A warning for sham contracting

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By Watkins Tapsell.

A recent decision of the Federal Circuit Court highlights the importance for employers to be careful when engaging workers to not misrepresent that an employment arrangement is an independent contractor arrangement.

In the matter of The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No 9) [2014] FCCA 1124, the Federal Court of Australia imposed penalties totalling $313,500 on Linkhill, a company in the Roy Morgan Group, for sham contracting.

Linkhill engaged 10 workers to renovate properties rented by Roy Morgan. The workers were engaged as independent contractors and signed contracts to that effect.

The Federal Court held that the contracts were not indicative of the true nature of the relationship and looked at the totality of the relationship.
The Court held that the contraventions were deliberate and directed by senior management.

The sham contracting contraventions resulted in the employees being deprived of their minimum entitlements under the Fair Work Act 2009 and Workplace Relations Act 2006.

The offending conduct extended over a period of just over 3 years and resulted in the workers not receiving their minimum statutory entitlements to annual leave, superannuation, travel allowance, meal allowance, overtime, weekend penalty rates, redundancy and crib breaks totalling $152,865.21.

The Court held that Linkhill had shown no contrition and had taken no corrective action.

During his judgment Justice O’Sullivan said “I accept notwithstanding the respondent’s financial circumstances and the claims made about its size, the Court should mark the disapproval of the contravening conduct by setting a penalty at a meaningful level.”

Further the Court held that given Linkhill’s lack of contrition, the penalties imposed should be meaningful ones and there was a need for general and specific deterrence.

If you require assistance with ensuring your business is engaging workers in accordance with the Fair Work Act 2009 and Workplace Relations Act 2006, please contact our Workplace Law Team.

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