To be or not 236B? - The validity of contractual indemnities with employers

The Queensland Court of Appeal has unanimously ruled that section 236B of the Workers’ Compensation and Rehabilitation Act 2003 (Qld) (Act) operates to void any contractual indemnity clause that would require an employer (and its workers’ compensation insurer) to indemnify a third party for its liability to an injured worker.

This particular section of the Act has caused significant uncertainty within the profession since its introduction in 2016. The recent Queensland Court of Appeal decision in Bilson v Vatsonic Communications Pty Ltd [2024] QCA 171 provides important judicial interpretation regarding the section.

What happened?

A worker engaged to operate a hydro-vacuum truck commenced proceedings in the District Court of Queensland for injuries sustained in the course of his employment. The worker brought a claim for damages pursuant to the Act against his employer, and a separate claim against the local Council who contracted the employer’s services pursuant to the Personal Injuries Proceedings Act 2002 (Qld).

The contract between the Council and the employer contained an indemnity in the Council’s favour, requiring the employer to indemnify it:

“against all claims for injury loss or damage suffered by any person or property arising out of your performance of the Contract and all liability for costs, charges and expenses incurred by [the Council] in respect of the claim of any person or body.”

At trial, the Council argued that the indemnity required the employer to indemnify it for any liability it was found to have to the worker, in addition to its costs. The employer argued that section 236B of the Act rendered the contractual indemnity void.

What was the trial decision?

In the first instance, the Court found that:

• the contractual indemnity was unambiguous and required the employer to indemnify the Council for any loss arising from the employer’s performance of the contract
• the application of section 236B of the Act was confined to a “contribution claim” as defined by the Act
• the Council sought a contractual indemnity not in respect of a contribution claim by the employer, but rather, in respect of the worker’s claim against the Council; and
• in the circumstances section 236B of the Act did not apply.

Consequently, the employer (via its insurer, WorkCover Queensland) was required to indemnify the Council for the liability it was found to owe to the worker.

What was argued on appeal?

WorkCover Queensland joined the employer in appealing the decision at trial. WorkCover argued that the trial judge erred in his conclusions regarding section 236B, and that that section rendered the contractual indemnity void.

What did the appeal court decide?

The Queensland Court of Appeal unanimously overturned the trial judge’s decision and affirmed that section 236B operates to make void any contractual indemnity that would require an employer to indemnify a third party for liability it is found to owe to an injured worker.

Previously, discourse surrounding section 236B turned on the operation of section 236B(3), which specified that an agreement for an employer to indemnity a third party was void to the extent that it related to any contribution claim made by the employer against the third party.

The Court’s decision contemplated the purpose behind section 236B, which was introduced by the legislature to specifically undo the result of the decision of Byrne v People Resourcing (Qld) Pty Ltd [2014] QSC 269. The Court drew particular focus to the explanatory notes for the introduction of section 236B, noting its purpose to specifically overturn Byrne and “prohibit the contractual transfer of liability from principals to contractors”.

In short, the Court found that the plain meaning of section 236B(3), as supported by the surrounding statutory clauses and explanatory notes, is that a third party such as the Council is prevented from enforcing the indemnity clause against the employer of the injured worker even in respect of the claim brought against the Council by the injured worker directly.

Implications

While to indemnify, or not to indemnify, may once have been a live question for employers (and by extension, WorkCover Queensland), the Court of Appeal has now made it clear that contractual indemnities relied on by third parties against the employers of injured workers are invalid. This will have a significant impact on both existing and future contracts between principals and their contractors.

The decision increases the value of contractual insurance clauses which, when drafted effectively can operate to bring about a similar result as a contractual indemnity.

It remains to be seen whether contractual release clauses in the favour of third parties will successfully operate to prevent claims for contribution made by employers or whether these too will be voided by the operation of section 236B.