In our December 2010 article (see issue 8.12), we discussed the
activities of the Fair Work Ombudsman, the independent regulatory
agency that investigates complaints involving suspected
contraventions of the Fair Work Act 2009 and its
predecessor, the Workplace Relations Act 1996, as well as
breaches of awards and agreements. Part of the FWO's arsenal
includes the capacity to bring Court proceedings seeking the
recovery of unpaid entitlements, the reinstatement of employees
where appropriate, and the imposition of monetary penalties.
In a recent decision of the Federal Magistrates Court, pecuniary
penalties were imposed on a company director and the company's
HR manager after both men were found, in a previous judgment, to
have been 'knowingly concerned' in the company's
contravention of the sham contracting provisions of the
Workplace Relations Act 1996 ('WRA
1996'). Under the relevant provisions of the WRA
1996 (which applied in this case), it was unlawful for an employer
to misrepresent an employment relationship, or a proposed
employment relationship, as an independent contracting arrangement;
it was also unlawful to dismiss a person in order to engage the
person to undertake substantially the same duties but as an
independent contractor. The Fair Work Act 2009 contains
In his November 2010 judgment, Federal Magistrate Cameron found
that Centennial Financial Services Pty Ltd had contravened a number
of provisions of the WRA 1996 - including the sham contracting
provisions - and that the company's sole director, Mr Mertes,
and the company's human resources manager, Mr Chorazy, were
involved in the company's contraventions. The facts were,
briefly, that in January 2007, Centennial Financial Services Pty
Ltd had employed sales staff known as 'Corporate
Associates' under the terms of the Commercial Travellers Award.
In April 2007, Centennial required the Corporate Associates to sign
'Sales Consultant Agreements' that effectively changed
their status to that of independent contractors, payable on
commission only, while their duties remained the same. The
company's instructions were issued by its director, Mr Mertes,
and implemented by its HR manager, Mr Chorazy. As a consequence,
the Corporate Associates did not receive the usual statutory and
award entitlements payable to employees. It was the Associates'
evidence that if they did not accept the independent contracting
arrangements, their employment would cease. One such Associate who
declined to sign the Agreement was in fact dismissed and lodged a
complaint with the FWO. Subsequent investigations by the FWO
uncovered evidence of several contraventions which proceeded to
In his judgment dated 21 June 2011, Federal Magistrate Cameron
was required to determine whether penalties should be imposed on
the director and HR of the company, the company itself escaping
liability as it was in liquidation. In making submissions as to the
appropriate quantum of the penalties, the FWO argued that none of
the underpayments had been made good at the time of the court
hearing, both men had been uncooperative during the investigation
and neither man had expressed any remorse for their role in the
company's unlawful conduct that benefited the company and Mr
Mertes, its sole shareholder. The FWO also submitted that the
penalties ought to be seen as a specific deterrent as both men were
likely to be in positions in the future where they would be
responsible for employing workers. The FWO argued that the
penalties to be imposed on the HR manager ought to fall in the low
to mid range, in contrast to the director, whose penalties should
lie in the mid to high range.
Mr Chorazy argued that he should not be held responsible for the
contraventions as he had merely been following the instructions of
Mr Mertes and had no input into the decisions that constituted the
contraventions. Mr Chorazy also argued that others in the company
could have been pursued and that the negative publicity surrounding
the case had effectively ruined his HR career and significantly
diminished his earning capacity.
Ultimately, FM Cameron imposed penalties totalling $13,200 on Mr
Mertes in respect of 9 contraventions, and penalties totalling
$3,750 on Mr Chorazy in respect of 11 contraventions. While the
penalties were not necessarily financially onerous, this judgment
is a salutary lesson to HR managers to make themselves aware of
their obligations under workplace legislation and to resist
directions from company management to depart from such
Carroll & O'Dea Lawyers
Contact: 8226 7311
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