Australia: Sham Contracting

Posted on 03-Sep-2010

These provisions are consistent with the amendments made under the Workplace Relations Legislation Amendment (Independent Contractors) Act 2006 (Cth) with the exception that this Bill removes express remedies of injunction and compensation. It is submitted that these provisions are consequently deficient in terms of remedies. Additionally, it is submitted that there needs to be provision for Fair Work Inspectors and appropriately authorized officials of organizations to have powers to investigate the genuineness of an independent contract for these sham contract provisions to be effective and enable FWA to test the relationship where it is, possibly incorrectly, labeled a contract for services.

It is submitted that the sham contracting provisions should also include:

powers enabling Fair Work Inspectors and appropriately authorized officials of organizations to require proof that the contract is a bona fide contract for services such as with:

  • Powers to require the production of documents, in particular the purported contract;
  • Powers to inspect and copy documents
  • Powers to require information with respect to the purported contract;
  • Powers to require names and addresses;
  • Powers of entry into premises to exercise the above powers.
  • Provisions in relation to what orders the court may make with respect to a contravention (in addition to the civil penalty provisions under namely:
  • A provision that enables a person affected by sham contracting arrangement to apply to a court of competent jurisdiction for declaration that they are an employee; and
  • Provisions that grant power to the court to order the (deemed) employer to pay to the (deemed) employee, wages and other entitlements the employee would have been entitled to as an employee under any relevant fair work instrument that covers their employment where the employee was paid less.
  • Provisions granting power to the court to order remedies including injunction, interim injunction, and compensation.

This provision provides that an employer must not dismiss, or threaten to dismiss, an individual who is an employee of the employer and performs particular work for the employer, in order to engage the individual as an independent contractor to perform the same, or substantially the same, work under a contract for services. It is submitted that this provision should include a sub-clause that expressly permits the granting of an injunction or interim injunction for a breach of this section and/or compensation for loss suffered as a result of the dismissal or threatened dismissal.

In a recent decision, the Federal Magistrates Court examined the sham contracting provisions of the Workplace Relations Act 1996 (Cth) (WR Act). These provisions have been retained in the Fair Work Act 2009 (Cth) (FW Act). In this case, the Construction, Forestry, Mining and Energy Union (CFMEU) brought the application, claiming that two purported contractors providing ABNs and invoices were really employees. The company and directors in this case escaped penalty because the Court accepted that they did not know and were not reckless as to whether the contracts would be contracts of employment rather than contracts for services. However, the case is a timely reminder to businesses of the existence of these provisions.

Further, while the sham contracting provisions have been retained in the FW Act, there is now a reversal of the onus of proof onto employers, meaning that the case may have been decided differently under the FW Act. The QWRO has encountered alarming levels of sham contracting.

Industry investigations have shown that it is particularly prevalent in highly competitive areas including, but by no means limited to, Contract Security, Fruit and Vegetable Harvesting and Building and Construction.

Workplace Ombudsman Chief Counsel Leigh Johns says it will be argued the workers were paid on a commission basis only during the sham period and as a result were underpaid more than $52,000 in wages and annual leave entitlements. Mr. Johns says the Workplace Ombudsman is very concerned about sham contracting arrangements.

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