At the same time that the Independent Contractors Act commenced, in March 2007, the Workplace Relations Act was also amended to prohibit the promotion of 'sham' contracting arrangements and related behaviour. The Workplace Ombudsman has commenced its first prosecution under the 'sham' contracting provisions of the Act.
Under the provisions, which are retained in the Fair Work Bill, employers and prospective employers are exposed to liability for civil penalties and/or other consequential orders in any one of the following situations:
- Where they misrepresent to a worker, or prospective worker, that they are or will be an independent contractor when in fact they are or will be an employee at common law (ie, promotion of a sham arrangement). A contravention does not occur where the employer reasonably believes that the person is, or will be an independent contractor or could not reasonably have been expected to know otherwise.
- If they dismiss or threaten to dismiss an individual for the sole or dominant purpose of reengaging them as an independent contractor to perform the same or substantially the same work. In proceedings alleging a contravention of this prohibition, the proscribed purpose will be presumed against the employer ie, the employer will have to prove that the arrangement is legitimate; and
- make a false statement to persuade a person to enter into an independent contracting arrangement.
The provisions authorise the Workplace Ombudsman, an affected individual or union representing an affected individual, to apply to the Federal Court or Federal Magistrates Court for a penalty order. Maximum penalties range from $6,600 for individuals and $33,000 for companies. Depending upon the circumstances the Court can, in addition, make other orders including, where appropriate, orders restraining or requiring certain conduct, orders for the reinstatement of a worker, and, orders for payment of compensation.
According to a media release by the Workplace Ombudsman on 30 January 2009, in its first prosecution under the sham contracting provisions it is alleging that the employer, Sydney based Centennial Financial Services, breached the provisions when it 'converted' eight employees to contractors, but continued to have them perform the same work.
The Workplace Ombudsman is alleging that:
- the workers were told to get their own ABN, sign a "sales consultant agreement" and to invoice the company when they made sales. They were further told that they would no longer receive annual leave, sick leave or superannuation;
- under these arrangements 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.
The prosecution has been brought against the employer, its sole director and human resources manager. Under the legislative scheme, each is exposed to liability for a penalty and, potentially, to orders for payment of compensation.
'Casual contracting' can be a high risk activity.
Australia's Best Value Professional Services Firm - 2005 and 2006 BRW-St.George Client Choice Awards
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
