was under the name and address of NB. Each was headed, “EMPLOYEE DETAILS”. Each had been completed, separately from the other (ie it is apparent that one was not merely a photocopy of the other) by Mr Falconer Snr, and signed by him, on 27 November 2005. Next were two more documents which were identical save that one was under the name and address of SB, while the other was under the name and address of NB. These documents were not headed, but dealt with transport arrangements by which Mr Falconer Snr would be taken to the work site each day. Each had been signed by him, separately, on 27 November 2005. Next were two tax file number declarations, completed and signed by him, separately, on 27 November 2005. As tendered before the primary Judge, one of these forms showed the payer as SB while the other showed the payer as NB. In his evidence, Mr Falconer Snr said that, when he signed them, the section to be completed by the payer on each of these forms remained blank. On both of these forms, Mr Falconer Snr had indicated that he did not wish to claim the tax-free threshold from the payer concerned.

26    In her evidence before the primary Judge, Ms Caruso said that Mr Falconer Snr returned his commencement forms to her, at which time she said to him:

You understand that you are accepting employment with two companies. SB will pay you for the first 40 hours and NB will pay you for any hours after that. All wages will be paid at the ordinary time rate.

Mr Falconer Snr did not recall this conversation with Ms Caruso. Indeed, he said that he returned his employment forms not to Ms Caruso but to Ms McDonald. The primary Judge did not make a finding on the subject.

27    In his evidence, Mr Falconer Snr said that, when he started work and throughout his employment, he believed that his employer was Eastern Colour. The boxes that were packed and shipped out of the farm had Eastern Colour’s labels and address on them. The transport documents for the goods were also in the name of Eastern Colour. He was given (but did not have to wear) two shirts with the Eastern Colour label on them. Other workers in the packing shed had similar clothes.

28    Mr Falconer Snr said that he completed one time sheet for every day that he worked. He generally worked six days per week, from 5 am or 6 am until 6 pm or 7 pm. He was paid every Wednesday by direct deposit into his bank account, the relevant records showing deposits from SB and NB. Every week he received two pay slips, one from SB for 40 hours’ work, and one from NB for the remainder of the hours that he worked.

29    Mr Falconer Snr said that, when he got his first “pay cheque” (which was, presumably, a reference to the first direct deposit into his bank account), he asked one of the other workers why they did not get paid overtime, and was told that employers in the fruit industry did not have to pay overtime. He accepted that explanation. He never understood why he was being paid by two companies, but, under cross-examination, he said that, after he received his first wages payment, he knew that there were two employers, one of which would pay for the first 40 hours.

30    Mr Falconer Snr said that, in mid-2007, a meeting was held for the workers to fill out new tax file number declarations for SB and NB. That was, presumably, the meeting to which Mrs Baronio referred in her evidence (see para 15 above). Mr Falconer Snr did not recall Mrs Baronio or Ms Caruso saying anything about how the workers worked their core hours for SB and their voluntary additional hours for NB.

31    In the case of Mr Falconer Snr, there were indeed new documents executed in June 2007. In evidence before the primary Judge were two new tax file number declarations completed and signed by Mr Falconer Snr on 29 June 2007. As tendered, neither form had the payer section completed; that is, from what appears, if it was intended that one form should be referrable to payments made by SB and that that other form should be referrable to payments made by NB, neither of those companies had completed the relevant sections thereof. On both forms, Mr Falconer Snr had indicated that he wished to claim the tax-free threshold. Next, there were re-executed versions of the transport arrangement documents to which we have referred in para 25 above. As before, one was under the name of SB and the other was under the name of NB. Each was signed by Mr Falconer Snr. There were also two forms which did not correspond closely to anything that had been executed in November 2005, and it may be that they provided the explanation for the need to redo the paperwork in mid-2007. Each was headed with the name, address and business number of the company concerned - SB for one and NB for the other - and contained four main sections: employee details, superannuation, taxation and bank details. Each had been completed and signed by Mr Falconer Snr on 29 June 2007.

32    Also on 29 June 2007, Mr Falconer Snr separately signed two copies of a document headed with the name of Eastern Colour and with “WORKPLACE HEALTH AND SAFETY GUIDELINES”. It consisted of a series of rules about health and safety in the workplace (wear a hat, use sunscreen etc). Although these documents were tendered separately as relating to SB and NB respectively, there was no mention of either company on them.

33    The second worker whose circumstances were laid out by the primary Judge was Lachlan Falconer (to whom we shall refer as “Mr Falconer Jnr”), the son of Mr Falconer Snr. He obtained the job at the farm through his father. In August 2006, he met with Mrs Baronio, Mr Baronio and Ms McDonald. Her Honour did not refer to any evidence as to what was said on that occasion. Mr Falconer Jnr’s first day at work was 4 September 2006, on which day Ms McDonald asked him to complete two tax file number declaration forms. Those forms were in evidence. Mr Falconer Jnr claimed the tax-free threshold on both forms. One form showed the payer as SB and the other showed the payer as NB, but, since they were both signed on behalf of the payers concerned a week later, on 11 September 2006, of themselves (and her Honour did not make any finding on the subject) they do not provide evidence of Mr Falconer Jnr’s knowledge of the existence of SB and NB and of the fact that his remuneration would come from both. On the day he commenced work, Mr Falconer Jnr also signed two sets of two other documents: in each case, one of which related to SB and the other of which related to NB. The first pair were headed, “EMPLOYEE DETAILS”. The second pair were transport arrangement documents of the kind mentioned above.

34    Mr Falconer Jnr said that he completed one time sheet at the end of every day. The sheet was headed “Eastern Colour”. He completed the same time sheet, regardless of the number of hours that he worked. Ms Caruso said, in her evidence, that she recalled the first time that Mr Falconer Jnr inspected his time sheet, because he came with his father. She explained the arrangement involving SB and NB to him, and he said that he understood. “In contrast” as her Honour put it in her reasons, Mr Falconer Jnr gave evidence that he did not recall Ms Caruso explaining why he would be paid by both SB and NB. He accepted that Ms Caruso might have said something about SB and NB paying him, but he did not recall her telling him why the arrangement was set up in that way. This divergence of the evidence as between that of Mr Falconer Jnr and that of Ms Caruso was not resolved by her Honour.

35    Mr Falconer Jnr said that SB paid his wages by a weekly deposit into his bank account. In some weeks he also received a deposit from NB. Under cross-examination, he accepted that he knew, from the beginning, that he was being paid by the two different companies.

36    Mr Falconer Jnr said that he was never told when he had worked more than 40 hours in a week. He was offered work by Mr or Mrs Baronio, but he was never given a choice about whether he wanted to work more than 40 hours per week. He was never paid for working on a public holiday and never agreed to substitute another day for a public holiday.

