HIGH COURT CONFIRMS “SHAM CONTRACTING” LAWS APPLY TO THIRD PARTIES

The recent High Court decision Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd & Ors [2015] HCA 45 confirms that the “sham contracting” provisions contained in the Fair Work Act 2009 (Cth) (FW Act) apply to triangular contracting arrangements – i.e. an arrangement whereby a worker is engaged through an entity which is separate to the one for which they actually perform work.

ISSUE

Whether or not a worker is an employee or independent contractor is a matter of fact and will depend on the particular details of each working arrangement. Section 357(1) of the FW Act makes it unlawful for an employer to represent a working arrangement as an independent contracting arrangement when it is, in fact, one of employment.

Quest initially employed two housekeepers to work in its business. Quest then entered into a triangular arrangement with a labour hire company under which the labour hire company would engage the same two housekeepers as “independent contractors” and then provide the services of the two housekeepers to Quest under a labour hire arrangement.

The Fair Work Ombudsman (FWO) commenced proceedings against Quest claiming, amongst other things, that Quest had breached section 357(1) of the FW Act. Quest argued that it was not the actual employer and could not therefore commit a breach of the relevant section.

OUTCOME

The High Court rejected this argument and found that the misrepresentation made by Quest about the nature of the arrangements was “squarely within the scope of the mischief to which the prohibition in s 357(1) was directed and is caught by its terms” [at para 22].

The High Court also found that the employees had continued to perform precisely the same work for Quest in the same manner as they had done before the new arrangements were entered into and that in law they never became independent contractors, but at all times they remained employees of Quest under implied contracts of employment.

IMPACT

The decision highlights that an organisation should ensure that it does not misrepresent an employment arrangement as an independent contracting arrangement even where it is not a direct party to the contract with the worker. The decision also makes it clear that where a worker works for the benefit of one party, but is engaged through another, it is possible for an implied contract of employment to be found between the worker and the entity which they actually serve.