a. New or Expected Developments
Sham contracting arrangements can be exploitative when created by the principal company purely for the purpose of avoidance of tax and liability for employment entitlements. Further, under section 550 of the FW Act, persons involved in contraventions of the FW Act may be found liable for contraventions of the FW Act, irrespective of their contractual relationship with a worker. Section 550 provides:
1) A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
2) A person is involved in a contravention of a civil remedy provision if, and only if, the person:
- has aided, abetted, counselled or procured the contravention; or
- has induced the contravention, whether by threats or promises or otherwise; or
- has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
- has conspired with others to effect the contravention.
The Fair Work Ombudsman has increasingly relied on section 550 claims to pursue penalties against individual directors and managers, as well as entities within the supply chain.
The Fair Work Ombudsman, Natalie James, stated at a recent convention:87
“The accessorial liability provisions have been well utilised by the Fair Work Ombud-sman. Ninety-two per cent of matters my agency filed in court last financial year took action against an alleged accessory. And accessories don’t just include company directors, or advisers. We’ve also joined other companies in the supply chain – companies that contracted or outsourced to the employing entity, and should have known workers’ entitlements were not being met.
What we find in practice, within supply chains and networks like franchising systems, is that there is often someone at the top or the centre of the network who – while not the employer – controls key settings, including how much money is being paid down the line. It is our standard practice to ask who is the ultimate beneficiary of exploited labour and what role have they played in what has occurred.”
A recent investigation conducted by the Fair Work Ombudsman into the operations of Baiada Group88, which are a large poultry supply company, found that Baiada Group were using multi-layered system of contractors to perform predominantly manual labour. The complex system of contractors and sub-contractors used ensured that the host organi sation had very little control over the way its workers were paid, however it retained absolute control over the manner in which they worked. In its report, the Ombudsman determined that the workers, who were mostly migrants with little to no knowledge of Australian employment protections, had been inappropriately classified by Baiada as independent contractors.
The Baiada investigation is one of many investigations into sham contracting that has looked beyond the contractor/principal relationship to trace the entire supply chain
in order to identify parties involved in contraventions of the FW Act. Acting Fair Work Ombudsman, Michael Campbell was recently quoted as saying “[t]he desired end re-sult is that all parties in the supply chain recognise and accept their social, moral and corporateresponsibility to ensure compliance with workplace laws.”89
The Baiada investigation also follows on from the Quest Case, in which the High Court all but closed the door on the use of tripartite contracting relationships, or “Odco” model arrangements.
b. Recent Amendments to the Law
There have not been any recent significant legislative changes in relation to the characterisation of employees and contractors. However, one piece of proposed legislative reform is a bill that is currently before the Senate; the Fair Work Amendment (Protecting Australian Workers) Bill 2016 (the Bill). The Bill, if passed, will introduce a ‘reasonable person’ element to the test as to whether a person is an employee or an independent contractor. The Bill is also slated to include provisions that will ensure foreign workers on working visas better access to the same protections and entitlements as permanent residents, and, will also increase the powers of a Court to impose penalties against individuals that operate phoenix businesses structures.