In Burdziejko v ERGT Australia Pty Ltd [2015] FWC 2308 (1 April 2015), the Fair Work Commission (FWC) decided that ERGT ‘outsourced’ work when it engaged a worker from a labour hire agency to do work for a new client. The decision has ramifications for anyone employing labour hire workers within three months of termination of their assignment.

FACTS

Burdziejko had initially been employed by Hays (a labour hire provider) to work at ERGT. After three months she was offered ongoing employment by ERGT, which she accepted. She later alleged that she had been unfairly dismissed by ERGT. ERGT argued that the FWC should not deal with the unfair dismissal claim by conciliation until its jurisdictional argument had been determined, i.e. that Burdziejko had not been employed for the prescribed minimum period of employment of 6 months.[1]

THE ARGUMENTS

ERGT had gained a new client and therefore needed an additional employee. It sourced Hays to provide that labour. Burdziejko was then employed by Hays as a customer services officer at ERGT.

Burdziejko argued that the labour hire agreement between Hays and ERGT was an outsourcing of her role by ERGT. That outsourcing ended when ERGT brought the work back ‘in house’. On that basis, she contended that there had been a transfer of business from Hays to ERGT as she had been employed by ERGT within three months of the termination of her employment with Hays. ERGT did not advise her before she commenced employment that it would not recognise her service with Hays, so she argued that her service with Hays counted towards her service with ERGT.

ERGT submitted that it did not outsource work to Hays because it never required Hays to perform work for it. It simply required Hays to provide it with “a warm body” to do the work. It was submitted that this was a straight labour hire arrangement and not caught by the transfer of business provisions of the Fair Work Act 2009 (FW Act), in particular section 311(5).

THE LEGISLATION

Deputy President Gooley observed as follows in relation to the relevant provisions of the FW Act (underlining added):

[13]The starting point for determining this is s.22 of the Fair Work Act 2009 which defines a period of service with a national system employer.

[14]S.22(5) provides that if there is a transfer of employment, the period of service with the first employer counts as service with the second employer.

[15]S.22(7) provides that there is a transfer of employment for non associated entities if the employee is a transferring employee in relation to a transfer of business from the first employer (Hays) to the second employer (ERGT).

[16]A transfer of business is not defined in s.22(7) and takes its meaning from s.311.

[17]S.311 defines when a transfer of business occurs.

[18]The following preconditions must exist:

(1) the employment with the old employer must have terminated.

(2) within 3 months the employee must become an employee of the new employer.

(3) the work of the employee must be the same or substantially the same.

(4) there must be a connection between the old and new employer as defined.

[19]In this case (2) and (3) are not disputed. While (1) was questioned, I accept that Ms Burdziejko’s acceptance of a full time position with ERGT was incompatible with continuing employment with Hays such that her employment with Hays terminated at that time.

[20]The parties are in dispute about whether there is a connection between the old and new employer.

...

[22]S.311(5) provides:

(5) There is a connection between the old employer and the new employer if:

(a) the transferring work had been performed by one or more transferring employees, as employees of the old employer, because the new employer, or an associated entity of the new employer, had outsourced the transferring work to the old employer or an associated entity of the old employer; and

(b) the transferring work is performed by those transferring employees, as employees of the new employer, because the new employer, or the associated entity of the new employer, has ceased to outsource the work to the old employer or the associated entity of the old employer.

REASONS FOR DECISION

There is no definition of the word ‘outsource’ in the FW Act. Gooley DP took into account the definition in the Macquarie dictionary: “to contract (work) outside the company rather than employ more in-house staff.”[2] The Deputy President noted that there are no Full Bench authorities dealing with the issue.[3]

Gooley DP rejected the submission of ERGT that it did not outsource the work because prior to employing Burdziejko the work performed by her was not required to be performed. The Deputy President reasoned that ERGT employed customer service officers. Because it had gained a new client it had additional work that it needed to be performed. Instead of engaging an employee to perform that work, ERGT engaged Hays to provide a person to perform that work. Therefore, it outsourced the work to Hays. Further, after a period of time, it decided that it no longer wanted Hays to perform that work and decided to perform the work in house and employed Burdziejko to do the same work.[4]

Gooley DP held that unless the contract with Hays was a sham, upon engaging Hays to provide labour, ERGT no longer performed that work. Instead of ERGT engaging labour to perform the work, Hays engaged the labour to perform work.[5]

Gooley DP observed that:

[39]The transfer of business provisions in the Fair Work Act 2009 were intended to have wider application than that provided for in the predecessor acts where the focus was on whether there was a transfer of the business between the old employer and the new employer. The application of the predecessor provisions focused the character of the business in the hands of the old employer and the new employer. The Explanatory Memorandum makes it clear that the new provisions do not focus on whether the new employer had taken over that business or part thereof but whether there has been a transfer of work between the two employers and the reason for the transfer of that work.

In the event, Gooley DP accepted that there was the requisite connection (within the meaning of section 311 of the FW Act) between the old employer (Hays) and the new employer (ERGT) such that there was a transfer of business from Hays to ERGT.[6]

As Burdziejko was not advised prior to the commencement of her employment with ERGT that her service with Hays would not be recognised, and because she was a ‘transferring employee’ in relation to a transfer of business, her service with Hays counted as service with ERGT.[7] On this basis, she had served the minimum period of employment and ERGT’s jurisdictional objection to her unfair dismissal claim was dismissed.[8]

LEARNINGS FOR EMPLOYERS

At the time of writing, it is not known whether there will be an appeal from the decision of Gooley DP in Burdziejko. If there was, one would expect leave to appeal to be granted given that the issue has not previously been the subject of scrutiny by a Full Bench of the FWC.

For the time being, the decision has significant ramifications for parties to labour hire arrangements. The very broad interpretation by Gooley DP of the meaning of the word ‘outsource’ would mean that many current labour hire arrangements might constitute an ‘outsourcing’ by the principal to the labour hire agency, when that had not been thought to be the case.

A conservative approach now would suggest that the principal should, therefore, be cautious about employing a worker who has been provided by a labour agency within three months of the termination of their employment with the agency to perform the same or similar work. If the principal does so, on the basis of the decision in Burdziejko, it should consider whether to advise the worker whether their service with the labour hire agency will be recognised. If it does not, the service of the worker with the labour hire agency will count towards the calculation of length of service with the principal for purposes such as the minimum period of employment required to pursue an unfair dismissal claim.

In addition, the decision means that the employment of a labour hire agency worker within three months of termination of their employment with the agency, to perform the same or similar work, will result in any enterprise agreement that applied to the worker ‘transferring’ to the principal.[9] Due diligence should be undertaken beforehand, to ensure that a principal that is contemplating this understands the nature and extent of the obligations that they would acquire in that event.