Principals and workers need to fully understand the distinction
between an independent contractor and an employee and how these
classifications can affect their rights and obligations,
particularly with respect to tax, superannuation and workplace
entitlements and liabilities. Employers, and also their
workplace advisers, should be wary of entering into any labour
arrangement to ensure they comply with the Independent Contractors
Act 2006 (Cth) and do not breach the sham contracting provisions
under the Fair Work Act 2009 (Cth).
Regulation of Independent Contracting
Independent contracting is a common form of engaging services
within the construction industry.
The operative provisions of the Independent Contractors Act 2006
(Cth) (IC Act) commenced on 1 March
2007. Prior to the IC Act, some independent contractors may
have been 'deemed' to be employees under some state and
territory laws. The IC Act sought to exclude the operation of
certain of these state and territory laws. One of the key
consequences of the IC Act is that it is the law of commercial
contracts, and not employment law, which regulates genuine
independent contracting arrangements.
Transitional arrangements – what you need to
The IC Act provided for transitional arrangements in relation to
independent contracting arrangements entered into before 1 March
2007 which did not "opt-in" to the IC Act. Those
transitional arrangements came to an end on 1 September 2011.
Accordingly, certain State and Territory laws that may have deemed
certain contractors to be employees will no longer apply (other
than laws dealing with outworkers and owner-drivers). As a result,
those parties to ongoing independent contracting arrangements
entered into before 1 March 2007 who have not 'opted-in' to
the IC Act should be aware that, in circumstances where the
contractors continued to have rights to be deemed employees under
State and Territory laws, the end of the transitional period may
trigger a right to accrued entitlements, such as leave. Such
arrangements should be reviewed accordingly.
Sham Contracting - ABCC Inquiry
The Australian Building and Construction Commissioner (ABCC) has
recently announced the Sham Contracting Inquiry (ABCC
Inquiry). A sham contracting arrangement is where an employer
attempts to disguise an employment relationship as an independent
contracting arrangement. Certain activities with respect to
sham contracting are prohibited under the Fair Work Act 2009 (Cth)
(FW Act), including knowingly making false statements to persuade
an employer to become an independent contractor and misrepresenting
an employment relationship as an independent contracting
arrangement (see Division 6, Part 3-1 of the FW Act).
The ABCC Inquiry sought to address a number of concerns with
respect to sham contracting. These include the misuse of the label
'independent contractors' to enable underpayment or
non-payment of workers' compensation, removing grounds for
unfair dismissal claims and avoidance of other rights and
entitlements provided by industrial awards, particularly with
respect to accrual and payment of leave entitlements. After
receiving written submissions from a number of stakeholders and
conducting a series of roundtables across the nation the ABCC is
currently finalising its report into sham contracting.
Update on recent prosecutions
This year has seen a number of successful prosecutions for sham
contracting offences by both the Fair Work Ombudsman and the ABCC,
two of which are highlighted below.
In Fair Work Ombudsman v Centennial Financial Services Pty Ltd
 FMCA 459 Federal Magistrate Cameron found that a director
and the human resources manager of Centennial Financial Services
had breached various provisions of the Workplace Relations Act 1996
(WR Act) with respect to the accrual of unpaid annual leave
entitlements and unlawfully converting employees to independent
contractors. The former owner and sole director of Centennial
Financial Services was fined $13,200 and the former human resources
manager was fined $3,750. The Court found that, despite the human
resources manager exercising no independent judgment and being
overborne by the director, he should have been aware of, and at
least attempted to give advice on, the company's legal
In ABCC v Rapid Formwork Constructions Pty Ltd and Anderson
Federal Magistrate Neville imposed penalties of $24,000 on Rapid
Formwork Constructions Pty Ltd (Rapid) for contraventions of the FW
Act and WR Act as a result of misrepresentations of the terms and
conditions of employment of two hired workers. Mr Kevin
Anderson (Anderson) was also fined $1,500 for breaches of the WR
Act as a result of these findings. In addition to these fines,
Rapid and Anderson also agreed to back-pay the two workers nearly
$7000 in unpaid wages and entitlements.
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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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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