Sham Contracting And Misrepresentation Of Employment Status Under Fair Work Act 2009

Quest South Perth Holdings Pty Ltd

FAIR WORK OMBUDSMAN V QUEST SOUTH PERTH HOLDINGS PTY LTD [2015] HCA 45

The brief facts of the case were that Quest encouraged two employed housekeepers to become independent contractors for the purpose of being engaged for third party work.

Issue

The main issue for determination was whether Quest South Perth Holdings Pty Ltd (hereinafter referred to as Quest) was, when it represented to the housekeepers that they were independent contractors, in breach of section 357 of the Fair Work Act 2009. In other words, is an employer prohibited, by virtue of section 357 (1), from misrepresenting to an employee that works performed under a third party contract for services are in the capacity of an independent contractor?

Rule

The court relied on section 357 (1) which provides that a person who employs another is precluded from representing to that person that such employment would be a contract for services where the employee would perform responsibilities as an independent contractor. The court primarily dealt with the issue if construction of the said section of the law and held that nothing in that section warranted the construction that the prohibited representation was confined to the situation where the contract for services would be with the employer. Such a construction, according to the court, would defeat the overall patent purpose of Part 3-1, which is the protection of individuals who are bona fide employees from being misled by their employers about the status of their employment. Moreover, the court opined that to give such a construction would effectively lend capricious operation to that section. It would engender impunity among employers. In this breadth, the court predominantly engaged in a discourse of legislative history to reinforce the main purpose of section 357 and to refine the arguments on construction of the said section of the law. The court looked at the Workplace Relations Act 1996 (Cth), the Workplace Relations Legislation Amendment (Independent Contractors) Act 2006 (Cth), and the Explanatory Memorandum to the Fair Work Bill 2008.

Application

The court applied the provisions of section 357 (1) in finding that by continuing to work as they had been normally working, the housekeepers retained their capacity as employees of Quest. As a matter of law, the court found that there was still an employment relationship between Quest and the housekeepers. The court looked at the “triangular contracting arrangement” among the three parties to the case where it was agreed that the third party had engaged the two employed housekeepers under a contract for services. Accordingly, the court found that Quest had by conduct represented to the housekeepers that they were independent contractors.

Happy Cabby Pty Ltd

Conclusion

Consequently, representing that it was independent contracting because of a third party contract for services was a breach of section 357 of the Fair Work Act.

FAIR WORK OMBUDSMAN V HAPPY CABBY LTD & ANOR [2013] FCCA 397

The brief facts of this case are that Happy Cabby Pty Ltd, a bus shuttle company, misrepresented to its seven drivers that they were independent contractors and not employees. Consequent upon that classification, the drivers were at a loss in terms of being paid per run at fixed rates. Therefore, they lost what they were entitled to be paid as employees as the company avoided paying compensation insurance for workers, superannuation contributions and other relevant payments.

Issue

Whether the six drivers were independent contractors or employees under the provisions of section 357 of the Fair Work Act 2009 (Cth). The second issue was whether the company was in breach of the provisions of the Act with respect to underpayment, not issuing pay slips, record keeping and sham contracting.

Rule

At the outset, the court relied on the case of Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar, which laid down the factors relevant for imposing penalties under the Workplace Relations Act. The court then went ahead to consider each factor laid down in that case. With respect to the first factor, the court quoted the sentiments by the Minister for Employment and Workplace Relations to the effect that wilful disguise of employment relations – sham contracting – should not be tolerated and be subject to penalties. The court adopted the sentiments of the learned judge Lander in the case of Ponzio v B & P Caelli Constructions Pty Ltd. In that case, Lander, J held that the appropriate penalty, as an assumption, is likely to be a deterrent to others who wish to offend. General deterrence, hence, according to the learned judge, is a paramount consideration for penalty fixing.

The court went on further to determine the matter with respect to the company’s financial circumstances. In this respect, it was held that even if the company was undergoing financial difficulty, that fact would not serve as an excuse to fail to pay the drivers the requisite minimum entitlements. Accordingly, the court relied on the case of Lynch v Buckley Sawmills Pty Ltd, where the court held that financially difficult times do not warrant the breach of an Award made under the Act. The court also relied on the case of Fair Work Ombudsman v Bosen Pty Ltd where the learned Magistrate held that appropriate entitlements must be paid to employees by all sizes of employers and that compliance with this provision must not be considered as lying within the bastion of large employers.

Centennial Financial Services Pty Ltd

Application

The court held that the offending conduct led to the company’s drivers not being paid $26,082.66. Furthermore, the court found that the company denied the drivers minimum award entitlements which were minimum hourly pay rates; casual lodgings, minimum periods of engagement; waiting time payments; overtime pay rates; late work and early work penalties; public holiday penalties; and weekend penalties.

Conclusion

The seven drivers were found to be employees and not independent contractors. The company was, therefore, found to have breached the provisions of the Fair Work Act 2009 (Cth) with respect to sham contracting.

FAIR WORK OMBUDSMAN V CENTENNIAL FINANCIAL SERVICES PTY LTD & ORS [2011] FMCA 459

The brief facts of the case were that the sole director of Centennial Financial Services Pty Ltd employed several corporate associates who received remuneration at the level of the federal minimum wage. They were tasked with performing sales duties. The company underwent times of financial difficulty and the corporate associates were given agreements to sign the effect of which was not only to make them contractors, but also to strip them of their employment benefits.

Issue

The central issue was whether the employer was in direct breach of the employment laws that relate to sham contracting and underpayment and whether the Human Resources Manager was liable as an accessory to the breach by the employer.

