CONTRACTUAL AUTONOMY, PUBLIC POLICY AND THE PROTECTIVE DOMAIN OF LABOUR LAW.

• Date: 01 December 2020
• Author: Bomball, Pauline

CONTENTS I Introduction II The Tension between Contractual Autonomy and Public Policy A Contractual Autonomy: The Private Dimension B The Public Dimension of Characterisation III Divergent Approaches in Australia: Judicial Deference and Judicial Intervention IV Justifying the Interventionist Judicial Approach to Characterisation A The Protective Statutory Purpose Justification B The Contractual Intention Justification 1 A Public Policy Justification 2 Justification by Reference to the Values of General Contract Law V Conclusion I INTRODUCTION

In his treatise on the personal employment contract, Professor Mark Freedland observed that there is 'continuing doubt about how far [a court is] to defer to the expressed intentions of the parties themselves' when the court is determining the legal characterisation of a contract for the performance of work. (1) This statement, which was made in the context of English law, applies with equal force in the Australian context. An analysis of the Australian case law concerning the characterisation of work contracts reveals uncertainties and inconsistencies in the judicial treatment of express terms in work contracts. In some cases, courts accord significance to express terms in the characterisation process; (2) in others, these terms are given limited weight. (3)

This article argues that the uncertainties and inconsistencies in the case law are symptomatic of an underlying tension between the concepts of contractual autonomy and public policy in the law of the employment contract in Australia. It is contended that a deeper understanding of these two concepts, as well as their interaction, may assist in the principled and coherent development of the law pertaining to the treatment of express terms in work contracts in particular, and the law pertaining to the characterisation of work contracts more generally. When a court places limited weight upon, or disregards altogether, some of the express terms of a work contract, the court is engaged in a form of judicial intervention in a private bargain between the parties. This article analyses the concepts of contractual autonomy and public policy in the employment law context and uses this analysis to develop a conceptual framework that rationalises and justifies such judicial intervention.

The characterisation of contracts for the performance of work is a significant issue in labour law. The main reason for its significance is that many statutory labour rights and protections, including those pertaining to collective bargaining, minimum wages, unfair dismissal and various forms of leave, are conferred upon employees only. (4) Other types of workers, such as independent contractors, generally fall outside the scope of labour statutes. Accordingly, while a contract for the performance of work is a private bargain, it also has a public dimension. (5) The contractual principles and techniques of characterisation play a crucial role in determining the protective scope of labour regulation. When a court is engaged in the process of characterising a work contract, it is simultaneously giving effect to the 'intention' of the parties, in line with contract doctrine, and determining the scope of protection of the labour statute. (6) This duality of function of the characterisation exercise--one that is private in orientation; the other, public--gives rise to difficulties and tensions.

These difficulties and tensions manifest in inconsistent statements in the case law concerning whether and to what extent courts engaged in the characterisation exercise are to defer to the expressed intention of the parties. In some characterisation cases, courts insist that the common law must 'proceed by acknowledging the contractual autonomy of the parties' (7) and that the issue 'is characterisation of relationships and not judicial social engineering to encourage one form rather than another'. (8) Parties are free to enter into employment contracts or independent contracts as they see fit, and '[p]ublic policy has nothing to say either way'. (9) The task of the court, according to this view, is simply to discern and give effect to the expressed intention of the parties as to the nature of their relationship.

In other cases, courts take a more interventionist approach, mindful of the financial incentives that employing entities have to structure their work arrangements in such a way as to avoid statutory employment-related obligations, and of the control that such entities generally have over the drafting of work contracts. (10) In these cases, courts are attentive to the need to scrutinise carefully the contractual terms to determine whether they reflect the 'substance or reality of the relationship' between the parties. (11) Terms that do not reflect the reality of the relationship are given limited weight or disregarded. The approach taken in these cases is consistent with the view that '[t]here is no legitimacy in arrangements' (12) that are designed to facilitate avoidance of employment-related obligations, and that it 'would be contrary to the public interest' if parties could, 'by a mere expression of intention as to what the legal relationship should be', determine the legal character of their relationship. (13)

It is contended that these conflicting judicial approaches are manifestations of the tension between the concepts of contractual autonomy and public policy that inheres in the characterisation exercise. An interventionist judicial approach is aligned with a concern for public policy, which in this context entails the detection and thwarting of avoidance techniques used to remove work contracts from the domain of protective labour law. A deferential judicial approach emphasises the value of contractual autonomy. From the perspective of labour law scholars who are steeped in the normative tradition of worker protection, (14) the interventionist approach is preferable, lest the protections of labour regulation be eroded by contractual fiat of the stronger party. It must, however, be acknowledged that the interventionist approach is not without controversy. As Sir Patrick Elias observed in a recent article, '[t]here is a limit to how far the courts can legitimately interfere with the express terms of the contract'. (15) Judges are constrained in the discharge of their function; they 'cannot rewrite the contract; they cannot strike down a bargain because they would prefer it to have been formulated in a different way or because they think it in some general sense inequitable'. (16) Any judicial intervention in privately agreed bargains must be clearly and fully justified. (17) A sustained and reasoned justification for the interventionist approach, which engages with both the conceptual and doctrinal dimensions of judicial intervention, remains absent from the Australian case law and literature on the characterisation of work contracts. (18) This article seeks to provide that justification.

There are many ways in which courts may intervene in a work contract. This article limits its consideration to cases where courts disregard or give limited weight to express terms in the course of characterising a contract as one of employment or independent contracting. In presenting the justification for the interventionist judicial approach, this article explores cases in the areas of taxation and tenancy law, as well as those in labour law, which deal with the sham doctrine. (19) An analysis of these cases and the associated literature (20) reveals two possible justifications for judicial intervention in contracts, including contracts for the performance of work. (21) One prominent justification, which this article will term the 'protective statutory purpose justification', anchors the legitimacy of judicial intervention in the labour law sphere in the protective purpose of labour statutes. This justification proceeds on the basis that labour statutes that confer rights upon workers pursue a protective purpose, and that courts should be attentive to this protective dimension when characterising work contracts. (22) As a matter of public policy, courts should give full effect to these protective statutes. (23) This means that a court should, so far as reasonably possible, interpret a work contract in a manner that results in its characterisation as an employment contract, such as to enable the worker to have the benefit of the labour statute. (24) While there is great force in this approach, it is, as this article will contend, contingent upon the acceptance of a number of propositions that may not be readily embraced by the Australian judiciary. (25)

This article accordingly explores an alternative justification that emerges from the case law and literature on the sham doctrine, which it terms the 'contractual intention justification'. It will be demonstrated that this justification is not anchored in the protective purposes of labour statutes. It is, instead, grounded in the notion that judicial imprimatur will not be given to the conscription of contractual rules in aid of transactions or documents that are deceitful or that mask the true agreement of the parties. (26) In elucidating this justification for the interventionist judicial approach, this article makes two further arguments that extend the current literature on the characterisation of work contracts. First, it is argued that such a justification is not based on the notion that employment contracts are to be treated differently from commercial contracts. (27) Second, and having regard to the tension between the concepts of contractual autonomy and public policy, it argues that the 'contractual intention justification' is more secure than justifications that are grounded in protective statutory purposes or a view that employment contracts are special and warrant distinctive rules. In developing these points, this article advances an unorthodox argument. It argues that the...