37    Mr Falconer Jnr said that he believed that his employer was Eastern Colour. The name of the farm was Eastern Colour, and “Eastern Colour” appeared both on the stickers that went on the fruit and on his work uniform. In his view his employers were Mr and Mrs Baronio because they were the ones telling the workers what to do and how to do their jobs; and they were the people who hired and fired workers at the farm. All the workers were directed and disciplined, if necessary, by Mr Baronio, Mrs Baronio, Ms McDonald or Mr Rizzato. Personally, he was always directed by Mrs Baronio, Ms McDonald or Mr Rizzato. It was Mrs Baronio or Ms McDonald who resolved any disputes between workers at the farm.

38    The third worker whose circumstances were laid out by the primary Judge was Sandra Di Betta, who worked in the packing shed at the farm from 13 January 2007 to 21 February 2008. She went to the farm to see if there was any work available and spoke with Mrs Baronio. In her reasons, the primary Judge did not make any findings as to the conversation, if there were one, that took place on this occasion. Indeed, her Honour noted Mrs Baronio’s evidence that Ms Di Betta “called the farm in January 2007 to enquire whether there was work available”, it not being clear whether this was a telephone call or, as Ms Di Betta said in her evidence, a face-to-face meeting. However that may be, it is clear that, some two days later, Mrs Baronio did offer Ms Di Betta a job over the telephone. Mrs Baronio then told her (at least according to what Mrs Baronio herself is recorded as having said in her evidence, there being no reference to any dispute about the matter) that, when she arrived at the farm, she could speak to Ms Caruso, who would provide her with all the details about the job.

39    In her evidence, Ms Caruso did not recall providing Ms Di Betta with commencement forms. However, the primary Judge found that, when Ms Di Betta started work at the farm, it was Mrs Baronio who handed her two sheets of paper -

… a white sheet with SB at the top and a green one with NB at the top. The forms stated that employees, prior to commencing, were required to provide personal, tax, superannuation and bank information. The forms discussed meal breaks and when wages would be paid but not hours of work or rate of pay. The forms stated further that the position was a casual position on a trial basis, until confirmed in writing.

A copy of each of those sheets was in evidence.

40    When Ms Di Betta commenced at the farm on 13 January 2007, she signed a document which was under the name and address of SB, and which was headed, “EMPLOYEE DETAILS”. On the same day, Ms Di Betta signed a transport arrangements document, as mentioned above in the case of the two Falconers, also under the name and address of SB, a tax file number declaration and a choice of superannuation fund form. Corresponding documents which named NB as the employer were signed by Ms Di Betta on 15 February 2007. Although the primary Judge noted the different dates upon which each group of documents had been executed, her Honour did not comment upon the significance, if there were any, of the interval between them. But her Honour did find that, in a statement made to the Ombudsman on 14 November 2008, Ms Di Betta had stated:

I also had to complete two tax file number declaration forms that were given to me at the same time. I had to write SB Employments Pty on one hand and NB Employments Pty Ltd on the other. I can’t remember whether I had to put their Australian Business Numbers on the tax file number declarations or not ….

41    It was Ms Caruso’s evidence that, when Ms Di Betta returned the forms to her (probably - although not the subject of a finding by her Honour - with reference to the SB documents signed on 13 January 2007), an exchange to the following effect took place:

Caruso:    Do you understand that you are accepting employment with two companies, SB and NB?

Di Betta:    Yes.

Caruso:    SB will pay you for the first 40 hours and NB will pay you for any hours after that. All hours will be paid at ordinary time rate.

Di Betta:    Yes.

In her affidavit in reply, Ms Di Betta said that she did not recall Ms Caruso explaining to her why she was being paid by two different companies, but at least so far as set out in the reasons of the primary Judge, she did not take issue with this evidence of Ms Caruso, so far as it went.

42    The primary Judge also noted the following evidence given by Ms Di Betta under cross-examination:

And you signed a form about SB Employments …?---Yes.

And you signed another form, … with your employee details for SB Employments?---Yes.

And indeed, you completed a tax file declaration … for SB Employments, didn’t you?---Yes.

You also, on the same day, … filled out an employee detail form for NB Employments, didn’t you?---Yes.

And you [signed] the [transport arrangements] document … for NB Employments?---Yes.

….

You knew at that stage that you were accepting employment with two companies, didn’t you?---I was led to believe that there were two companies operating in the shed.

Yes. And you knew that that’s what the employment was offered to you was with the two companies?---Yes.

Notwithstanding that evidence, the primary Judge noted Ms Di Betta’s evidence that she did not agree to work for SB and NB, she was unaware that she had a relationship with SB and NB, and she did not know what the company names stood for. Her Honour did not resolve such conflict as there was between that evidence and what we have set out above in relation to Ms Di Betta.

43    The primary Judge noted Ms Di Betta’s evidence that she did not recall Mrs Baronio holding any meetings in mid-2007 to explain the employment arrangements at the farm. Her Honour did, however, find that, on 28 June 2007, Ms Di Betta completed employee details forms for SB and NB and a document entitled “Eastern Colour Pty Ltd Workplace Health and Safety Guidelines”. Mrs Baronio also gave her two tax file number declaration forms to sign for SB and NB, albeit that, at the time, the section to be completed by the payer on each form was blank.

44    Ms Di Betta gave evidence that she thought she was employed and paid by Eastern Colour. She understood that the name of the business for which she worked was Eastern Colour, as this was the name written on the sign on the front gate and the packing stickers and boxes. Some of the workers in the packing shed (not including Ms Di Betta) wore “Eastern Colour” shirts. Ms Di Betta believed that her employers were Mrs and Mr Baronio, because they owned the property, the business and the company. She said that Mrs Baronio was in control of the working conditions at the farm. At the start of the season, she oversaw everyone and checked which orders were to be packed. She told the workers when to take breaks, and reprimanded workers if they threw away too much fruit. It was she who hired and dismissed workers. In the absence of Mrs Baronio, Ms McDonald filled these roles.

45    The usual hours that Ms Di Betta worked were 6 am to 5 pm. However, these changed depending on the number of orders that Mrs Baronio had accepted for each day, and Ms Di Betta deposed that she never knew at what time she would finish work. Ms Di Betta completed a single timesheet every day. On Mondays Ms Di Betta had to a sign a pay sheet for SB listing all of her hours for the week. If she had worked more than 40 hours that week she would also sign a pay sheet for NB. It was never explained to Ms Di Betta why she was required to sign two pay sheets.

46    Every Wednesday SB would pay Ms Di Betta by direct credit into her bank account, except for a few times when she first started working at the farm and collected a cheque from Mr Catanzaro’s office. In some weeks, she also received a payment from NB. Ms Di Betta believed that, since Mr and Mrs Baronio were the owners of Eastern Colour, they decided how much she was paid. She would receive one or two payslips depending on how many hours she had worked that week. She never asked why she received two payslips and assumed it was so the farm could avoid paying her overtime.

