Quest Misrepresents Contract of Employment
Quest South Perth Holdings Pty Ltd ("Quest") purported to enter into a triangular contracting arrangement with third party labour hire business Contracting Solutions Pty Ltd ("Contracting Solutions").
Under this arrangement Quest engaged two housekeepers to provide cleaning services. Quest represented to the employees that they were performing housekeeping work as independent contractors of Contracting Solutions, despite the fact that they continued to perform that work for Quest under implied contracts of employment.
HCA Rules on Sham Third-Party Contracting Arrangements
Section 357(1) of the Fair work Act 2009 (Cth) prohibits employers from misrepresenting to employees that they are working as an independent contractor under a contract for services.
The Fair Work Ombudsman applied for penalty orders against Quest for allegedly contravening s357(1). It argued that the employees never became independent contractors as they continued to perform exactly the same work as they had always done.
The Federal Court dismissed the proceeding at first instance. An appeal to the full Federal Court was also dismissed. The full Court construed s357(1) as applicable only where the misrepresentation related to a contract of employment between the employee and the employer. The High Court unanimously allowed the subsequent appeal, and found that s357(1) applied to the misrepresentation of contracts for services between the employees and third parties. It held the identity of the other contracting party as immaterial to the application of the section.
Going Forward: What Does This Mean For Employers?
In this decision, the High Court effectively dismissed the Federal Court's narrow interpretation of s357(1). The effect is that an employer can no longer avoid penalty under the section by introducing a third party into the contractual arrangement between the employer and the employee. Instead courts will look to the substance of the work being performed where a conversion to independent contractor status is purported. As a result, employers should exercise caution to avoid misrepresenting employment as an independent contracting arrangement. In determining whether a person is an employee or an independent contractor, it is important to make an objective assessment that looks to the substance of the employment relationship. If in doubt, employers should seek legal advice to avoid application of penalties under s357(1) of the Fair Work Act 2009 (Cth).
Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45.
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