The Situation: It is relatively uncommon in Australia for workers or employees to bring class actions against their employers in which they allege sham contracting arrangements.
The Development: Four class actions, which allege sham contracting arrangements and underpayment of employee entitlements, are underway against marketing and sales companies in the Federal Court of Australia ("Federal Court").
Looking Ahead: Wage-and-hour class actions may become more prevalent in the Australian courts, with unions likely to play a key role.
Four class actions alleging sham contracting are underway in the Federal Court. These cases are the first reported workplace class actions alleging sham contracting arrangements and underpayment of employees' entitlements in the food service, agricultural, entertainment, construction, and tourism sectors in Australia.
In a sham contracting arrangement, an employer deliberately misrepresents an employment relationship as an independent contracting arrangement. This may be done to avoid providing employment-related entitlements in accordance with Modern Awards, such as minimum rates of pay, annual leave, penalty rates, overtime, allowances, and other items.
The Fair Work Act 2009 (Cth) ("Fair Work Act") prohibits sham contracting arrangements. Companies may be penalised $63,000 per offence for violating National Employment Standards ("NES") and/or the terms of a Modern Award and for engaging in sham contracting arrangements. Additionally, companies may be penalised $630,000 per serious violation of the NES and/or a Modern Award. A serious violation takes place when an employer knowingly breached the provision, and their conduct was part of a systematic pattern of conduct relating to one or more persons.
The below overview looks at the four current class actions that allege employers of sham contracting arrangements and wage fraud.
Appco Group Australia Pty. Ltd. Class Action
Appco Group Australia Pty Ltd. ("Appco") is a major Australian sales and marketing agency. In December 2016, Jacob Bywater, a former Appco worker, filed a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act") on behalf of himself and approximately 900 alleged similarly-situated group members. Mr. Bywater claims that Appco failed to pay him, and each of the group members, entitlements under the NES and two Modern Awards, which violates the Fair Work Act. He also claims that Appco falsely represented to the putative class that they were engaged as independent contractors, and that Appco was "involved" in those violations pursuant to the accessorial liability provisions in the Fair Work Act.
In May 2017, Appco filed an interlocutory application, which contended that the group members' claims did not properly give rise to any substantial common issue of law or fact, as required by section 33C(1)(c) of the Federal Court Act. In the alternative, Appco sought an order to dismiss the proceeding on the basis that it would be inefficient and ineffective to deal with the class in one proceeding, insisting that the group members would need to pursue separate trials according to the particular circumstances of their engagement with Appco.
Mr. Bywater opposed Appco's application, arguing that the proceeding gave rise to a common issue of law or fact. He contended that the common issue was whether Appco had established a "standardised system" for the engagement of workers as independent contractors rather than employees. This system, according to Mr. Bywater, involved Appco arranging for the incorporation of marketing companies, which were required to provide marketing and sales services solely to Appco. The marketing companies then entered into independent contractor agreements with group members, who were required to engage in face-to-face sales in a manner determined by Appco. Mr. Bywater contended that once he proved that the system, as it applied to his circumstances, gave rise to an employment relationship, the same outcome would also apply to the other group members.
In May 2018, the Federal Court concluded that Bywater's claims, and the claims of the group members, gave rise to a substantial common issue of law or fact (Bywater v Appco Group Australia Pty Ltd  FCA 707). The Federal Court held that it was not in the interests of justice to discontinue the proceedings, because it would not necessarily be an inefficient and effective means of dealing with the claims of the class. Nor was it inappropriate that the claims be pursued by means of a representative proceeding. Accordingly, Appco's interlocutory application was dismissed, and the Appco class action remains on foot.
Airservices Australia Class Action
In December 2017, Catherine Duck brought a class action against Airservices Australia under Pact IVA of the Federal Court Act. Airservices Australia is a government-owned organisation that provides services to the aviation industry, including telecommunications, aeronautical data, navigation services, and aviation rescue firefighting services.
In the action, Ms. Duck seeks to recover the benefits she, and other members of the group she seems to represent, obtained under contracts of employment with Airservices Australia and what she contends they were entitled to be paid under one or both of two enterprise agreements. The possible size of the class action appears to be "some significant, but undetermined, proportion of just over 1,200 individuals" (Duck v Airservices Australia  FCA 1541).
The main issue in this case is a threshold one (i.e., whether the enterprise agreements in question cover the group members in the first instance). The parties have agreed, and the Court ordered, that this question be determined by way of a separate question, which is yet to be heard.
Aida Sales and Marketing Pty. Ltd. and Credico Australia Pty. Ltd. Class Action
The National Union of Workers ("NUW") has also filed two class actions in the Federal Court on behalf of 100 NUW group members—one against Aida Sales and Marketing Pty. Ltd. ("Aida") and another against Credico Australia Pty. Ltd ("Credico"). The NUW is an Australian union that represents employees in a wide range of Australian industries. The NUW alleges that Aida and Credico wrongly classified group members engaged in sales and charity fundraising as independent contractors (rather than employees) and underpaid these workers by as much as $150 million. Media reports have estimated that 1,500 additional workers will eventually join these class actions.
NUW initiated the Aida and Credico class actions under section 539 of the Fair Work Act, which states that an "employee organisation" (which includes a union) can apply to the Federal Court on behalf of employees in relation to violations (including serious contraventions) of the Fair Work Act. This means that, in order to participate in the Aida or Credico actions, current and former Aida and Credico workers must join the NUW to give it standing to apply to the Federal Court on their behalf.
Emergence of Australian workplace Class Actions
Historically, Australian litigants have filed class actions on behalf of group members under the Federal Court Act. Unions have rarely been at the forefront, overseeing only a relatively small number of class actions. These recent cases appear to represent a departure from the historical norm under Part IVA of the Fair Work Act. In the Appco class action, a former employee commenced the action under Part IVA of the Fair Work Act, and in the Aida and Credico class actions, the NUW commenced the action under section 539 of the Fair Work Act. Reliance on section 539 means that the NUW will not face procedural challenges similar to those that arose in the Appco class action. Because of this, it is at least possible that the Aida and Credico cases could represent a new approach where class actions are commenced under the Fair Work Act rather than under the Federal Court Act.
Jones Day regularly assists employers with employees based in the U.S. to defend wage-and-hour class actions commenced under U.S. legislation, such as the Fair Labor Standards Act. Similar to the Fair Work Act, the Fair Labor Standards Act established employee entitlements such as the minimum wage, the maximum number of hours per week allowed to be worked without an overtime premium, and recordkeeping requirements for employees in the private sector and in federal, state, and local governments. Based on the proliferation of wage-and-hour class actions in the U.S., and the similarities between the Fair Labor Standards Act and the Fair Work Act, similar class actions may become more common in Australian courts.
Allegations of employers underpaying employees' wages and failing to provide such employees with their minimum entitlements is not limited to the sales and marketing industries. Recently, the Fair Work Ombudsman has investigated and commenced civil proceedings against businesses operating in other industries, in particular the food service industry. Accordingly, we anticipate that future Australian workplace class actions will not be limited to the sales and marketing industries.
Three Key Takeaways
Workplace class actions are on the rise in Australia.
Four class actions are underway in the Federal Court on behalf of current and former workers of sales and marketing companies, alleging sham contracting arrangements and wage theft.
To avoid the procedural challenges faced by group members under the Federal Court Act, future class actions may be filed under the Fair Work Act.
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.