47    The fourth worker whose circumstances were laid out by the primary Judge was Joanne Donges, who worked in the packing shed from 13 July 2007 to 21 February 2008. She obtained that employment through the intercession of Ms Di Betta. She (Donges) spoke to Mrs Baronio on the first day of her work, telling her (according to the evidence of the latter set out by the primary Judge) that she wished to work only on two days of every week. Mrs Baronio agreed with that, telling her that she should speak with Ms Caruso, who would inform her of the details of working at the farm. It was Ms Donges’ evidence that Mrs Baronio asked her to complete a tax file number declaration form, with SB listed as the employer, which she did that day, 13 July 2007. On the same day, Ms Donges signed a transport arrangements document under the name and address of SB, the workplace health and safety guidelines under the name of Eastern Colour, and an employee details form under the name and address of SB. The latter form was the new version then recently introduced (see para 15 above).

48    In her evidence Ms Donges stated:

I did not receive a letter of appointment but at the end of my shift on the first day I started I was given a job description form. The name of the employer on this form was S.B. Employments Ltd. It was given to me with my tax form and other paperwork which I completed and gave back the same day. The details of the job description included that we worked for SB and that we got breaks. I didn’t pay much attention to it at all. I also signed a document entitled “Eastern Colour Pty Ltd Workplace Health and Safety Guidelines” ....

49    Elsewhere in her evidence, Ms Donges said:

When I first started [Mrs Baronio] gave me a tax form for SB and a tax form for NB. [She] said words to the following effect:

“You won’t need the second tax form as the first 40 hours are paid by SB and once you have worked over 40 hours those hours are paid by NB. We pay with two companies so you pay less tax. Because you won’t work over 40 hours per week you only need to fill out the form for SB.”

Ms Donges never worked more than 40 hours in one week.

50    Ms Donges said that, although she did not wear the work shirts from Eastern Colour, other workers did. She said that the “Eastern Colour” stickers were for the workers to place on the crates and boxes for Woolworths and Coles, and that the packing boxes all had Eastern Colour on them.

51    In the recital of the effect of the evidence in the case as set out above, we have, in places, supplemented the primary Judge’s reasons with references to some of the employment documentation that was tendered, and we have made some rearrangements for the sake of the flow of the narrative, but, essentially, what we have set out represents the treatment of the facts in her Honour’s reasons of 11 February 2014.

52    The primary Judge then referred to the statutory and award provisions under which the respondent proceeded.

53    Deciding the case, the primary Judge said that it was “clear that, at all material times, the employer of the relevant employees was the first respondent, Eastern Colour.” Her Honour referred to the respondents’ submission as to the commercial purpose of the arrangements adopted, which involved SB and NB operating as labour hire companies, and employees working for up to 40 hours for SB, and any additional hours for NB. She referred to the market environment into which Eastern Colour sold its produce, and continued:

Indeed, the difficulties faced by primary producers in this country are of daily report in the media. However these facts do not detract from the legal position under the Act, which this Court is required to apply.

Her Honour referred to the judgment of Marshall J in Damevski v Giudice (2003) 133 FCR 438, as to the approach that should be taken in a case in which the identity of the employer was in issue.

54    In para 128 of her reasons, the primary Judge continued:

In this case the evidence demonstrates that each of the relevant employees signed (or had signed for them) weekly time sheets under the heading of either SB or NB. Similarly, each of the employees received payment advices under the name of either SB or NB. However in my view the arrangements whereby the relevant employees were identified as working for SB or NB were, effectively, a sham. That the true employer was Eastern Colour is clear from the evidence before the Court. In particular I note the following:

•    The fact that all relevant employees considered that Mr and Mrs Baronio were “the bosses” who could hire and fire employees, and that this did actually appear to be a correct perception.

•    The evidence of each of the relevant employees that they believed that they were working for Eastern Colour. Indeed employees on the farm wore shirts bearing the name “Eastern Colour”, on the basis that this was their employer. Similarly, the only Workplace, Health and Safety Guidelines applicable at the farm were in the name of Eastern Colour …. This may be compared with the absence of evidence of any employees having any direct separate involvement with SB or NB in the employment environment.

•    The fact that the employees performed the work in the same location, namely on the farm owned by Eastern Colour, and by packing fruit in boxes labelled as produced by Eastern Colour.

•    The fact that the relevant employees had limited knowledge of SB or NB other than as entities whose name appeared on pay slips. Indeed, there is clear evidence before the Court that there was no practical difference in their work environment or practice after an employee had worked 40 hours.

•    The lack of awareness of the relevant employees of the arrangements whereby they worked up to 40 hours for one of the respondents and any additional hours for another, notwithstanding evidence of Ms Caruso and Mrs Baronio that they had informed them of the arrangements.

•    The directors of SB and NB had no involvement in employing staff.

•    The clear fact that SB and NB existed only to provide services to the first respondent.

•    Notwithstanding the existence of time sheets and pay slips, the absence of any contract of employment between either SB or NB, and the relevant employees.

•    Mrs Baronio repeatedly gave evidence to the effect that there was no overtime available in the system, and that no farms paid overtime rates to their harvesting and packing staff. However while this may have been the practice, it is very clear that Mrs Baronio was aware of the legal obligation on employers to pay overtime once an employee had worked 40 hours. Indeed, it was for this very reason that SB and NB were created - namely to be entities who could be the nominal employers of employees on the farm to obviate the legal requirements of Eastern Colour as employer to pay overtime for more than 40 hours work. That the directors of SB and NB were the children of Mr and Mrs Baronio simply supports the inference that SB and NB functioned in the context of the family business.

55    The primary Judge then referred to the judgment of Buchanan J in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174, upon which the respondents had relied, with respect to the practice of a business structuring its arrangements in a way that involved the use of an internal employment company which made labour available to other companies within the group. While acknowledging the utility and appropriateness of such arrangements in the right contexts, his Honour added (in a passage upon which the primary Judge particularly relied):

Nevertheless, it must be possible to identify a rational explanation for the arrangement and the explanation must be satisfactorily related to an intelligible business objective. That is so because otherwise, doctrines of agency, at least, may operate to defeat a bare claim of independence and isolated liability, supported only by a bare reference to separate incorporation. That is particularly likely to be the case when: the separate employing company is completely reliant upon a company to which it purportedly supplies labour; it has no assets and no management structure of its own; and it exists only as a corporate shell to protect another company, which does have assets, from liability to employees. In such a case a court might not hesitate long before pronouncing the arrangement ineffective or, in a more serious case, a sham.

Applying this in the present case, the primary Judge said:

While there may have been a rational explanation for the arrangements put in place by the respondents, to adopt comments of Marshall J in Damevski v Giudice at 450, it was to effectively to:

… attempt to exploit difficult areas of law and create vehicles designed, inter alia, to enable employers to avoid their award and statutory obligations.

As Marshall J observed in Damevski v Giudice there is no legitimacy in such arrangements.

56    It followed, her Honour said, that the Ombudsman had substantiated the claim that Eastern Colour was the employer of the four workers referred to above. That is as far as is necessary to go for the consideration of the respondents’ cross-appeal.

