The Case

Ms Best and Ms Roden were employed by Quest South Perth Holdings (Quest) as housekeepers. Quest entered into a triangular contracting arrangement with Contracting Solutions Pty Ltd (Contracting Solutions), a labour hire business, whereby Ms Best and Ms Roden ceased to be employees of Quest and became independent contractors of Contracting Solutions.

Contracting Solutions then purported to provide the services of Ms Best and Ms Roden as housekeepers under a labour hire agreement between Quest and Contracting olutions. Ms Best and Ms Roden continued to perform the same work for Quest they had performed as employees.

The Fair Work Ombudsman (FWO) commenced proceedings in the Federal Court, claiming that Quest and Contracting Solutions had breached the sham contracting provisions of the Fair Work Act 2009 (Cth) (FW Act) by misrepresenting to Ms Best and Ms Roden that they were performing work as independent contractors.

The Verdict

The Federal Court and the Full Court of the Federal Court (on appeal) both dismissed the FWO’s claim, holding that section 357(1) of the FW Act would only be breached where an employer misrepresented the contract between the employer and the employee, not between the employee and a third party.

On appeal, the High Court held that such an interpretation was too narrow and would achieve a capricious result. The Court held that section 357(1) was breached when Quest told the employees that the employment contracts Quest employed them under were independent contracting arrangements. The Court found that the employees continued to perform the work for Quest under implied contracts of employment.

A contract of employment can be implied through an employer’s actions, or through the oral or written communications between an employer and an employee. In this case, although Ms Best and Ms Roden were told they were independent contractors, they were doing the exact same work that they had done as employees.

The High Court transferred the case back to the Federal Court to decide what penalties should be imposed.

The Lesson

It is important you examine any independent contracting arrangements you have with your contractors to ensure they are legitimate arrangements and are not implied contracts of employment.

Sham contracting provisions prohibit you from misrepresenting that an employment arrangement is an independent contracting arrangement. If you are found to breach these provisions, you could face penalties of up to $54,000 per contravention.

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.