Cleaning employer and sole director face significant penalties for sham contracting

By April 1, 2014 From the Courts No Comments

Jooine (Investment) Pty Ltd (Company) and Mr Jae Kye Lee, the Company’s sole director and company secretary, have recently been ordered significant penalties for sham contracting and underpayment and payslip contraventions of the Fair Work Act: approximately $50,000 for the company and approximately $10,000 to Mr Lee. The Company was also ordered to pay relevant employee outstanding award entitlements.

The Company operated a cleaning business in Sydney. The Company, through Mr Lee, engaged a worker for the purpose of cleaning work and treated the worker as an independent contractor and not an employee. The worker was a South Korean national, had limited proficiency in English and lived in Australia on a working holiday visa.

The Company required the worker to apply for an Australian Business Number from the Australian Taxation Office. The worker was provided with all cleaning products and he was required to wear a uniform containing the Company’s name and logo. The worker’s duties were controlled by Mr Lee who carried out on-site inspections and provided feedback on work performance.

Fair Work Ombudsman Audit
The Fair Work Ombudsman (FWO) conducted an audit of the Company as part of a general audit of businesses in the cleaning industry.

The FWO then commenced an investigation into a complaint raised by the worker concerning underpayment of wages. The investigation revealed that the Company had misrepresented to the worker that the contract of employment under which he performed work was a contract for services, failed to pay the worker the minimum wage, failed to pay the worker annual leave, failed to pay the worker on a weekly or fortnightly basis and failed to provide the worker with payslips, all contraventions of the Fair Work Act and Regulations.

Sham Contracting under the FW Act
Misrepresenting an employment relationship as an independent contracting arrangement can give rise to penalties under the Fair Work Act (then $33,000 and now $51,000 for a company and then $6,600 and now $10,200 for an individual).

Court Hearing
The FWO commenced proceedings before the Court and with the consent of the Company and Mr Lee, the Court made declarations that the Company and Mr Lee had contravened relevant provisions of the FW Act. The Court then considered what penalties should be ordered. The Court considered various factors to determine penalty including whether there was a single course of conduct of the contraventions, the nature and extent of the contraventions, the circumstances in which the conduct took place, the nature and extent of loss or damage, similar previous conduct, deliberateness of the breaches, whether the Company and/or Mr Lee had exhibited contrition and specific and general deterrence.

The Court was satisfied that in all of the circumstances, the penalties sought by the FWO were appropriate in the circumstances and penalties of approximately $50,000 for the Company and approximately $10,000 to Mr Lee were ordered.

Lessons for Employers
This case evidences very important lessons for employers when implementing independent contract arrangements at workplaces and managing investigations by the workplace regulator:
• always seek prior written advice before implementing independent contract arrangements: incorrectly classifying workers as independent contractors may lead to contraventions of the sham contracting provisions of the Fair Work Act as well as contraventions of awards and other minimum legal obligations including the National Employment Standards. If the prior written advice states that independent contractor arrangements are legitimate, the advice may be used as an absolute defence to allegations of sham contracting; and
• always seek advice on regulator investigations and co-operate with the relevant authority during investigations: this does not necessarily mean agreeing to everything that the regulator requires but not frustrating or obstructing the investigation and compliance with notices to produce and letters of caution unless there is a sufficient reason not to do so.

Author: Alistair Salmon
Holding Redlich

From The Courts Content Disclaimer

The information in this section of the Archer Solutions website is of a general nature.

It has been reproduced with the authorisation of Michael Selinger, Partner at Holding Redlich.

It is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.

Leave a Reply

Get in touch with our team today!

Contact Us