57    The respondents rely on the following four grounds of cross-appeal (where the primary Judge’s reasons are referred to as “the liability judgment”):

1.    The primary judge erred in … [the liability judgment] by failing to make findings of fact as to whether Mr Gordon Falconer, Mr Lachlan Falconer, Ms Sandra Di Betta and Ms Joanne Donges (the “relevant employees”) were expressly offered employment with the first respondent as alleged by the appellant or by the second and third respondents as alleged by the respondents.

2.    The primary judge erred at [128] of the liability judgment by determining the matter by reason of an allegation that was not pleaded or contended for at trial by the appellant, namely that the arrangements between the second and third respondents and the relevant employees were sham arrangements and that the first respondent was the employer of the relevant employees.

3.    The primary judge erred at [128] of the liability judgment by holding that the subjective intentions of the relevant employees were relevant to determining whether the relevant employees were employed by the first respondent or by the second and third respondent.

4.    The primary judge erred at [128] of the liability decision by holding that the first respondent was the employer of the relevant employees and not the second and third respondents.

58    As the second ground of cross-appeal involves an alleged inconsistency between the way the proceeding was conducted on behalf of the Ombudsman and the way the primary Judge decided the matter, it is convenient to deal with it first. That will require some attention to be given to the procedural history of the proceeding at first instance.

59    The Second Further Amended Statement of Claim (“the 2ndFASC”), by reference to which the trial before the primary Judge proceeded, was filed on 8 November 2011 after her Honour had struck out a very large number of the paragraphs in the Further Amended Statement of Claim (“the FASC”) on 19 July 2011: see Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803. Among the paragraphs struck out were paras 7, 37 and 38, which had provided as follows:

7.    At all material times the Second and Third Respondents purported to supply labour to the First Respondent in that the Second and Third Respondents made payments for work performed by each of the Employees at the Premises in circumstances where each of the Second and Third Respondents did not otherwise direct or control the work of the Employees and the employer of the Employees was the First Respondent.

…

37.    In or around November 2005, the First, Second and Third Respondents established an employment structure under which:

(a)    the Second and Third Respondents respectively purported to supply labour to the First Respondent as pleaded at paragraph 7 herein;

(b)    the Employees were purported to be employed by the Second Respondent until they had worked 40 hours per week and were then purported to be employed by the Third Respondent for additional hours worked in that week;

(c)    in the alternative to subparagraph 37(a), the Second and Third Respondents respectively supplied labour to the First Respondent;

(d)    in the alternative to subparagraph 37(b), the Employees were employed by the Second Respondent until they had worked 40 hours per week, and were then employed by the Third Respondent for additional hours worked in that week (the Employment Structure).

(A)    By operation of clause 6.4.2 of the NAPSA an employer is required to pay an employee overtime rates of pay for hours worked in excess of 40 hours in any seven days.

38.    If the effect of the Employment Structure was that the Employees were employed or, alternatively, purported to be employed by the Second Respondent until they had worked 40 hours per week, and were then employed or, alternatively, purported to be employed by the Third Respondent for additional hours worked in that week, then:

(a)    in weeks where the Employees worked more than 40 hours in the business for one employer, they were entitled to be paid on the basis of ordinary time for all of the hours so worked.

(b)    if they had worked for the First Respondent for all of the hours worked in that week, they would have been entitled to be paid at overtime rates for all of the hours in excess of 40 in the week;

(c)    if they had worked for the Second Respondent for all of the hours worked in that week, they would have been entitled to be paid at overtime rates for all hours in excess of 40 in the week;

(d)    if they had worked for the Third Respondent for all of the hours worked in that week, they would have been entitled to be paid at overtime rates for all hours in excess of 40 in the week;

(e)    accordingly, as a result of the Employment Structure, the employees were denied the benefit of remuneration which they would have otherwise been, or alternatively, were entitled to.

60    In her judgment of 19 July 2011, the primary Judge accepted the submission of the respondents that these paragraphs, and others, were embarrassing because they raised alternative and inconsistent allegations, because the Ombudsman had failed to plead material facts to sustain his allegation that there was employment by one or more of the respondents, because the Ombudsman relied on inconsistent cases, and because the use of the word “purported” in para 7 was, without more, embarrassing, in the sense that there was no explanation why it was said that SB and NB were not labour hire companies or were engaged in a sham.

61    The primary Judge said:

47    The respondents submit that the use of the word “purported” in paragraphs 7 and 37, without more, is embarrassing, as there is no explanation why it is said that the second and third respondents were engaged in a sham or were not labour hire companies.

48    In written submissions the applicant claims as follows:

41    …It is apparent from Paragraph 7 of the Further Amended Statement of Claim, and the pleadings as a whole, that the Second and Third Respondents have sought to act as if they were labour hire companies by, amongst other things, making payments for work performed for each of the Employees. The use of the word ‘purported’ is appropriate in that the remainder of paragraph 7 clearly outlines that this alleged supply of labour occurred in circumstances where each of the Second and Third Respondents did not otherwise direct or control the work of the Employee and the real Employer was in fact the First Respondent. The material facts relied upon in support of this pleading are set out in the particulars to paragraph 8 of the Further Amended Statement of Claim.

42.    Further, for the purposes of paragraph 37, it is clear why “the Second and Third Respondents were not labour hire companies or were engaged in a sham” in that, as pleaded in paragraph 7 these entities merely made payment for work but did not otherwise direct or control the work of the Employees and another entity, the First Respondent, was the employer.

43.    In these circumstances, the pleadings as a whole clearly highlight an explanation as to why the Applicant states that the Second and Third Respondents purported to supply labour.

49    While this explanation is interesting, it does not overcome a fundamental defect of paragraphs 7 and 37, namely the absence of material facts. This defect also flows over to paragraph 38, which refers to the existence of the “Employment Structure” in paragraph 37. So:

•    An allegation of sham is not only serious, but critical in the context of the applicant’s claims in application.

•    The respondents are entitled to be told the material facts, with appropriate particulars, supporting such an allegation.

•    A claim in a pleading which requires the respondents to look through the remainder of the pleading to understand the claim, is clearly bad.

•    In relation to the use of the term “purported”, Mr Herbert for the fifth respondent submitted at the hearing:

On a considered analysis it does appear that an allegation that somebody purported to do something, in this context, is simply a confusing red herring. They either did it, in which case you plead they did, or they didn’t do it, in which case you plead they didn’t do it. But to plead some sort of middle ground saying they purported to do so has no operative effect in relation to these arrangements. It’s an ineffective middle ground between they did it and they didn’t do it. And it simply throws the matter into confusion. One asks rhetorically, how does a respondent plead to the notion that they purported to do something? Well, yes I did purport; no I didn’t purport. …

I agree with this analysis.

•    If the applicant is actually claiming that the second and third respondents did not supply labour to the first respondent, it would be proper to so plead rather than claim there was a “purported” supply.

