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The Sham Of It All!
Wednesday, June 21st, 2017

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By Les Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

21 June 2017

Surely I can save money by terminating the employment of a worker and then re-engage them as an independent contractor?

Not so fast….

Recently the Federal Court of Australia imposed a significant financial penalty against a company after that company was found to have breached the sham contracting provisions of the Fair Work Act 2009 (Cth) (“the Act”).

Section 357 of the Act protects genuine employees from “sham” arrangements in which they are portrayed as being independent contractors whereas in reality they are genuine employees.

Genuine employees are entitled to a range of rights and benefits (including sick leave, holiday pay and superannuation) whereas independent contractors do not enjoy these same benefits.

A sham self-employment contract arises in circumstances where a person is engaged to undertake certain work and/or provide certain services ostensibly as an independent contractor when the true situation is that they are not actually an independent contractor at all but an employee.

Cases where employers have misrepresented employees as being independent contractors have become more prevalent primarily because there is a financial benefit in doing so.   It is often less expensive to engage an independent contractor than to engage the services of an employee and, further, very often there are not the same risks associated with terminating an independent contract as there are in terminating the services of an employee.

On 2 December 2015 the High Court of Australia handed down its decision in the matter of Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (2015) HCA 45, which was a case in which in 2009 Quest South Perth Holdings Pty Ltd, through the services of an independent  staffing agency, terminated the employment of two housekeepers and then immediately re-hired them but allegedly as independent contractors to perform the same duties.  The Fair Work Ombudsman commence legal proceedings against Quest South Perth Holdings Pty Ltd alleging that this arrangement was in breach of the sham contracting laws set out in Section 357 of the Act.

Initially the proceeding commenced by the Fair Work Ombudsman in the Federal Court of Australia was unsuccessful. However, in a subsequent Appeal to the High Court of Australia, the Court held that Quest South Perth Holdings Pty Ltd had breached the sham contracting provisions of the Act by misrepresenting an employment relationship with the the two housekeepers as that of independent contracting. The High Court of Australia said that the two housekeepers continued to perform precisely the same work for Quest South Perth Holdings Pty Ltd in precisely the same manner as they had always done. The Court said that in law, the two housekeepers had never become independent contractors.

The Federal Court of Australia when it initially rejected the argument of the Fair Work Ombudsman found that the sham contracting provisions of the Act had not been breached because the arrangements had been made through the services of a third party (an independent labour hire firm) and not directly between Quest South Perth Holdings Pty Ltd and the two housekeepers. However this finding was rejected by the High Court of Australia and the fact that the arrangement was conducted through the services of the labour hire firm did not mean that the sham contracting provisions of the Act had been circumvented and not breached. Indeed the High Court of Australia went on to say that the misrepresentation by Quest South Perth Holdings Pty Ltd was exactly the type of activity which was intended to be caught by Section 357 of the Act.

The High Court of Australia referred the matter back to the Federal Court of Australia for it to impose appropriate penalties.  The Federal Court of Australia has recently dealt with the issue of penalty and imposed  a fine of  $59,000 against the company for breaching the sham contracting provisions of the Act.

This case highlights the difficulties faced by those who engage the services of workers and those workers themselves in determining whether a particular relationship is one of employer and employee or, alternatively, one of principal and contractor. This distinction can have significant financial and other consequences for all involved.  The Courts have developed a series of key indicators to assist in determining whether a particular relationship is one of employer and employee or, alternatively, one of principal and contractor.   None of these indicators is alone determined in a true and ultimately it is for the Court to decide based on all of the evidence before it.

Perhaps the more significant feature of this decision is that it highlights that the sham contracting provisions of the Actcannot be avoided by utilising a labour hire firm through which to engage the worker.

In order to minimise the risk of being caught in a sham contracting situation, employers should:

  1. ensure that the relationship with their workers is what they have assumed them to be.   If in doubt, they should seek competent legal advice;
  2. ensure that they do not misrepresent the nature of relationship to workers otherwise they will face prosecution and potentially significant penalties, for breaching the Act;
  3.  if engaging workers through a third party such as a labour hire firm, continually examine the relationship and implement risk management strategies.   If an employment relationship is later found to exist instead of one of contractor, the employer can be liable for significant back payment of entitlements in addition to any penalties that may be imposed for breaching the Act.

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Why Companies Must Follow Their Own Policies in Handling Workplace Complaints
Wednesday, May 6th, 2015

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By Les Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

6 May 2015

In December 2014, the Federal Court of Australia handed down a decision (Romero v Farstad Shipping (Indian Pacific) Pty Ltd (2014) FCAFC 177) which has important implications for the way that companies handle staff complaints.