Rule

At the onset, the court relied on the cases of Kelly v Fitzpatrick and Mason v Harrington Corporation Pty Ltd. In those cases, Tracey, J and Mowbray FM, respectively, outlined a list of considerations for determination as to whether a certain act deserves a penalty and if so, to what extent. The court further relied on sections 901 and 902 of the Work Relations Act, which fall under sham contracting. The former deals with misrepresenting an employment relationship as an arrangement for independent contracting while the latter deals with dismissing persons for purposes of engaging them as independent contractors. The court relied on the principle of imposition of penalties at a meaningful level to serve as a discouragement for repeated contravention of the provisions of the WRA by the respondents and others. Accordingly, the principle postulates that the law frown upon such illicit conduct, which upon being marked, acts as a caution to others to eschew similar conduct. This was the holding in the case of CPSU, Community & Public Sector Union v Telstra Corporation Ltd.

Application

Stevens v Brodribb Sawmilling Company Proprietary Limited

he court found that the company failed to remunerate the corporate associates’ legally entitled wages to the tune of $33,863.59. The court also found that the company failed to pay the corporate associates their annual leave to the tune of $5,669.93, which they were entitled to. Lastly, the court found that the employer and the human resource manager had contravened sections 901, 902,235 and 182 of the Workplace Relations Act. The employer was found to be in breach of sections 901, 902 and 182 of the Act.

Conclusion

The court found that the HR manager was liable for breaching the provisions of the Fair Work Act (Cth) with respect to engagement in sham contracting and non-payment of wages. The court further found that although the Human Resources Manager stated that he could not influence the decisions of the employer and that he was merely following instructions, he had a duty of ensuring that workplace relations laws were complied with by the company.

STEVENS V BRODRIBB SAWMILLING COMPANY PROPRIETARY LIMITED [1986] HCA 1

Issues

The principal issue for the court’s determination was whether the relationship between the parties to the case was one of principal-independent contractor or employer-employee. The second issue for determination was whether the defendant/respondent was liable to the plaintiff/appellant notwithstanding the fact that their relationship was one of independent contract on the basis that the injury was as a result of extra hazardous activities. The third issue was whether the respondent was under the common law duty of care and if yes, whether it was non-delegable.

Rule

To determine the first issue before it, the High Court of Australia relied on several established principles of law. First, the court found that a prominent feature of determining the nature of the relationship between a person engaging another in the performance of work and the one who is engaged is necessarily the degree of control exercised by the former over the latter. The High Court observed that courts have held that the importance of such control is so much in the employer’s right to exercise the same rather than the actual exercise – although the latter is equally of much importance. The High Court relied on the case of Humberstone v
Northern Timber Mills where the learned judge held that the question is not whether the work was practically undertaken pursuant to a directive and control of an actual supervisor or whether there was a possibility of supervision but whether ultimately, the authority lay in the employer such that the employee or person performing the work was answerable to such employer.

The court in further making its determination of the question before it relied on the ‘organisation test’ as laid down in the case of Montreal v Montreal Locomotive Works by Lord Wright. The learned judge held that in determining the question of whether the party is an

employee or independent contractor, it is important to ask the crucial question of whether the party is conducting the business on his own behalf or for himself, or merely for the benefit of a superior. Lord Denning adopted a similar approach in the case of Stevenson Jordan and Harrison, Ltd v MacDonald and Evans

In determining the second issue, the court relied on the case of Torette House Pty Ltd v. Berkman where the court rejected the notion of a principal incurring liability because an independent contractor engaged in extra hazardous acts.

For determination of the third question, the court relied on the reasonable foreseeability and proximity elements laid down in the case of Jaensch v. Coffey.

Application

The court found that the respondent company did not have any lawful authority to command the plaintiffs in undertaking their responsibilities. Furthermore, the court found that it was reasonably foreseeable to the respondent that a worker carrying on the works such as Stevens would suffer such an injury and that there was in existence, a sufficient proximity relationship between the appellant and the respondent. With respect to whether the respondent was in breach of the duty of care the court found that the respondent has constructed the working area in accordance with the established procedure and hence, there was no breach of duty by the Respondent.

Conclusion:

The court held that the plaintiff/appellant was an independent contractor and as such, the respondent was neither vicariously liable for negligence nor personally liable for breach of the common law duty of care.

This paper reviews four decisions of the court that relate to workplace law with the aim of deconstructing them in light of the issues, rule applied, application of the rules and the conclusion. The aim of this article is to employ the IRAC method of answering legal problems in summerising the cases. Ultimately, this paper identifies the issues in the cases, the rules of law applied, how the courts applied the rules to the facts of the case and the conclusion or holdings of the courts.

Australian Parliament, Hansard 13 September 2006.

CPSU, Community & Public Sector Union v Telstra Corporation Ltd (2001) 108 IR 228

Fair Work Ombudsman v Bosen Pty Ltd [2011] VMC 81.

Federal Commissioner of Taxation v. Barrett [1973] HCA 49; (1973) 129 CLR 395.

Finance Sector Union v Commonwealth Bank of Australia (2005) 147 IR 462

Humberstone v Northern Timber Mills [1949] HCA 49; (1949) 79 CLR 389.

Jaensch v. Coffey [1984] HCA 52; (1984) 58 ALJR 426.

Kelly v Fitzpatrick (2007) 166 IR 14

Lynch v Buckley Sawmills Pty Ltd [1984] FCA 306.

Mason v Harrington Corporation Pty Ltd [2007] FMCA 7

Mason v Harrington Corporation Pty Ltd t/as Pangaea Restaurant & Bar [2007] FMCA 7.

Montreal v Montreal Locomotive Works (1947) 1 DLR 161.