Understanding “Sham Contracting”and how to protect your business AFG Webinar 21-04-11 Richard Breden Partner FCB Workplace Law
FACTS FWO v Centennial Financial Services• Centennial Financial Services re-engaged employees, who sold and distributed the company’s financial products, as independent contractors on a commission only remuneration package.• There were no changes in duties performed and no change in the reporting structure or hours they were expected to work.• They were not paid entitlements such as annual leave or superannuation and were required to submit invoices for payment.
DECISION• By purporting to re-engage ‘Corporate Associates’ as independent contractors Centennial had breached the Workplace Relations Act s901 prohibition against sham contracting.• HR Manager and Directors were held to be personally liable under s728 Workplace Relations Act.• It was irrelevant that the HR Manager was essentially a ‘typist’ and was unaware of the unlawfulness of the new arrangements.[The WR Act Provisions are similar to those under s357, 358, 359 Fair Work Act]
Contractor or Employee?• ‘Corporate Associates’ held to be employees on the basis that Centennial: – Gave them work, retained ownership of any clients they introduced; – Required they attend the office daily between specified hours; – Supervised their finances; and – Required exclusivity.• Other indicia: Centennial provided Corporate Associates with mobile phones, office facilities and business cards, and the Corporate Associates represented themselves as emanations of the Centennial group of companies.
Indicator Employee Independent Contractor Generally works standard or set Decides what hours to work to Hours of work hours complete specific task Performs work under the High level of control in how Degree of Control direction and control of their work is done employer on an ongoing basis Has an ongoing expectation ofExpectation of Work work Usually engage for specific task Bears the risk for making Risk Bears no financial risk profit/loss on each task.
IndependentIndicator Employee Contractor Entitled to have super Superannuation Pays their own super contributions paid Provided by the employer, or Use their own tools andTools and Equipment tool allowance provided. equipment Income tax deducted by Pays their own GST and tax (NB: Tax employer 80% Rule) Paid regularly, e.g. fortnightly, Has ABN and submits an invoice Method of Payment monthly when work is completed Entitled to receive paid leave or Leave No entitlement to paid leave loading in lieu of leave (casuals)
Shifting Obligations Direct Independent Employment • Pay Worker • OHS Obligations Contracting • Contract Obligations • Liability for work • Unfair Contracts Exposure Dismissal Exposure BUSINESS CO • Industrial Entitlements • Workers Compensation • Superannuation • Tax Administration• Pay Worker• Perform Work for Business Co• Contract Obligations• Be directed by Business Co Employment• Extras if incorporated Ms. Worker
FWA Sham Contracting Provisions S358 - Dismissing to engage as S357 - Misrepresenting independent contractor: employment as independent • Is the employee doing the same contracting arrangement or substantially the same work? S359 - Misrepresentation to engage as independent contractor: Making a false statement to induce employer to work under an independent contracting arrangement.
RISKS • Unanticipated liability • Exposure to employee remedies e.g. unfair COMMON LAW dismissal • Increased vicarious liability • Sham Contracting ProvisionsCOMPENSATION OR • UNFAIR CONTRACT UNANTICIPATED COSTS • WORKERS COMPENSATION PREMIUM EXPOSURE
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