Resources: Blogs

Fool me once, sham on you

Blogs
|

FWC refers employer to FWO over sham contracting

The rapid rise of concepts such as the gig economy has seen a significant shift in our understanding of the differences between independent contractors and employees.

The rapid rise of concepts such as the gig economy has seen a significant shift in our understanding of the differences between independent contractors and employees. The distinction between the two is now more complex and can be difficult to discern, but regulatory bodies have made it clear that they will not tolerate the intentional mischaracterisation of employment relationships as a means of depriving genuine employees of their entitlements.

There have been numerous cases in recent times that have resulted in businesses being ordered to pay significant penalties for engaging in sham contracting arrangements to avoid paying employment entitlements such as overtime, allowances and penalties - as well as leave.

For example, in January 2019, two labour-hire companies were penalised more than $200,000 for engaging in a sham contracting scheme that resulted in workers being paid less than their statutory employment entitlements (see Fair Work Ombudsman v Care Providers Pty Ltd & Ors [2018] FCCA 3771). The director of the companies and a consultant who was responsible for the engagement of the workers were also personally penalised.

In another example, the General Manager of a labour-hire business was fined $43,000 for his direct involvement in contraventions of the Fair Work Act 2009, including sham contracting arrangements (see Fair Work Ombudsman v Raying Holding Pty Ltd & Anor (No. 3) [2018] FCCA 668).

The Fair Work Commission (the FWC) is also alive to these issues and in Prosdocimi v Addiction Treatment T/A Dayhab [2019] FWC 4586, it referred an employer’s suspected sham contracting arrangements to the Fair Work Ombudsman (FWO) for further investigation.

In this decision, the FWC had been asked to determine a jurisdictional objection raised by an employer in a claim for unfair dismissal brought by a former employee. The employer claimed that the employee had been an independent contractor for the majority of her employment and had therefore not reached the minimum employment period in order to be protected from unfair dismissal.

The FWC dismissed the employer’s jurisdictional objection, finding that the employee was not a true independent contractor for the following reasons:

  • the employer issued rosters which named the employee and required her to attend the workplace for her designated shifts;
  • the employee’s position description showed little opportunity for the employee to exercise control over how she performed her work;
  • the employee was restrained from working in competition with the employer;
  • the employee had no right to delegate or sub-contact her work;
  • the employee was required to wear a uniform which was provided by the employer;
  • the employer provided all tools and equipment to the employee; and
  • the employee had not been involved in any activity which required her to take a risk in order to pursue a profit, or in any business with other customers who might purchase her services.

The FWC gave little weight to the fact that there was an independent contractor agreement and that the employee was paid on production of invoices, noting that these matters were consistent with the type of relationship that the employer was trying to achieve. It found that the employer could not alter the true nature of the relationship by seeking to put a different label on it, and that this was a clear case of sham contracting.

Whilst the matter has been remitted back for hearing of the employee’s claim for unfair dismissal, the FWC took the matter a step further and referred it to the FWO to investigate its concerns that the employer may have a number of other workers engaged in similar arrangements.

As can be seen from the examples set out above, if the employer is found to have engaged in sham contracting, it faces significant penalties.

Lessons for employers

This recent decision should serve as a timely reminder for employers to review any independent contractor arrangements that they have in place and to ensure that they are genuine arrangements.

The FWC can and will work with the FWO to stamp out sham contracting and these recent decisions have shown that Courts are willing to impose more significant penalties to send a message to other employers that this will not be tolerated.

As a refresher, we note we have previously discussed at length the key differences between an independent contractor relationship and an employment relationship – see our blog Ride with me – Food delivery bicycle riders and sham contracting.

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

Similar articles

Employer found liable for workers compensation despite worker’s unreasonable perceptions

Fact or fiction

A recent decision of the New South Wales Personal Injury Commission serves as a reminder of the differing standards of proof when determining liability for claims of bullying and/or harassment under workers compensation laws and the Fair Work Act 2009 (Cth).

Read more...

Ausgrid to pay $600,000 for fatal electricity incident which occurred 9 weeks after similar incident

The NSW District Court has heard how following an incident involving the low voltage pole changeovers which caused significant injuries to a worker, a similar incident occurred about nine weeks later, this time causing a fatality.

Read more...

Changes to the Fair Work Act and Sex Discrimination Act to commence shortly

NEWS UPDATE

On 2 September 2021, the Federal Parliament passed the Sex Discrimination and Fair Work (Respect at Work) Amendment Bill 2021 (the Bill).

Read more...

FWO secures penalties against bar operator and external accounting firm

Closing time

The Fair Work Act 2009 (Cth) requires employers to keep certain employee records for a period of 7 years. These records are necessary to ensure that employees have been paid their minimum entitlements should an underpayment claim be made.

Read more...

Employer found liable for workers compensation despite worker’s unreasonable perceptions

Fact or fiction

A recent decision of the New South Wales Personal Injury Commission serves as a reminder of the differing standards of proof when determining liability for claims of bullying and/or harassment under workers compensation laws and the Fair Work Act 2009 (Cth).

Read more...

Commission finds employee’s flexible working request to work entirely from home was not reasonable

The worst has now passed

One of the many changes to the Fair Work Act 2009 (Cth) introduced this year include the Fair Work Commission’s new powers to deal with disputes relating to requests for flexible working arrangements.

Read more...

Let's talk

please contact our directors to discuss how ouR expertise can help your business.

We're here to help

Contact Us
Let Workplace Law become your partner in Workplace Relations.

Sign up to receive the latest industry updates with commentary from the Workplace Law team direct to your inbox.