•    The mixture of pleading a “sham” employment arrangement and a “real” employment arrangement in paragraph 37 is confusing to the point of nonsense.

•    The fact that the applicant is seeking the imposition of penalties against all respondents requires a precision of pleading which is absent this aspect of the claim.

62    These extracts from the primary Judge’s reasons of 19 July 2011 will suffice, for present purposes, to expose the concerns which led to her Honour setting aside aspects of the FASC which were both qualitatively and quantitatively important in the formulation of the Ombudsman’s then claim. Although the FASC did not, in terms, allege that the ostensible contracts into which SB and NB had entered with the four workers amounted to shams, by the use of the verb “purported” and similar indications, her Honour took the view that the existence of sham contracts was central to the Ombudsman’s case, and that that allegation had not been properly pleaded. The orders which her Honour made on 19 July 2011 led to the filing of the 2ndFASC.

63    In the 2ndFASC, the Ombudsman made the following allegations:

3.    At all material times the First Respondent:

(a)    conducted a fruit and vegetable farming business;

(b)    operated from a farm on Aerodrome Road, Applethorpe, Queensland (the farm);

(c)    operated a fruit and vegetable packing shed at the farm (the packing shed).

64    In their Defence filed on 21 December 2011, the respondents responded to these allegations as follows:

3.     The first respondent conducts the Eastern Colour Family Trust which manages a fruit and vegetable growing business and a fruit and vegetable packing shed at Applethorpe in Queensland which utilises a number of labour hire companies to provide employees for the business. The respondents otherwise deny the allegations in paragraph 3.

In their particulars to this pleading, the respondents referred to 12 labour hire companies by name, including SB and NB.

65    In his reply filed on 8 February 2012, the Ombudsman pleaded as follows:

2.     As to paragraph 3 of the defence, the applicant denies that labour hire companies were used to provide the employees the subject of the application and says that the employees the subject of the application were at all material times employees of the first respondent.

66    In the 2ndFASC, the engagement of Mr Falconer Snr was alleged as follows:

6.    On 25 November, 2005, Antonio Giovanni Baronio (John Baronio), offered Gordon Falconer (Mr Falconer Snr) the position of casual employee with the First Respondent.

Particulars

(a)    The offer was oral.

(b)    The offer was made at the farm.

(c)    The offer was made after an interview conducted by John Baronio in which:

(i)    John Baronio stated to Mr Falconer Snr the number of days a week Mr Falconer Snr would be expected to perform work at the packing shed;

(ii)    Mr Falconer Snr stated to John Baronio to the effect he had held a forklift licence for over 20 years.

7.    John Baronio was an agent of the First Respondent in that he was a director of the First Respondent and was the manager of the farm.

8.    Mr Falconer Snr accepted the offer made by Mr Baronio.

9.    On 26 November, 2005 the Fourth Respondent, as agent of the First Respondent, asked Mr Falconer Snr to commence work at the packing shed on 27 November, 2005.

Particulars

The Fourth Respondent made the request in a telephone call to Mr Falconer Snr on 26 November, 2005.

67    In their Defence the respondents responded to these allegations as follows:

6.    The respondents deny each and every allegation in paragraph 6 and say further that on or about 27 November 2005 John Baronio offered (Mr Falconer Snr) employment with:

(a)    SB Employment Pty Ltd; and

(b)    NB Employment Pty Ltd.

7.    The respondents deny each and every allegation in paragraph 7 and say further that John Baronio acted as an agent for the second and third respondents.

8.    The respondent [sic] deny the allegations in paragraph 8 and say further that Mr Falconer Snr accepted the offer of employment with both SB Employments Pty Ltd and NB Employments Pty Ltd.

Particulars

Mr Falconer Snr accepted employment orally and by executing documents in relation to each employment provided to him by Adela Caruso on behalf of the second and third respondents. The documents were an employee details document, a document headed SB Employments Pty Ltd and a tax file declaration, a document headed NB Employments Pty Ltd and a tax file declaration.

9.    The respondents admit that the fourth respondent asked Mr Falconer Snr to commence work at the packing shed on 27 November 2005 on behalf of the second and third respondent but otherwise deny each and every allegation in paragraph 9.

68    In the 2ndFASC, the engagement of Mr Falconer Jnr was alleged as follows:

17.    In August, 2006, the Fourth Respondent, as agent of the First Respondent, offered Lachlan Eric Falconer (Mr Falconer Jnr) the position of casual stacker with the First Respondent.

Particulars

The offer was oral.

18.    The offer was accepted by Mr Falconer Jnr.

69    In their Defence, the respondents responded to these allegations as follows:

17.    The respondents deny each and every allegation in paragraph 17 and say further:

(a)    shortly before 1 September 2006 Mr Falconer Snr asked the fourth respondent if work could be found for his son (Mr Falconer Jnr);

(b)    Mr Falconer Snr stated to the fourth respondent that he would explain the work arrangements at the workplace to Mr Falconer Jnr;

(c)    Mr Falconer Jnr attended the workplace on 1 September 2006 and was offered employment with the second and third respondents by Adela Caruso, an employee of the second and third respondents in a clerical duties capacity.

70    In the 2ndFASC, the engagement of Ms Di Betta was alleged as follows:

25.    In January 2007, the Fourth Respondent, as agent of the First Respondent, offered Sandra Di Betta work at the packing shed.

Particulars

The offer was made orally in a telephone call from the Fourth Respondent to Ms Di Betta.

26.    The offer was accepted by Ms Di Betta.

27.    The Fourth Respondent, as agent of the First Respondent, asked Ms Di Betta to commence work in January 2007.

71    In their Defence, the respondents responded to these allegations as follows:

25.    The respondents deny each and every allegation in paragraph 25 and say:

(a)    that Sandra Dibetta [sic] telephoned the fourth respondent sometime shortly before 14 January 2007 and asked if work was available;

(b)    a few days later when a vacancy became available in the packing shed the fourth respondent telephoned Ms Dibetta [sic] and explained to her that work was available with the second and third respondents;

(c)    the fourth respondent told Ms Dibetta [sic] that when she reported to work that one of the clerical staff would see her to have her complete all necessary forms.

26.    The respondents deny each and every allegation in paragraph 26 and say further that Ms Dibetta [sic] accepted employment on the terms outlined by the fourth respondent in paragraph 25 and completed documents in respect of employment with the second and third respondents.

Particulars

Ms Dibetta [sic] was asked by Adela Caruso to complete documents in respect of employment with each of the second and third respondent as follows an employee details; an employment acknowledgement; a tax file declaration.

27.    The respondents say that either the fourth respondent or Adela Caruso asked Ms Dibetta [sic] to attend for work with the second and third respondents at around the time alleged. They otherwise deny each and every allegation in paragraph 27.

72    In the 2ndFASC, the engagement of Ms Donges was alleged as follows:

34.    In July 2007, the Fourth Respondent or Currado Rizzato, as agent of the First Respondent, offered Joanne Cathleen Donges the position of casual employee with the First Respondent.

