The recent High Court decision of Fair Work Ombudsman v
Quest South Perth Holdings Pty Ltd  HCA 45 has proved a
timely reminder that employers must be cautious about the
characterisation of "independent contracting"
In its decision, the High Court found that employers cannot
avoid the sham contracting provisions of the Fair Work Act
2009 (Cth) by using third parties, such as labour-hire
High Court Decision
In Quest, two housekeepers had been working as
employees of Quest South Perth Holdings Pty Ltd
("Quest") for several years.
Quest attempted to convert the housekeepers into independent
contractors by providing them with "contractor
applications" and moving them into contractor roles with the
third-party labour hire company Contracting Solutions Pty Ltd
Quest made the representation to the housekeepers that they were
performing work to Quest as independent contractors of Contracting
Solutions, under a contract for services. The housekeepers then
went back to work for Quest in "the same manner as they
had always done".
The High Court found that there was an implied contract of
employment between Quest and the housekeepers. Accordingly, the
misrepresentation by Quest was within the scope of s 357 (1) of the
Fair Work Act which prohibits sham arrangements.
The case has been listed in the Federal Court for a penalty
hearing, where Quest may be liable for penalties of up to $54,000
per breach. We will keep you informed of further developments in
Importance for employers
The High Court decision offers greater protection to employees
by extending the reach of the sham contracting provision to
employers who introduce a third party into the working
The decision is a reminder for employers to exercise caution
when engaging independent contractors, in particular concerning
statements made to those contractors about their employment status.
Understanding whether an individual is an employee or
independent contractor is not a simple and straight forward
exercise. If one of your contractors has some or all of the
features of an employee, it is likely that you need to review your
arrangements. You cannot make an employee a contractor by calling
them a contractor.
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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An employee that refused a reasonable offer of settlement was ordered by the FWC to pay his ex-employer's legal costs.
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