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Fair Work - Sham ContractingBy Rod Commins, Patterson Houen Commins, Lawyers, Sydney. 

Cases before the Federal Circuit Court have recently resulted in imposition of penalties against companies and company directors personally.

In one recent case, where employees of a cleaning business were misclassified as independent contractors instead of employees, a penalty of $47,520 was ordered against the company, with a further penalty of $9,504 against the company’s director personally.  These hefty penalties were imposed, despite the underpaid wages and entitlements amounting to only $1,858.

Among the matters the Court took into account in determining that the worker was in fact an employee were the following:

  • He responded to an advertisement by the company (he didn’t advertise for work himself);
  • He had no previous experience running his own business;
  • He underwent supervised training and was provided with most of the equipment needed for the performance of his duties;
  • He was required to wear a company uniform;
  • He was subject to the control of the company;
  • He was paid on an hourly basis, rather than for completion of work.

The case is a salutary lesson for businesses and preventative action would require at least the following steps:

  • A review of existing contractor arrangements to determine whether or not workers engaged as contractors are in fact employees;
  • The establishment of systems and methods to ensure that the behaviour and management of business managers is consistent with a contractor relationship if that is the intention. Reasonable audit and training procedures would be appropriate;
  • Determining when engaging workers the appropriate engagement method for contractors and the appropriate engagement method for employees. That will require an analysis of the tasks required to be performed, how they are to be performed and what input and influence the business has on the performance of those tasks.

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