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“Odco” contracts are known as trilateral contracts, and often involve the provision of labour. In simple terms, a business that provides staff to other businesses are known as Odco contractors.
The trilateral relationship consists of:
- The business in need of staff (the company)
- The business supplying the staff (labour hire provider)
- The employee(s) being contracted out to various businesses
The main idea is that the labour hire provider has a contract with the employee, and a separate one for the company seeking staff or employees. However, the employee does not have a contract directly with the company.
Odco or trifactor contracts have been quite controversial lately as it is closely associated with ‘sham contracting’. This is where employers deceive their employees into thinking they are independent contractors to avoid providing the standard employee benefits – we’ll cover this shortly.
So, recent court rulings have discussed whether Odco arrangements are legal, and when such an arrangement actually arises. For example, when you’re deciding whether an Odco arrangement is in place, do you look at the terms of the contract or assess the nature of the contractual relationship? In this article, we’ll discuss the answer to this in detail.
What Is An “Odco” Contract?
The term Odco is derived from the first case featuring three party contracts. Building Workers Industrial Union of Australia v Odco Pty Ltd (1991) is known as the “Odco Case”.
| Example Let’s say Business A needs workers to perform work for them. They enter into a contract with Business B, a labour hire provider, to provide such labour. So, Business B employs workers and enters into contracts with them so they can perform work for Business A. |
During their employment, the workers are not considered employees of business A, but rather, employees of Business B.
Therefore, the owner of business B (labour hire provider) is responsible for all employer duties related to the workers.
| Example Sarah starts a business where she employs law students who are looking for legal experience at firms. Sarah enters into a contract with a law firm, Jane & Co, to provide some labour when required. They’ve come across a large project which would require some extra help, so Sarah agrees to provide 3 qualified law students to work on the project as paralegals. These students are under a direct contract with Sarah, but do not have a contract with Jane & Co. As such, Sarah is responsible for providing them with their relevant employee entitlements such as pay, leave and superannuation. This would be considered an Odco contract. |
What Should Be Included In An Odco Contract?
An Odco contract should make it clear that staff are not internal employees of the company. This helps clarify the separate responsibilities of each party. In other words, the agreement will set out that the business in need of labour will not be responsible for the employees’ rights.
Overall, the Odco contract should aim to include:
- The names of all the parties
- The contractual period
- Compensation
- Potential risks
- Task and duties
- Obligations of the employer and employee
- Liability
- Dispute resolution
What Is A Labour Hire Arrangement?
A labour hire arrangement is another term for an Odco or trifactor contract. A labour hire arrangement occurs when a business needs staff and enters into a contract with a labour hire company so they can provide staff to perform the required work.
A good arrangement for labour hire requires a clear and concise contract drafted by a legal professional. At Sprintlaw, we’ve helped a number of businesses with their labour hire agreements with our Labour Hire Agreement Package – chat to one of our consultants today!
Is An Odco Contract Legally Valid?
An Odco contract is a legally valid contract. However, it’s imperative to be careful with the wording and context surrounding it. In other words, it’s essential that all key terms are clear so each party knows what they are and aren’t responsible for.
If an Odco contract is misread or misinterpreted, it can lead to disputes or accusations of sham contracting. More specifically, courts can raise the question of whether the worker is an employee or a contractor.
What Is Sham Contracting?
Sham contracting occurs when an employee is mistaken for an independent contractor. This can be detrimental as these workers then miss out on their employee entitlements, such as minimum wage and leave.
If an Odco contract is not clear enough about whether the employees work for the labour hire company or the company in need of labour, this could cause some confusion for the employee and can constitute sham contracting. So, as a business in an Odco arrangement, it’s important to be 100% clear on whether they are employees or not so you can provide them with the correct entitlements.
Section 357 of the Fair Work Act 2009 covers sham contracting in its provisions. The legislation states that an employer cannot deliberately misrepresent an Employment Contract as a Contractors Agreement.
The case of Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (2015) also set the precedent on this matter. the aforementioned Odco Case was closely discussed, and they decided that employers cannot mislead potential employees by representing an employment contract as a Contractors Agreement, as this would deprive employees of their entitlements.
What Did The Federal Court Say?
The courts have added two valuable considerations when engaging in trifactor employment contracts:
- The terms of the contract will determine whether or not it is an employment contract or independent hire contract as opposed to the nature of the duties. This was put forward in ZG Operations Australia Pty Ltd v Jamsek.
- Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) stated the amount of control exercised by a worker regarding their employment will have an impact on whether a worker is considered an employee or contractor.
What Does This Mean For My Business?
If you are a business that is looking to hire out their employees, it is vital that you pay attention to the written agreements. Similarly, if you are looking to hire contractors for your business, then steps need to be taken to ensure all parties are aware of their rights as well as limitations under a Contractors Agreement.
As an employer, your duties towards internal employees and contractors differ. When you have these clearly laid out, you are more likely to avoid disputes. It’s always safe to seek the help of a legal professional when doing so.
Contractor Vs Employee: What’s The Difference?
A contractor is hired externally whereas an employee is an internal member of the company.
A contractor will likely have the same duties and day-to-day responsibilities as an internal employee with the same role. However, the terms of their employment will differ.
For example, a contractor is not entitled to minimum wage and they will be responsible for their own taxes. Further, they need to have their own ABN.
An employee, on the other hand, is subject to the National Employment Standards and is entitled to benefits such as leave entitlements. Their employer will also owe them certain Work Health and Safety obligations and will need to cover their superannuation and insurance.
As an employer, it’s essential that you understand whether you are employing contractors or employees so that you can provide them with the correct entitlements and avoid legal disputes.
Key Takeaways
There is a stark difference between contractors and internal employees which is vital to Labour Hire Agreements or ‘Odco’ contracts. The main aspects to keep in mind are:
- Employees and independent contractors can have similar roles, but your obligations to them will be different
- The specifics of a written agreement will determine whether an employee is a contractor or internal employee of the business
- Sham contracting is when an employer will try to deceive employees by trying to pass their contract as an independent contractor agreement, depriving them of employee benefits
- When using Labour Hire Agreements or trifactor employment contracts, wording is imperative. Therefore, hiring a legal professional to help with this can prevent potential disputes in the future.
At Sprintlaw, we have expert lawyers who can assist you with your business contracts.
If you would like a consultation regarding labour hire agreements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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