At the same time that the Independent Contractors Act commenced,
in March 2007, the Workplace Relations Act was also amended to
prohibit the promotion of 'sham' contracting arrangements
and related behaviour. The Workplace Ombudsman has commenced its
first prosecution under the 'sham' contracting provisions
of the Act.
Under the provisions, which are retained in the Fair Work Bill,
employers and prospective employers are exposed to liability for
civil penalties and/or other consequential orders in any one of the
Where they misrepresent to a worker, or prospective worker,
that they are or will be an independent contractor when in fact
they are or will be an employee at common law (ie, promotion of a
sham arrangement). A contravention does not occur where the
employer reasonably believes that the person is, or will be an
independent contractor or could not reasonably have been expected
to know otherwise.
If they dismiss or threaten to dismiss an individual for the
sole or dominant purpose of reengaging them as an independent
contractor to perform the same or substantially the same work. In
proceedings alleging a contravention of this prohibition, the
proscribed purpose will be presumed against the employer ie, the
employer will have to prove that the arrangement is legitimate;
make a false statement to persuade a person to enter into an
independent contracting arrangement.
The provisions authorise the Workplace Ombudsman, an affected
individual or union representing an affected individual, to apply
to the Federal Court or Federal Magistrates Court for a penalty
order. Maximum penalties range from $6,600 for individuals and
$33,000 for companies. Depending upon the circumstances the Court
can, in addition, make other orders including, where appropriate,
orders restraining or requiring certain conduct, orders for the
reinstatement of a worker, and, orders for payment of
According to a media release by the Workplace Ombudsman on 30
January 2009, in its first prosecution under the sham contracting
provisions it is alleging that the employer, Sydney based
Centennial Financial Services, breached the provisions when it
'converted' eight employees to contractors, but continued
to have them perform the same work.
The Workplace Ombudsman is alleging that:
the workers were told to get their own ABN, sign a "sales
consultant agreement" and to invoice the company when they
made sales. They were further told that they would no longer
receive annual leave, sick leave or superannuation;
under these arrangements the workers were paid on a commission
basis only during the sham period and as a result were underpaid
more than $52,000 in wages and annual leave entitlements.
The prosecution has been brought against the employer, its sole
director and human resources manager. Under the legislative scheme,
each is exposed to liability for a penalty and, potentially, to
orders for payment of compensation.
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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