A director and HR manager are facing penalties for their role in
sham contracting arrangements between six employees and Centennial
Financial Services Pty Ltd (Company), now in
liquidation. Sham contracting involves an attempt to disguise an
employment relationship as an independent contracting
relationship.
Having struck financial difficulties, the Company sought to
re-engage the employees as independent contractors and avoid the
need to pay employment entitlements such as annual leave and
superannuation.
Federal Magistrate Robert Cameron found the director (and sole
shareholder) of the Company was the driving force behind the
imposition of the sham contracting arrangements, and therefore an
accessory to the Company's unlawful conduct. Pursuant to s728 of
the Workplace Relations Act 1996 (Cth) (WR
Act), now s550 the Fair Work Act 2009 (Cth)
(FW Act), the director was held personally
liable.
FM Cameron acknowledged that the HR manager was in a different
category because he had simply followed the instructions given to
him by the director without any reason to question them. However,
his Honour held it was irrelevant whether the manager 'subjectively
appreciated' that the events in which he participated contravened
the law; it was sufficient that he knew the essential facts making
up the Company's contravention.
Thus, the HR manager was also found to be an accessory to and
personally liable for each of the breaches.
His Honour also found that the Company, the director and the HR
manager had breached s902 of the WR Act, now s358 of the FW Act, in
having dismissed the employees for the purpose of engaging them as
independent contractors.
The matter was stood down for a further hearing on penalties.
The Company, because it is in liquidation, cannot be penalised.
For employers:
Sham contracting occurs when an employer tries to disguise an
employment relationship as an independent contracting relationship
and is ILLEGAL.
Employers involved in sham contracting arrangements are liable
for penalties of up to $33,000 per contravention for a body
corporate and $6,600 for an individual. If the employer is involved
in more than one sham contracting arrangement they may have to pay
a penalty for EACH arrangement.
Where an individual is involved in the contravention, he or she
can be liable as accessories and personally exposed to
penalties.
It can be difficult to clearly identify whether a worker is
properly classified as an employee or an independent contractor.
However it is important to make this distinction and ensure your
contracts reflect the true relationship between the parties to
avoid contraventions of the FW Act.
In addition to breaches of the employment legislation, sham
contracting arrangements can expose an employer to penalties and
damages under superannuation, taxation and workers' compensation
legislation where the employer treats a worker as a contractor,
when she or he is in fact an employee.
(Authored by Joanne Shields, Cornwall Stodart)