A Sham: Employees Masquerading As Contractors

Case Example

It is always a good idea to get advice from someone who practices in this area of law. A transport company’s business, in a recent decision of case of Fair Work Ombudsman v. Happy Cabby Pty Ltd consisted of shuttling people from Sydney to the airport in Newcastle and back. To drive the shuttle vehicles, the transport company hired drivers as independent contractors. The transport company, however, controlled the manner by which the independent contractors performed their work. The company provided the bookings, it arranged the schedule of pick-ups and drop-offs, it arranged for the maintenance of the vans used in transporting the passengers, it determined the fare and collected the payment from the passengers. The company also required the drivers to make reports which they called ‘run sheets’. The drivers also wore a uniform which bore the transport company’s logo when they picked up the passengers and the drivers help up a sign with the company logo and the name of the passengers who will be picked up at the airport. Most importantly, the company determined how much and how often the drivers will be paid for their services. The drivers did not have any investment in machinery or vehicles to use in transporting the passengers. All they contributed was the labor, the service of shuttling the passengers. They had to render their personal service and they could not sub-contract their driving services.

The Fair Work Ombudsman conducted an audit of the passenger vehicle industry in the area and the airport transport company was one of those audited and visited by the FWO. Complaints were received regarding the working conditions of the drivers at the transport company regarding their superannuation payments.

A year later, the FWO wrote a letter of caution to the transport company informing it that its investigation has revealed that he was misrepresenting his employees as independent contractors. This practice is sham contracting and it is prohibited as such an arrangement underpays the employees of their entitlements under the Fair Work Act. The company insisted that its arrangements were all legal. The Fair Work Ombudsman filed a case before the court against the transport company for sham contracting. The transport company was penalized. This is the ruling of the Federal Court in the case of Fair Work Ombudsman v. Happy Cabby Pty Ltd & Anor [2013] FCCA 397 )26 July 2013).

Advice from an Expert

It is not illegal to enter into independent contractor agreements. What is prohibited as sham contracting is classifying regular employees as independent contractors. This practice is prohibited because as independent contractors, the regular employees do not receive the entitlements and protection they are entitled to under the Fair Work Act.

When under investigation by the FWO, it’s always best to cooperate, although it does not mean that there is a need to agree with the FWO’s allegations.

Always obtain written advice before implementing independent contractor arrangements. If that advice states that the contractor arrangements are valid, that written advice can be used as a complete defence to assertions of sham contracting in breach of the Fair Work Act.

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