Particulars

The offer was made orally at the packing shed.

35.    The offer was accepted by Ms Donges.

73    In their Defence, the respondents responded to these allegations as follows:

34.    The respondents deny each and every allegation in paragraph 34 and say further that Joanne Donges was offered employment by the fourth respondent with the second and third respondents in or about July 2007.

35.    The respondents deny each and every allegation in paragraph 35 and say further that Ms Donges accepted employment with the second respondent but declined employment with the third respondent and completed documents in relation to such acceptance.

Particulars

The documents concerned were an authority and a tax file declaration and an employee details form.

74    It is clear from the above that the 2ndFASC contained no allegation that any contract into which SB or NB ostensibly entered was a sham. Relevantly, this was a conventional pleading in which the only question was whether Eastern Colour, by its agent, had contracted with each of the four workers concerned. On the cross-appeal, the respondents say that, in these circumstances, it was not open to the primary Judge to dispose of the case before her on the basis that the SB and NB contracts with the workers were shams. The Ombudsman accepts that “sham” was not pleaded, but submits that no such pleading was necessary. She contends that her predecessor in November 2011 alleged the existence of contracts with Eastern Colour, which allegations were denied. It was the respondents who alleged the existence of contracts with SB and NB, and he (the then Ombudsman) denied it. From there, whether the contracts alleged by the respondents were realities or shams was a matter of argument, not pleading.

75    The respondents resist the correctness of this framework of analysis, both generally and, more importantly, in the particular circumstances of the case. They say that the question whether the contracts with SB and NB were shams was more than a matter of pleading. It had lain at the centre of their successful challenge to the FASC. When the 2ndFASC arrived, there was every appearance that the Ombudsman had turned his back on the sham point, and that the only relevant issue was the conventional one, whether Eastern Colour had made offers of employment which had been accepted by the offerees.

76    The Outline of Submissions filed by the Ombudsman on 2 October 2012 contained, amongst other things, four sections, each under the sub-heading, “Employment of …”, followed by the name of the worker concerned.

77    In the case of Mr Falconer Snr, it was submitted that he accepted the offer of casual employment offered to him by Mr Baronio. Mrs Baronio then telephoned him and requested that he commence work at the packing shed on 27 November 2005. He was not told that Mrs Baronio was acting as agent for SB and NB. He worked at the farm from 27 November 2005 to November 2007. Until January 2006, he was told by Mrs Baronio when he was required for work the next day.

78    In the case of Mr Falconer Jnr, it was submitted that he accepted the offer of casual employment offered to him by Mrs Baronio. He worked at the farm from 1 September 2006 to 11 March 2007. On occasions, he was told by Mrs Baronio the hours to be worked. He worked under her direction, and under the direction of Ms McDonald.

79    In the case of Ms Di Betta, it was submitted that she accepted the offer of casual employment offered to her by Mrs Baronio. She worked in the packing shed as an employee of Eastern Colour. She worked at the farm from 13 January 2007 to 21 February 2008. On occasions, she was told by Mrs Baronio the hours to be worked. She worked under the direction of Mrs Baronio, Ms McDonald and/or Mr Rizzato. On occasions, Mrs Baronio gave directions to her.

80    In the case of Ms Donges, it was submitted that she accepted the offer of casual employment offered to her by Mrs Baronio. She worked at the farm from 13 July 2007 to 21 February 2008. On occasions, she was told by Mrs Baronio the hours to be worked. She worked under the direction of Mrs Baronio, Ms McDonald and/or Mr Rizzato. On occasions, Mrs Baronio gave directions to her.

81    The submissions summarised above were factual ones. For the most part, they did not confront the legal question of by whom the worker concerned was employed (those made in the case of Ms Di Betta being the exception in this regard, although then only at a very high level). They would reasonably have been understood as implying a case that, because Mr and Mrs Baronio were the ones who made the initial offers of employment and there was no mention of SB or NB (albeit that that latter aspect was made clear only in the case of Mr Falconer Snr), it was Eastern Colour with whom the relevant contract was made; and that that was confirmed by the practice of the workers receiving their directions from Mrs Baronio or others who, presumably, were on the staff of Eastern Colour (although, again, that latter aspect was assumed rather than made explicit).

82    The Outline of Submissions proceeded to contend that, as a matter of fact and law, Eastern Colour employed the workers, and that SB and NB were not their “true employers”. The outline continued as follows:

The evidence that demonstrates that the First Respondent was the employer of the Employees includes:

(a)    Each of the Employees state that they were offered employment at the farm by the Fourth respondent;

(b)    The Employees were not told that by the Fourth Respondent or anyone else that they were acting as agent for the second and third respondents;

(c)    At all material times the Employees performed the work in the same location. The location was a farm, which included a packing shed, owned and operated by the First Respondent;

(d)    The Employees packed product which was sent off and labelled in the name of the First Respondent;

(e)    The funds for the Employees’ remuneration were provided by the First Respondent (who it seems set the remuneration);

(f)    All plant and equipment was provided by the First Respondent;

(g)    At all times the Employees were subject to the overall direction and control of the Fourth Respondent (who is also a director of the First Respondent);

(h)    The First Respondent was the entity responsible for the overall organisation of the work of the employees and their control;

(i)    The Employees worked seamlessly throughout the day and at no point during the course of their respective shifts is there any evidence of any involvement of anyone specifically and separately from the Second or Third Respondent;

(j)    The labour of the employees was never available to a third party;

(k)    The Employees recorded their contemporaneous hours on a ‘run sheet’ and this was not split off as work performed for the second or third respondent until later;

(l)    There is no evidence of any practical role, in respect of the Employees or their engagement, being played by a director of the Second or Third Respondent;

(m)    The employment arrangement with the second and third respondents was created by the First Respondent in order to enable the First Respondent to access labour from a worker in excess of 40 hours per week in circumstances where an employee would receive ordinary rates only for all hours worked; and

(n)    The evidence of the Employees is to the effect that there was no practical difference in their work environment or practice pre/post the 40 hours mark.

When counsel for the Ombudsman opened the case before the primary Judge, he expressly relied upon the outline referred to above, without elaboration.

83    At trial, when counsel for the respondents opened, he said:

Now, on the first three attempts of the statement of claim, the applicant sought to allege alternatives. It has not done that now, and it has not alleged in its statement of claim that the use of S.B. and N.B. as true employers, in other words, the existence of contracts of employment with those persons between S.B. and N.B. was a sham. We do not face any allegation that if it is found that S.B. and N.B. on a proper understand [sic] of what happened when those contracts were formed were the employers that that was a sham, and we haven’t come to court to meet a case of that nature.

And:     

Now, because the case has continued to narrow in focus and the parties have cooperated to the extent of ensuring that happens, particularly with the conduct of the trial. There’s a great deal of material in the affidavits that hasn’t been dealt with yesterday in cross-examination, and it’s not our intention now to call Mr Rosado as a witness because he deals with matters after the formation of the contracts.

