A sham arrangement case that involved three employees – including two housekeepers – who were engaged as independent contractors so their rights and entitlements would not be protected by industrial relations legislation, has now been finalised, with their former employers penalised a total of $58,740 in the Federal Court.
The penalties are the result of Fair Work Ombudsman legal action commenced in 2011.
The Fair Work Ombudsman alleged that Quest South Perth Holdings, which formerly operated the Quest on Arlington serviced apartments in South Perth, contravened the sham arrangement provisions of workplace laws in 2009 when it purported to convert two housekeepers and a receptionist at Quest on Arlington into independent contractors.
Quest South Perth Holdings dismissed the workers and immediately re-hired the housekeepers as purported independent contractors to perform the same duties. The receptionist was not re-hired after Quest dismissed her.
After the purported conversion to independent contractors, the two housekeepers were paid a flat rate that did not make provision for entitlements such as weekend and public holiday penalty rates or overtime.
The Fair Work Ombudsman alleged the purported contracting arrangement was a sham and the correct relationship for the workers was as employees.
After part of the Fair Work Ombudsman’s case was dismissed by the Federal Court and the Full Court of the Federal Court, the Fair Work Ombudsman lodged its first ever High Court appeal.
The High Court unanimously upheld the appeal in December 2015, ruling that Quest South Perth Holdings’ conduct contravened sham contracting laws.
The matter was referred back to the Federal Court, where penalties have now been imposed against the company and Luchmaya by Justice John Gilmour.
Justice Gilmour found that the contraventions were the result of “Quest’s strategy and desire to engage the employees as independent contractors so their rights and entitlements would not be protected by industrial relations legislation”.
“The FWO submits correctly, in my opinion, that the impact of sham contracting contraventions is that workers believe that they are deprived from the wide ranging entitlements afforded to employees, including minimum rates of pay, annual leave, personal leave, long service leave, parental leave, superannuation, workers compensation, notice upon termination of employment and eligibility to access other protections such as unfair dismissal applications, general protections applications or an application for an order to stop bullying,” Justice Gilmour said.
Justice Gilmour said Quest’s contraventions involved “deliberate and conscious acts designed to circumvent industrial relations legislation and the protections they provide” and found that the impact on the workers was significant.
Fair Work Ombudsman Natalie James said the outcome of the matter sends a clear message that her agency will not tolerate attempts to use corporate trickery to try to disguise employment relationships as contracting situations.
“The significant resources we have committed to pursuing this matter for several years reflect the seriousness with which we treat sham contracting behaviour,” James said.
“These proceedings send a message to unscrupulous employers about the consequences of sham contracting behaviour.
“The High Court ruling we secured in this matter was also important because it creates greater legal protection for employees in situations where employers attempt to avoid responsibility for providing employees’ lawful minimum wages and entitlements by claiming employees are independent contractors.”