The Federal Circuit Court of Australia1 has recently
fined a company and its director $124,000 for sham contracting with
a British backpacker on a 417 visa. This decision highlights the
dangers for companies and their owners or directors misrepresenting
to individuals that they will be engaged as contractors when they
in fact are employees. The lesson is that the parties (or one of
them) cannot just decide to call the relationship an independent
The company, Australian Sales and Promotions (ASAP) raised funds
for various charities. In 2013, the sole director of ASAP, Mr
Ainsworth, offered the backpacker, Mr Beckitt, a position to
perform work for ASAP as a fundraiser.
ASAP told Mr Beckitt that he was an independent contractor
operating his own business and required him to provide an ABN and
to invoice a related company operated by Mr Ainsworth, PMA Unit Pty
Ltd (PMA). However, ASAP and Mr Beckitt also agreed that he
attend the ASAP premises on each working day;
work set hours;
be directed to attend certain locations for the performance of
be subject to the day to day operational direction, supervision
and control of ASAP;
wear specified uniform;
be paid on a weekly basis;
be subject to the Fundraising Agreements which placed
contractual obligations on ASAP in relation to Mr Beckitt's
conduct and performance of work.
These factors were held to be indicative of Mr Beckitt being an
employee, rather than an independent contractor. The Court found
that the contract which Mr Beckitt was induced to enter
misleadingly purported to make him an independent contractor, and
that he was underpaid as a consequence of this
Judge Cameron found that Mr Ainsworth and ASAP were aware at all
times that a person who worked in Mr Beckitt's circumstances
would "ordinarily be characterised as an employee and not
as an independent contractor". The "interposition of
PMA" was designed to "create some form of labour
hire arrangement which would distance ASAP from any potential
employment relationship with Mr Beckett". However, Judge
Cameron found that there was an absence of an arm's-length
relationship between ASAP and PMA, therefore the arrangement could
not be characterised in that way.
Judge Cameron commented that as Mr Beckitt was newly arrived in
Australia, he was in a "position of particular
vulnerability", of which ASAP and Mr Ainsworth
"must have been aware".
ASAP had previously been fined in 2012 for treating five
employees as independent contractors. Judge Cameron found that ASAP
therefore "would have been aware of the likely
consequences under the FW Act of confusing employees with
contractors" and found it significant that the
respondents did not adduce any evidence to "suggest that
ASAP did not know and was not reckless as to whether Mr
Beckitt's contract was a contract of employment rather than a
contract for services".
The alleged breaches of the Fair Work Act that ASAP
s.357, by making misrepresentations to Mr Beckitt that he was
an independent contractor;
s.293, by failing to pay Mr Beckett minimum wages and casual
s.325, by requiring Mr Beckett spend part of an amount payable
to him to purchase his own public liability insurance; and
s.535(1) by failing to make or keep employment records in
respect of Mr Beckitt.
ASAP admitted to all of the contraventions alleged. Mr Ainsworth
admitted that he was "directly or indirectly knowingly
concerned in or a party to, or otherwise "involved in"
within the meaning of s.550 of the Fair Work Act" in each of
Judge Cameron considered the deliberateness of the breaches and
found that ASAP's "intention was to enjoy the
financial benefit of paying Mr Beckitt as an independent contractor
while also enjoying the power and authority of an employer in the
control it exercised over him in the course of his
1 Fair Work Ombudsman v Australian Sales &
Promotions Pty Ltd & Anor  FCCA 2804 (10 November
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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