84    After the completion of the evidentiary stage before the primary Judge, the parties exchanged written submissions on liability. In the submissions filed on behalf of the Ombudsman, it was acknowledged that there were “some matters that might, at first sight, … indicate that [Eastern Colour] was not the party with whom the employees … entered into contracts of employment ….” However, it was submitted, “the determination of which entity actually entered into a contract with the employees is based upon an objective assessment of ‘the practical realities of the relationship’ between the parties”. By such an assessment, it was submitted, Eastern Colour was the employer. This was not a labour hire arrangement. After some authorities were referred to, it was submitted that an objective assessment produced the conclusion that Eastern Colour was the employer. In a passage upon which the respondents placed some emphasis on the cross-appeal, it was submitted that the workers’ “‘employment’ by [SB and NB] was no more than an artifice to avoid the payment of overtime for work after 40 hours”. A large number of factual and other considerations were then listed leading to the conclusion, it was submitted, that Eastern Colour was the employer of these workers.

85    In the final oral submissions made before the primary Judge on behalf of the respondents, counsel protested that the case against his clients, as then sought to be articulated, did not correspond with the pleadings. The only question which arose on the pleadings, it was submitted, was whether the workers’ contracts of employment had in fact been made with Eastern Colour. If not, and if it was, by reference to conventional tests, found that the contracts had been made with SB and NB, it was not open to the Ombudsman to contend that those contracts were shams, devices, or the like. Counsel for the respondents said in those submissions:

Now, when I opened the case, your Honour, I said very clearly we came here to meet a case about employment with Eastern Colour, not employment with SB and NB. What we have seen in the submissions filed by the applicant is a case founded upon the existence of employment with SB and NB but that being a sham. That’s clearly the case that they have raised in their submissions. That is not the case that is pleaded. It is never pleaded. At paragraph 107 of their submissions they complain that Nathan Baronio and Stephen Baronio were not called to give evidence. But, your Honour, why would be [sic] call them to give evidence if the case we’re meeting is about Eastern Colour being the employer. We say it never was. They say, well, they should have been called to establish that it wasn’t a sham. We weren’t meeting that case. We weren’t trying to meet a case that there was a sham. Evidence didn’t go to those things.

86    In the course of his final submissions, one of the authorities to which counsel for the Ombudsman referred was Ramsey, mentioned in para 55 above. Having read the passage set out in that paragraph, counsel continued:

We just say, when you look at the principles, what they purported to do is ineffective. At all times the first respondent was the employer based upon the principles of the overall reality of what was in existence.

At the end of those submissions, the primary Judge asked counsel for the Ombudsman to respond to his opponent’s submission that the pleadings contained no allegation “that the SB/NB arrangement” was a sham. Counsel confirmed that the Ombudsman’s case involved no allegation that the arrangement was a sham. He continued:

And by recasting the pleadings they were pared down to make it a very simple question. And that simple question is answered by looking at these principles of the totality, or the essence of the relationship, and by looking at that, when someone walks in and is offered a job, in all the circumstances in which it was done in this case, the evidence taken at its highest, looking at all the circumstances, points to the first respondent as the employer.

So we don’t need to go to this question of sham. All we say is that if my friend is saying, as they are, that the second respondent was the employer for the first 40 hours, and then the third respondent was the employer for hours thereafter, well, that’s his defence and we say, based on the evidence, that that defence is not made out.

Opening his submission in reply, and responding to that concluding submission on behalf of the Ombudsman, counsel for the respondents said:

Just picking up that point, your Honour, we don’t see how that defence cannot be made out because the pleadings only go to the – the pleadings of the applicant only suggest that there is an employment arrangement between Eastern Colour and the employees. It doesn’t say that any employment arrangement between SB and NB was a sham or ineffective. And it had never been raised squarely. One can look at the reply, one can look at the outline of opening, it has never been raised against us in that way.

87    The position reached, therefore, was that, until the final written submissions made on behalf of the Ombudsman, it had never – at least since the filing of the 2ndFASC – been suggested that the four workers were ostensibly employed by SB and NB but that this was a sham. In those submissions, there was a passage which excited the respondents’ concern that such a suggestion might now be part of the Ombudsman’s case. It was made clear on behalf of the respondents that they had come to court to meet a case framed around the pleadings, and did not understand themselves to be under any obligation to confront an allegation of sham. Then, in final submissions, counsel for the Ombudsman made it clear that his client made no such allegation, that he relied on all the evidence to demonstrate that each of the four workers entered into an employment relationship with Eastern Colour, and that, to the extent that Eastern Colour sought to defend such a case by asserting that each relationship was entered into with SB and NB rather than with Eastern Colour, that was part of Eastern Colour’s defence – as it undoubtedly was, on the pleadings – and the Ombudsman would resist that defence by reliance on the totality of the circumstances surrounding the engagement and employment of these workers.

88    Before turning to the way in which the primary Judge resolved these issues, it is convenient to note what it means, in law, to characterise something – a contract, an arrangement, a transaction, or a document, for instance – as a sham. The situation was described by Lockhart J in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, 454, as follows:

A “sham” is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.

This passage has been consistently applied, or referred to with approval, since, most recently by the Full Court in Actavis Pty Ltd v Orion Corporation [2016] FCAFC 121 at [228]. Lockhart J went on to advert to some of the features of the transaction assailed in Sharrment, in the course of which his Honour noted (18 FCR at 454-455) that –

… the artificiality of the transaction does not give rise to its characterisation as a sham or to the characterisation of the constituent documents as a sham so long as each document “had the effect that it purported to have”, and so long as none of the documents purported “to do something different from what the parties had agreed to do”: Inland Revenue Commissioners v Littlewoods Mail Order Stores Ltd [1963] AC 135 at 155 per Lord Reid.

His Honour also noted (18 FCR at 455) what had been said by Megarry J in Miles v Bull [1969] 1 QB 258, 264:

A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it.

89    From there, the next question which arises is what it was that the primary Judge in the present case held to be a sham. Her Honour made the relevant holding in para 128 of her reasons, set out at para 54 above. On one reading, her Honour may have meant to convey no more than that the time sheets and payment advices there referred to were shams, but we do not regard that as the more natural reading of her reasons. Although she introduced her discussion of the subject with a reference to those documents, it was “the arrangements whereby the relevant employees were identified as working for SB or NB” that were held to amount to shams. We read that as a reference to all of the arrangements on which the respondents had relied to make good their defence that the employers were SB and NB.