The starting point in this particular case was that an employee of Farstad Shipping, who was second Officer of a supply ship, fell out with the Captain during a 12 day voyage in 2011.  After disembarking, she sent an email to Farstad outlining  concerns about the way that she had been treated.  Farstad had several workplace policies including those concerning workplace harassment and discrimination, and documented procedures about how such complaints were to be handled.  While the employee’s email was not intended as a formal complaint, Farstad treated it as such.

At the same time, the ship’s Captain complained to Farstad about the employee’s competence and temperament (later shown to be unfounded).  The company no longer treated the employee’s email as private and the dispute quickly escalated so that Farstad found itself investigating both the employee’s concerns, as well as the Captain’s claims of incompetence.

Worried that Farstad seemed to be giving far more weight to the Captain’s allegations than her own, the employee lodged a complaint with the Australian Human Right’s Commission.  When no resolution was achieved, she took the matter to the Federal Court of Australia.

Initially, this claim failed.  The primary Judge rejected a claim of sex discrimination.  Importantly, he held that Farstad’s workplace policy did not constitute part of her contract of employment and, in any event, Farstad had not departed sufficiently from its own policy enough to have breached it.

The employee took this decision further on appeal, where the primary Judge’s decision was found to be wrong.  The Appeal Court concluded that the Policy did in fact form part of the employee’s contract of employment; that Farstad had not complied with its own Policy; and that the contract of employment had been breached by Farstad.  The employee was therefore entitled to relief, including damages.

This decision by the Federal Court of Australia highlights a number of important matters, but in particular

  1. Where an investigation into a complaint made by an employee is undertaken it must be undertaken in accordance with existing formal policies of the company and must be undertaken in a proper and thorough manner and be properly documented in compliance with the policies in accordance with the Rules of Natural Justice; and
  2. Where a company does have in place a formal Policy in relation to the making of complaints by one employee against another and that Policy is not followed or adhered to by the employer then a breach of the Policy by the employer may constitute a breach of the employment contract, thus giving rise to the employee having any entitlement to compensation or other relief.
  3. Where there is more than one complaint being investigated, then it is essential to treat those investigations separately.

As awareness of harassment and discrimination cases continues to rise, companies also need to be highly vigilant in the way they manage employee complaints.  While this article outlines a few of the general principles, legal advice for specific cases is always advised.  Should you wish to discuss such a case, please contact Les Buchbinder on 08 9325 9644.

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Bullying in the Workplace – Part 2
Monday, February 10th, 2014

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By Les Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

 10 February 2014

In response to my blog post last week highlighting some new changes to the law regarding bullying in the workplace, I received several enquiries which in effect asked what type of conduct can amount to bullying in the workplace.

Whether the particular conduct concerned amounts to bullying depends in each case on the context and circumstances.

Generally speaking under the Fair Work Act 2009 bullying occurs when a person or a group of people in the workplace repeatedly behaves  unreasonably towards another person or group at work, and that behavior creates a health and safety risk.

It is really important to recognize that reasonable management actions done in a reasonable way do not constitute bullying.

Bullying happens when someone repeatedly behaves unreasonably towards another person or group of people and that behavior creates a risk to health and safety.

Bullying behaviour may take different forms. It may involve, for example,  aggressive or intimidating conduct or unreasonable work expectations, including too much or too little work, or work below or beyond a worker’s skill level.

However, in order for it to be bullying the behaviour must be repeated and unreasonable and must create a risk to health and safety.

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Bullying in the Workplace
Friday, February 7th, 2014

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By Leslie Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

7 February 2014

In 2013 the Fair Work Act 2009 was amended to provide the Fair Work Commission (the Commission) with the power to make orders to prevent bullying in the workplace.

As from 1 January 2014 a worker in a business or undertaking that it is covered by the Act is able to apply to the Commission for an order to prevent them from being bullied at work.   Such an application can be made by a worker who ‘reasonably believes that he or she has been bullied at work’.   A worker is ‘bullied at work’ if, while at work, an individual or group repeatedly behaves unreasonably towards the worker and that behaviour creates a risk to health and safety.

The Commission has confirmed it had received 44 applications during the first month of the new anti-bullying jurisdiction.    However, of these 6 were withdrawn.

Given the anecdotal evidence of the prevalence of bullying in the workplace it will be very interesting to see whether the number of applications remains constant or even increases.   It will also be interesting to see what impact the Commission has in rooting out Workplace bullying through this new process.

The real question is, what is unreasonable behaviour and when can a worker ‘reasonably believe’ that he or she is being ‘bullied at work’.

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