Sham contracting is an issue that is currently attracting a
great deal of attention not only from the media but more
significantly from the Government bodies charged with ensuring
compliance with industrial laws. Leigh Johns, ABC Commissioner has
very recently expanded on his proposal for a sham contracting
inquiry and roundtable, indicating the process could lead to a code
of conduct and practice for labour hire in the building and
construction industry. The Construction Forestry Mining and Energy
Union (CFMEU) has also called for a round table to address the
issue of sham contracting.
The predecessor to the Fair Work Ombudsman (FWO) was recently
successful in its first prosecution under the sham contracting
provisions. Not only was the FWO successful in securing a finding
against the company involved but also against the director and
owner and the Human Resources Manager personally under the
accessorial liability provisions. The FWO will be targeting this
area in the future as no doubt will unions.
Are you sure that your organisation is compliant?
The Centennial case
(Fair Work Ombudsman v Centennial Financial Services Pty Ltd
& Ors  FMCA 863 (15 November 2010))
In or around January 2007, the HR Manager, on the instructions
of the owner and director, recruited a number of employees as
"corporate associates", to perform sales work for the
company. However, by around April of 2007 the owner and director
advised the HR Manager that the company was in financial difficulty
and that the sales team would have to be restructured. The owner
and director and HR Manager then met with the sales team in late
April 2007 and told them that they would be moving on to a
consultancy arrangement on a "commission only" structure
and that they had seven days to read and return the consultancy
agreements. After that date they were treated as independent
Federal Magistrate Cameron held that the workers were in fact
employees including during the period after April 2007 and not
By representing that the workers were engaged as independent
contractors when in reality they were employees, the company had
breached the relevant legislation. It was also found that the
conduct at the meeting in April 2007 amounted to constructive
dismissal of the employees and the company had underpaid the
employees by not paying them the entitlements they were due as
It was found that the owner and director had procured many of
the contraventions of the legislation as he was the mind behind the
change in the nature of the employment relationship.
Of particular interest, however, were the findings in respect of
the HR Manager, who was found to have been "knowingly
concerned", in the company's contraventions by his:
participation in the April 2007 meeting, where his contribution
was in furtherance of the company's plan to move the
individuals from employees to contractors and that he was an
intentional participant in that contravention
awareness of what the Independent Contractors Agreement
contained, that he typed it, and explained it clause by clause in
the April 2007 meeting, and
knowledge that after April 2007 the individuals would not be
paid a wage.
It was found that it was therefore irrelevant whether or not he
understood that the legal effect of what the owner and director
said amounted to a dismissal or whether he was aware of the
illegality of the arrangement more generally.
Although penalties have not yet been determined in this case,
the maximum penalty for each breach is $33,000 for a company and
$6,600 for an individual.
To ensure that you and your organisation are not at risk you
check that when independent contractors are being engaged that
they are truly independent contractors genuinely operating their
document all contractor arrangements properly
regularly review any contractor arrangements in place in the
organisation to ensure that circumstances have not changed since
the arrangement was put in place, and
get advice if you are unsure.
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.
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