State government’s ‘budget-saving’ recruitment strategy risks breaching workplace laws

A Victorian Government department's employment practices risk breaching federal workplace laws, a Fair Work Ombudsman (FWO) inquiry has revealed.
Michael Campbell
Michael Campbell

A Victorian Government department’s employment practices risk breaching federal workplace laws, a Fair Work Ombudsman (FWO) inquiry has revealed. And, noted a 3 March press statement, it is the second time in months that the FWO has had to remind a state government department of its obligations under federal workplace law.

Fair Work inspectors investigated the Department of State Development and Business Innovation (DSDBI) after a major union alleged that it was involved in sham contracting.

While a detailed examination has found no evidence of sham contracting, it has identified a ‘heightened risk’ that in seeking to achieve financial savings, the department may contravene the Fair Work Act.

If found guilty, the department could face fines of up to $51,000 per breach and individual managers could be liable for penalties of up to $10,200 per breach.

Consequently, the FWO has urged DSDBI to conduct an urgent, comprehensive review of its policies and processes. DSDBI has been asked to report back within six months.

A Statement of Findings said the FWO expects DSDBI, as a large employer with a high degree of sophistication and resources, to take the necessary action to reduce its risk of non-compliance with federal workplace laws.

The 22-page report followed allegations raised in November 2013 by the Victorian branch of the Community and Public Sector Union (CPSU).

The FWO began an inquiry in December 2013, focused primarily on whether DSDBI had breached Section 357 of the Fair Work Act by misrepresenting employment as independent contracting.

The inquiry included a review of key departmental policies, procedures and contracts and face-to-face interviews with managers, workers and union representatives.

While there was no evidence of sham contracting, the inquiry found:

  • The way in which DSDBI proposed to engage certain workers as independent contractors increased its risk of non-compliance with workplace law;
  • Some workers may not be receiving their correct entitlements if they are characterised as independent contractors instead of employees,
  • The department’s workforce was reticent to complain publicly, and
  • DSDBI had not responded to or acted upon recommendations made previously by the Victorian Auditor-General’s Office about its procurement of labour.

Preliminary findings were sent to DSDBI for review and comment on 12 August 2014 and it provided a submission on September 30.

Following consideration of the department’s feedback, the FWO has now finalised its position and publicly released its findings today (3 March 2015).

It recommends DSDBI:

  • Conduct a comprehensive review of its labour engagement policies and processes to ensure they comply with federal workplace law,
  • Audit all independent contractors recruited through labour-hire agencies that undertake work traditionally performed by public service employees,
  • Ensure all workers are receiving their correct wages and entitlements and back-pay any outstanding entitlements it identifies, and
  • Obtain legal advice regarding the use of independent contractors for work traditionally performed by public servants.

According to the Australian Bureau of Statistics, there were 986,400 people working as independent contractors in their main job in November 2013 – about 28 percent of them in Victoria.

The FWO pointed out it supports independent contractors by providing tools and resources on its website at to assist them understand how they, or those who they engage for work, can be correctly classified.

Deputy Fair Work Ombudsman (operations), Michael Campbell, said sham contracting occurs when an employer deliberately attempts to disguise an employee/employer relationship as an independent contracting relationship.

“Misclassification occurs when an employer engages a worker as an independent contractor when they should instead be an employee, but there is no evidence it was deliberate,” Campbell stated.

“Sham arrangements provide a business with an unfair competitive advantage against employers who are complying with their legal obligations.

“By disguising employment as independent contract work, employers avoid their responsibility to provide employees with their correct minimum entitlements, such as ordinary hour wages, overtime, penalties, allowances, leave payments, superannuation and possible tax exemptions.”

It is the second time in months that the FWO has had to remind a state government department of its obligations under federal workplace law.

In December, the Agency cautioned the South Australian Department of Education and Child Development (DECD) about a lack of corporate governance over transport services for children with special needs and urged it to take immediate steps to rectify the deficiencies.

DECD spends more than $11 million a year on school bus services for students with special needs, but its procurement arrangements relating to mini-bus operators lacked basic, quality governance features, the FWO found.

Nine of 13 South Australian mini-bus operators used by DECD received Letters of Caution from the FWO for misclassifying their drivers as sub-contractors instead of employees.

Campbell emphasised that federal, state and local government all have a key role in setting prices in labor-supply chains and it is important that they, along with private businesses, recognise their obligations under federal workplace laws.

“We are happy to provide assistance where we can, but when we find instances of agencies or businesses abrogating their responsibilities, we will take action to rectify the matter,” he said.


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