Thinking | 18 November 2016

Company director fined $24,000 for sham contracting

In the case of Fair Work Ombudsman v Australian Sales and Promotions Pty Ltd1, a charity fundraising company, Australian Sales and Promotions (ASAP), was fined $100,000 for breaches of the Fair Work Act 2009 (Cth) (FW Act) as a result of a sham contracting arrangement with a worker.

ASAP’s director was personally fined $24,000 for being an accessory to ASAP’s contraventions.

The worker in question was engaged for only four months in 2013 and in that time was paid between $50 and $67 per day plus commission.

As a result of being deliberately misclassified as a contractor, the worker was not paid the national minimum wage or the applicable casual loading and was underpaid nearly $8,000.

When the worker was first engaged, he was told that he was a contractor and instructed and shown how, to register for an ABN. He was also required to register with another company that issued invoices on his behalf for work done.

The worker was also required to pay, by way of deduction from the amounts he had earned, for public liability insurance.

The Court found that ASAP engaged in sham contracting, failed to pay minimum wages and a casual loading, failed to keep employee records and required the worker to spend amounts due to him for his work.

The facts that led the Court to find the worker was an employee and not a contractor included that: ASAP at all times retained control over him, including how and when he worked; ASAP trained him in sales techniques; he was required to attend ASAP’s premises each morning to receive direction from the director; he could not delegate his work; and he worked exclusively for ASAP and was not running his own business.

The company had been prosecuted in 2012 for similar contraventions. Consequently, neither the director nor the company could deny they were aware of the implications of their conduct.

The worker had been engaged via a labour hire agreement between ASAP and another company. The Court found that the arrangement by which the worker was engaged appeared to have been developed as a result of the earlier proceedings, and appeared to be designed to allow ASAP to enjoy the financial benefit of engaging the worker as a contractor, while at the same time ‘enjoying the power and authority of an employer in the control it exercised over him.’

This case is a reminder that great care needs to be taken when engaging workers as independent contractors to ensure they are properly classified to avoid breaching Australia’s workplace laws, and that the Courts will take a dim view of those engaging, or involved, in sham contracting.

1[2016] FCCA 2804


Iona Goodwin

Iona is an experienced employment lawyer, assisting clients with both litigious and non-litigious workplace relations matters.

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