A rooster is still not a duck! Another employer stung under sham contracting provisions.

Introduction

In Balemian v Mobilia Manufacturing Pty Ltd & Anor [2017] FCCA 743 (Balemian), the Federal Circuit Court of Australia has found another employer liable for breaching the sham contracting provisions of the Fair Work Act 2009 (Cth) (FW Act).

Facts

In Balemian, the applicant worked for the respondent continuously for over 21 years however, never entered into a written agreement.

Upon ceasing work, the applicant claimed that he was an employee, and the respondent had therefore breached the FW Act by failing to pay accrued annual leave upon termination, as well as superannuation.  The respondent maintained that the applicant was engaged as an independent contractor.

Over the 21 years that the applicant was employed, there had been no discussion as to whether the applicant was an employee, or independent contractor to, the respondent.  The applicant described the arrangement as one of “word of mouth and trust”.

The Court accepted there was “simply an absence of agreement or discussion” about the employment relationship other than that the worker would be paid hourly and could use the company car.

The Court ultimately concluded that the respondent “had control over the important aspects of the working arrangement” and “the manner in which the applicant performed the work was clearly demonstrative of a contract of employment”.

In reaching this conclusion, the Court relied on the following evidence:

  • The respondent asked the applicant to obtain an ABN and submit fortnightly invoices for the hours he worked;
  • The respondent directed the applicant to complete timesheets;
  • The applicant was provided with the tools and equipment necessary to complete his work, including use of a fully maintained vehicle.
  • The applicant’s work was supervised by the respondent;
  • The applicant could not delegate the performance of his work to others;
  • The applicant was provided with an office and factory key for his own access, given his primary place of work was the respondent’s premises; and
  • The applicant had to inform the respondent if he was unable to attend for work due to illness, or planned to take leave.

The Court held that the respondent knew or ought to have known that the applicant was an employee.  The Court stated that the arrangement set up by the respondent and its sole director “at the very least recklessly disguised the true legal nature of the relationship”, in contravention of the sham contracting provisions in the FW Act.

The Court calculated the applicant’s financial loss at $231,326.95 (not all of which is recoverable due to the statute of limitation).  The decision has been re-listed to determine civil penalties and costs, along with the sum of compensation, in the event the parties are unable to agree upon the compensation payable.

Lessons for employers

This case provides a clear reminder to employers to be mindful of the sham contracting provision under the FW Act.

We have previously written about the Court’s approach to determining whether a worker is truly an employee or an independent contractor:  “…the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck” (Re Porter).  This is precisely what the respondent attempted to do in the current case.

Liabilities for getting it wrong can include compensation and penalties, not only from non-compliance with the employment legislation but also tax and superannuation legislation.

Accordingly, employers should exercise caution in characterising working relationships as contracting arrangements.  Companies that currently engage independent contractors should also examine such arrangements to determine whether there is exposure to liability for sham contracting.

If you require advice in relation to the status of your employees or contractors, please contact a member of Lynch Meyer’s workplace relations team.