The Case

The Fair Work Ombudsman (FWO) prosecuted Grouped Property Services Pty Ltd (GPS), a contract cleaning business, for numerous alleged breaches of the Fair Work Act 2009 (Cth) (FW Act) in respect of workers it engaged as contractors through National Contractors Pty Ltd (NCPL), a company established by GPS’s principals.

The FWO argued that GPS’s labour hire arrangements were not genuine and that the workers were employees of GPS. The FWO alleged there were over 580 contraventions of the FW Act involving:

• a failure to pay in accordance with the award;
• a failure to pay other employee entitlements such as penalty rates, annual leave, personal leave, superannuation and notice on termination;
• a failure to keep employment records or provide payslips;
• taking adverse action by terminating an employee’s employment when she inquired why she had not been paid; and
• sham contracting, by asserting the workers were contractors rather than employees.

Under the FW Act’s accessory liability provisions, the FWO also prosecuted the GPS Director Mr Enrico Pucci and GPS Chief Operating Officer Rosario Pucci.

The Verdict

Justice Katzmann of the Federal Circuit Court held that the workers were employees and not contractors – despite the requirement for workers to have ABNs and provide invoices – as the workers:

• had no control over the allocation, method or hours of work;
• could not delegate work to others;
• did not supply their own equipment or materials; and
• did not advertise their services, operate a business or have their own insurance.

The court found that NCPL was “an instrument of GPS” created “merely [as] a device to enable GPS to avoid its legal obligations”.

Given the finding that the workers were employees of GPS, GPS owed employment obligations to each worker under the FW Act and applicable award. Justice Katzmann also found that GPS had engaged in adverse action and sham contracting.

Justice Katzmann stated that for the Pucci brothers to be accessory’s pursuant to s550 of the FW Act, they had to be “involved in a contravention”, and know “of the elements of each contravention and, by act or omission, knowingly and intentionally” participate in it.

Justice Katzmann found Enrico Pucci was an accessory to GPS’s adverse action. Rosario also knew about most of GPS’s other contraventions and did nothing to rectify them.

Justice Katzmann required that GPS and the Puccis:

• undertake an audit to assess its compliance with the FW Act and the relevant awards;
• undertake compliance training in relation to their obligations under the FW Act and the relevant awards;
• be restrained from again contravening the FW Act and the relevant awards.

In addition, Justice Katzmann referred a copy of her judgement to the Australian Securities and Investments Commission (ASIC) and the Australian Tax Office (ATO) for further investigation concerning GPS’s operations and the way the Puccis had conducted their business.

In 2017, the matter will go back to court to decide penalties and compensation.

Lessons

This case serves as an important reminder that workers must be correctly classified and the dangers in not doing so. Namely, prosecution under the sham contracting provisions, underpayment claims and the risk of accessory liability for those persons involved in the contraventions.

The case also shows that the Court is prepared to use its broad powers to require audits, compliance training and restrain persons from engaging in further contraventions. In addition, the Court is prepared to refer dubious employment practices to the ASIC and ATO for further investigation and potential prosecution.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.