The high price of sham contracting

A company has been fined $100,000, and an individual director a further $24,000, for using an artificial triangular arrangement to avoid minimum entitlements under the Fair Work Act.

The starting position is clear:  the Fair Work Act prohibits sham contracting.  That is, an “employer” must not misrepresent employment as an independent contracting arrangement when in fact the nature of the arrangement and work they are performing is more consistent with an employee.

The reason?  Employees are entitled to protections under the Fair Work Act including minimum wages and leave entitlements, or a loading to compensate them for the absence of leave entiltements.

In Fair Work Ombudsman v Australian Sales & Promotions Pty Ltd & Anor, the Court found that ASAP had engaged a fundraiser – whose role was to solicit donations for charities from members of the public – on a daily rate plus commission.  The fundraiser was not a genuine volunteer, nor was ASAP a charity.

The fundraiser was required to obtain an ABN, invoice for his services to an entity related to ASAP, and was also required to pay for public liability insurance.

ASAP also required the fundraiser to work Monday to Friday from 8am to 5pm, directed him as to locations at which he would perform work, and regularly contacted him to provide directions and instructions and to check on his whereabouts and progress.  In short, he was subject to the day to day direction and control of ASAP.

The pay deal was a daily rate of $50, plus commission.  Of course, commission is at risk.  The fundraiser was receiving considerably less than he would have received as an employee.  The Court found that ASAP had contravened a number of further obligations under the Fair Work Act including not paying a casual loading and not complying with its record keeping obligations.

In a staggering turn of events, it transpired that ASAP had been pinged for this very conduct before and prosecuted in 2012.  Indeed, it seems that the interposed entity – an attempted labour hire arrangement – may have been a deliberate device in response to the 2012 prosecution.

Prior to the hearing, ASAP and its sole director co-operated with the Fair Work Ombudsman, and repaid the underpayment.  However, that didn’t help them.  In dishing out significant penalties, the Court noted “persons should understand that attempting to evade the minimum employment conditions provided by the FW Act by contriving to make employees independent contractors can have serious financial consequences of an adverse kind”.

A further tip for young players?  The Fair Work Ombudsman is increasingly flexing its muscle on the accessorial liability provisions.  Individuals involved in contraventions beware.

Author: Amber Sharp

Leading Partner: James Mattson