90    Once the primary Judge had held that those arrangements were shams, they necessarily formed no part of her Honour’s analysis of the reality of the position presented by the facts of the case. They did not feature in her Honour’s list of facts, circumstances and considerations, contained in para 128 of her reasons, by reference to which the central issue of by whom the workers were employed was determined. With respect to the primary Judge, it is evident that, by so proceeding, her Honour was departing from the basis upon which the case had been conducted before her. It was no part of the Ombudsman’s case that the documentary arrangements under which the employers were recorded as SB and NB should be, in effect, airbrushed out of the analysis. As noted above, counsel for the Ombudsman submitted that the issue should be determined by reference to the “overall reality”, or the “totality”, of the relationship. On any view, a decision which conformed with that approach would have been one which gave careful consideration to the documents which the workers signed, both on the occasions when they were first employed and throughout the period of their work at the farm, and to such evidence as there was as to the oral exchanges, whatever they were found to have been, which threw light upon the reality of the relationships between the workers and the corporate respondents, or one or more of them.

91    Dealing with a question similar to that which arose in the present case, in Ramsey Buchanan J held that it had not been necessary for the Ombudsman’s pleading to contain an express allegation of sham. His Honour said (198 FCR at 201 [105]):

The statement of claim filed in support of the application does not use the word “sham”. That is not surprising. The contraventions alleged do not depend on the proof of fraud or deceit, but upon non-satisfaction of statutory (or statute based) entitlements. There was no need to allege or prove “sham”, fraud or deceit to establish matters of that kind. A description of the arrangements which led to the contraventions as a “sham” is more in the nature of an argument, or suggested conclusion, than a statement of any element of the contraventions which were alleged.

In the present case, the Ombudsman submitted that there had likewise been no necessity to allege sham in the 2ndFASC, and that what her Honour said about sham was in the nature of a conclusion from all of the facts of the case.

92    We do not accept that submission. As is apparent from what we have set out above, the issue in the present case went further than merely whether the Ombudsman’s pleading should have contained an allegation of sham: there had been a substantial pre-trial proceeding, after which the case moved forward on the clear understanding that a sham would not be alleged. At trial, counsel for the Ombudsman reiterated that a sham was not being alleged. Moreover, in the reasons of the primary Judge, that the arrangements on which the respondents relied were shams was not merely a conclusion based on an argument advanced on behalf of the Ombudsman: indeed, as noted above, there was no such argument. Rather, her Honour proceeded forward from her finding that the arrangements were a sham to an analysis of the facts of the case which gave no consideration to them.

93    Counsel for the respondents made the point that, had sham been part of the Ombudsman’s case, his clients would have, or at least might well have, called evidence on the subject. They might well, for example, have called Stephen and Nathan Baronio, the directors of SB and NB. They might also have cross-examined the four workers in greater depth in an attempt to demonstrate that the documents which they executed reflected the reality of their relationships with SB and NB. What counsel submitted in this regard should be accepted. The proceeding was not in that class of case in which the court could be confident that a primary Judge’s departure from the basis upon which the matter had been conducted made no difference to the end result.

94    For the above reasons, we uphold the second ground of cross-appeal.

95    With respect to the first ground, it should be remembered that the four workers with whom the case was concerned were casuals. As such, there were new employment relationships, and contracts, entered into each time they attended for work. But the terms upon which each of them entered into his or her own first contract were obviously foundational to what followed. As the primary Judge pointed out, there were no written contracts as such, but, in an environment in which the only question was by whom he or she was employed, there were documentary indications, strongly favourable to the respondents’ case, which ought, with respect, have been considered. It being the Ombudsman’s case that those documents did not reflect the reality of the situation, it ought, with respect, to have been a significant element in the primary Judge’s resolution of the controversy to consider, and to make findings upon, what passed between the relevant parties at the time that each of the workers was first given work at the farm.

96    The primary Judge made no such findings. As mentioned earlier, a striking feature of her Honour’s reasons was that she set out, or otherwise referred to, the evidence which the various witnesses had given as to the circumstances in which the workers were taken into employment, but she made no findings on the subject. Her Honour may not, of course, have been able to lay out, accurately and in detail, who said what in conversations which had taken place some years previously, but the conflicts so apparent from the evidence to which her Honour did refer required resolution. The evidence of Mrs Baronio and Ms Caruso, to which we have referred in paras 14 and 18 above, for example, dealt specifically with the process under which workers were, on the respondents’ case, customarily engaged by SB and NB. It is hard to see how that evidence did not conflict with the evidence given by at least some of the workers on the subject of the conversations which attended the commencement of their employments at the farm. But these, and other, conflicts were not resolved.

97    The finding which the respondents sought – that each of the workers was expressly offered employment by SB and NB and that he or she well understood what was happening and accepted employment on that basis – would have gone a considerable distance towards making good their case that the ostensible employment relationships into which the workers entered, as reflected in the documentation, did indeed correspond with the overall reality of the situation. We do not suggest that any such finding ought to have been made. But the primary Judge was, in our respectful view, under an obligation to deal with the matter one way or the other. It was not sufficient for her to have laid out the conflicting evidence given by the parties’ witnesses without proceeding to make the necessary findings.

98    For the above reasons, we uphold the first ground of cross-appeal.

99    Were it only for the success of the second ground, it might have been possible for the Full Court to consider for itself how the case ought to have been decided absent the primary Judge’s conclusion on the sham point. However, the success of the respondents’ first ground means that there will be crucial unresolved factual issues which require reconsideration. The evidence of the four workers themselves as to the interchanges in which they participated when they first secured work at the farm were, from all that appears, entirely matters of their own recollections. Absent findings on these and associated aspects – findings which would almost inevitably involve issues of credibility – the Full Court is in no position to determine for itself what should have been the outcome at trial. In the view we take, the conclusion that the case will need to be retried, last resort though such a conclusion always is, is inescapable.

100    In the circumstances, we do not propose to consider the respondents’ third ground of cross-appeal. If there is to be a retrial, any view we might now express as to the appropriateness of the primary Judge’s reliance on the subjective intentions of the workers would produce no concrete result, would add nothing to the reasoned basis for upholding the cross-appeal, and would amount to little more than an advisory opinion.

101    While, for reasons we have given, we hold that the primary Judge was in error in making the decision embodied in para 128 of her reasons, we also consider that we are in no position to conclude for ourselves that SB and NB were the true employers of the four workers. To the extent that the respondents’ fourth ground of cross-appeal involves an invitation to reach such a conclusion, we would reject it. To the extent, however, that the ground represents no more than the respondents’ rounding-up of all their complaints on the cross-appeal, we see no need to give it separate attention in addition to the way we have disposed of their first and second grounds.

102    For the above reasons, we shall uphold the cross-appeal, set aside the orders made by the primary Judge on 3 March 2016 and, pursuant to s 28(1)(f) of the Federal Court of Australia Act 1976 (Cth), grant a new trial of the Ombudsman’s claims against the respondents.

103    The premise upon which the Ombudsman’s appeal is based is that Eastern Colour was the employer of the four workers with whom the proceeding before the primary Judge was concerned. That premise cannot now be treated as valid. In the circumstances, the appeal falls away and should, as a matter of formality, be dismissed.

Associate:

Dated:    22 December 2016

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