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Monday 27th July 2015
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Are you in the gun for sham
contracting?
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In today's Workplace Bulletin:
- Employees vs contractors – and the illegal no man's land in between
- More on the Grill'd case
- Privacy law blown wide open
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Dear Reader,
The misclassification of employees as contractors has become more than some dry matter of employment law lately.
First there was ABC'sFour Cornersinvestigation into the conditions for some migrant workers, which discovered that many workers who arrive in Australia are wrongly treated as contractors, underpaid and subjected to dangerous conditions.
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Then there was the Victorian Government's announcement that it would establish an inquiry into labour hire and sham contracting, and the ACTU's call to establish a national register of labour hire firms.
Meanwhile, a subsidiary of Roy Morgan Research could be going all the way to the High Court of Australia to settle its contractor woes.
Linkhill was hit with a whopping $300,000 penalty for underpaying 10 contractors who a Federal Circuit Court ruled were actually employees. However, it argues that it was making generous over-award payments to the workers that would have otherwise covered employee entitlements, and that prosecutors misrepresented its arrangements.
This is all at the sharp end of sham contracting (or in Linkhill's case, the awfully expensive end). But businesses hire people to carry out work every day, from secretaries to cleaners to IT professionals – and their legal status will vary. What are the essential criteria to cover your back?
Defining sham contracting
A 'sham' independent contractor arrangement is made when one or both parties know, or ought to reasonably know, that it is not a true independent contractor arrangement.
You will liable under the Fair Work Act for civil penalties if you:
- misrepresent an employment relationship as an independent contractor relationship to an employee;
- dismiss or threaten to dismiss an employee in order to re-hire them as an independent contractor in a job that is the same (or substantially the same), or;
- make a false statement to a current or former employee in order to influence them to perform the same work as an independent contractor.
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If you're already a subscriber to theEmployment Law Practical Handbook, we have an incredible, last chance offer for you…
But it's only on the table until August 10
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Employee and contractor: the key distinctions
You can defend yourself against a penalty for sham contracting if you genuinely didn't know a relationship was that of employer and employee, not of independent contractor and principal.
But that gets you nowhere if a court or tribunal finds you've beenreckless about facts that would have put a reasonable person in your position on notice – even if the sham contracting wasn'tintentional.
So how do you avoid walking blindfolded into misrepresenting an employment relationship?
These are some of the key indicators that the Fair Work Ombudsman and the courts would expect a reasonable person to have mind to:
- The level of control over the working relationship (do you control how, where and when a worker's work is performed?)
- Tax arrangements (do you deduct PAYG income tax yourself from the worker's remuneration or is this left up to the worker themselves?)
- How the worker is paid (Use an IT professional as an example. Are they paid periodic wages or salary to keep your computer systems ticking over, or do they come in to complete certain tasks for your business that they later invoice for?)
- How equipment is supplied (Are you supplying the tools and equipment used, or does the worker provide and maintain their own significant tools and equipment to do the work?)
- How the relationship looks 'from the outside' (Does the worker act as a representative of your business when he or she is working, under your own branding and goodwill? Or do they have a separate place of work, create their own goodwill, and advertise their services independently of you?)
Note that no single one of these indicators will clearly determine a worker's status. Employers (and employees!) can attempt to arrange their taxes to unlawfully claim an independent contractor relationship.
And an experienced, specialist worker who you don't need to exercise much control or supervision over will still in many cases be classified as an employee.
If your contractual arrangements with a worker are ever examined, it will involve taking a look at thewhole working relationship - not just the written agreements, but the substantial terms and conditions on which work is performed day-to-day.
That means that you should doing the same. Many "employee or contractor" tests will be straightforward, but a few can be complex.
The Employment Law Practical Handbookhas more on the nature of independent contractors, including a blow-by-blow checklist of every aspect to consider when applying the test, and your other crucial obligations as a principal of independent contractors!Find out more here.
More on the Grill'd case
In my last Bulletin, I wrote about how the Grill'd burger chain was facing a grilling of its own after an ex-employee went to the media concerning her working conditions.
I promised to update you on future developments, and things have moved quickly in the days since.
Grill'd has maintained that the "WorkChoices-era" agreements in several of its stores are not unlawful. As I explained, although these agreements wouldn't be approved today, this is probably true.
But they've announced that they will be negotiating a modern workplace agreement with all employees at company-owned stores "effective immediately". Founder Simon Crowe says he will also be holding discussions with franchisees.
We talk a lot in theBulletinabout what happens in courts – but it's a reminder that there's nothing quite like the court of public opinion when it comes to a brand.
The other aspect of the Grill'd story – alleged adverse action by a franchisee – is still unfolding before the Fair Work Commission. If the outcome isn't settled privately (as these things can often be!) I'll be telling you more about it.
Privacy law blown wide open
I wrote to you a week ago about why Australian privacy law matters when it comes to job applicants.
The law's been bolstered with modern requirements and stiffer penalties, and though there's a carve-out exemption for actual employees, the law covers the private information you hold on anyone else.
In the meantime, privacy law discussion has been everywhere after an American 'adultery' website had its personal data hacked, and the customer records of users leaked online.
It's the sort of story you'd only expect to read in 2015 – but if your business holds personal information for any reason, the stakes are now just as high.
This week, you'll hear from us about exactly what you can do to protect yourself.
Until next time,
Joseph Nunweek
Editor,Workplace Bulletin
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