Most Read Contributor in Australia, September 2016
Jooine (Investment) Pty Ltd (Company) and Mr
Jae Kye Lee, the Company's sole director and company secretary,
have recently been ordered significant penalties for sham
contracting and underpayment and payslip contraventions of the Fair
Work Act: approximately $50,000 for the company and approximately
$10,000 to Mr Lee. The Company was also ordered to pay relevant
employee outstanding award entitlements.
The Company operated a cleaning business in Sydney. The Company,
through Mr Lee, engaged a worker for the purpose of cleaning work
and treated the worker as an independent contractor and not an
employee. The worker was a South Korean national, had limited
proficiency in English and lived in Australia on a working holiday
The Company required the worker to apply for an Australian
Business Number from the Australian Taxation Office. The worker was
provided with all cleaning products and he was required to wear a
uniform containing the Company's name and logo. The
worker's duties were controlled by Mr Lee who carried out
on-site inspections and provided feedback on work performance.
Fair Work Ombudsman Audit
The Fair Work Ombudsman (FWO) conducted an
audit of the Company as part of a general audit of businesses in
the cleaning industry.
The FWO then commenced an investigation into a complaint raised
by the worker concerning underpayment of wages. The investigation
revealed that the Company had misrepresented to the worker that the
contract of employment under which he performed work was a contract
for services, failed to pay the worker the minimum wage, failed to
pay the worker annual leave, failed to pay the worker on a weekly
or fortnightly basis and failed to provide the worker with
payslips, all contraventions of the Fair Work Act and
Sham Contracting under the FW Act
Misrepresenting an employment relationship as an independent
contracting arrangement can give rise to penalties under the Fair
Work Act (then $33,000 and now $51,000 for a company and then
$6,600 and now $10,200 for an individual).
The FWO commenced proceedings before the Court and with the
consent of the Company and Mr Lee, the Court made declarations that
the Company and Mr Lee had contravened relevant provisions of the
FW Act. The Court then considered what penalties should be ordered.
The Court considered various factors to determine penalty including
whether there was a single course of conduct of the contraventions,
the nature and extent of the contraventions, the circumstances in
which the conduct took place, the nature and extent of loss or
damage, similar previous conduct, deliberateness of the breaches,
whether the Company and/or Mr Lee had exhibited contrition and
specific and general deterrence.
The Court was satisfied that in all of the circumstances, the
penalties sought by the FWO were appropriate in the circumstances
and penalties of approximately $50,000 for the Company and
approximately $10,000 to Mr Lee were ordered.
Lessons for Employers
This case evidences very important lessons for employers when
implementing independent contract arrangements at workplaces and
managing investigations by the workplace regulator:
always seek prior written advice before implementing
independent contract arrangements: incorrectly classifying workers
as independent contractors may lead to contraventions of the sham
contracting provisions of the Fair Work Act as well as
contraventions of awards and other minimum legal obligations
including the National Employment Standards. If the prior written
advice states that independent contractor arrangements are
legitimate, the advice may be used as an absolute defence to
allegations of sham contracting; and
always seek advice on regulator investigations and co-operate
with the relevant authority during investigations: this does not
necessarily mean agreeing to everything that the regulator requires
but not frustrating or obstructing the investigation and compliance
with notices to produce and letters of caution unless there is a
sufficient reason not to do so.
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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