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24 February 2017

Who do you think you are?

Employment Law
Federal

Asked

Dear Mentor,

If an employee of a company is moved from an employment agreement to an independent contractor agreement but continues to conduct themselves as an 'employee', it is anticipated that the contractor agreement is a ‘sham contract’ and the contractor is an employee of the company.

If the employer terminates the contractor agreement, then does the contractor/employee have the usual unfair dismissal rights of an employee – e.g. able to lodge an application with Fair Work – or does a court need to first decide upon the contractor's status as an ‘employee’? Is any of this negated if the employee requested the contractor agreement arrangement?

I would appreciate any advice you can offer on the above.

Kind regards.

Answered

Thank you for the question.

It is beyond the scope of Mentor to provide detailed advice about particular matters pertaining to a client. Having said that, we can provide general information about issues apparent from your query.

The circumstances appear to pertain more to the sham contracting provisions of the Fair Work Act 2009 (Division 6 of Part 3-1) than unfair dismissal.

The sham contracting provisions of the FW Act are penalty provisions and are focussed on sham arrangements which disguise employment arrangements as independent contractor arrangements. The provisions involve a reverse onus of proof and provide civil penalties for arrangements found to be a sham with respect to employment and independent contracting relationships.

The central issues are whether the company (1) misrepresented the worker’s employment as independent contracting arrangement (s 357) and/or (2) dismissed the employee to engage as independent contractor.

For an example of a case where the Federal Court considered sham contractor action brought by the Fair Work Ombudsman, see Fair Work Ombudsman v Ecosway Pty Ltd [2016] FCA 296.

In that case, the Fair Work Ombudsman alleged that Ecosway contravened s 357(1) of the FW Act on five separate occasions by representing to a worker, falsely, that under her contract she would be an independent contractor and not an employee.

In contrast, the unfair dismissal provisions of the FW Act are focussed on providing job security by protecting employees from unfair dismissal (rather than protecting against sham arrangements).

In the context of unfair dismissal, the question of whether a worker was an independent contractor or an employee usually arises when a respondent raises a jurisdictional objection to the unfair dismissal application that has been filed against it. In other words, the jurisdictional objection of the respondent ‘employer’ asserts the worker was an independent contractor and thus is not entitled to make an unfair dismissal application. 

For an example of a case where the Fair Work Commission considered whether a tiler was an employee (or contractor) and thus protected from unfair dismissal, see the case of Mr Troy Petrie v Grant Johnson Pty Ltd ATF The Grant Johnson Trust T/A Platinum Roof Coating [2016] FWC 6407 (25 November 2016).

Regards

Mentor