Home - Sham contracting crackdown
back to Case Law
February 2019

Sham contracting crackdown

Sham contracting crackdown

Fair Work Ombudsman v Easttrac Pty Ltd, Klemtrac Pty Ltd, Care Providers Pty Ltd & Ors (2018)

The Case

Easttrac Pty Ltd (Easttrac) and Klemtrac Pty Ltd (Klemtrac) engaged independent contractors to provide domestic and personal care to Care Providers Pty Ltd (Care Providers) clients.

The Fair Work Ombudsman (FWO) commenced proceedings against Easttrac, Klemtrac and Care Providers for:

  • engaging in sham contracting;
  • breaching the Fair Work Act 2009 (Cth) (FW Act); and
  • breaching the Social, Community, Home Care and Disability Services Industry Award 2010 (the Award).

The FWO also joined senior officers of Easttrac and Klemtrac, who it alleged were accessorily liable for Easttrac and Klemtrac’s conduct. The proceedings against Care Providers was discontinued when it was established that it was not the employer.

The Verdict

Easttrac and Klemtrac admitted to the sham contracting, and contravening the FW Act and the Award. The Federal Circuit Court (FCC) found the businesses had implemented their work strategy to save costs and give them a competitive advantage. They recklessly did this without consideration for the potential breaches of the FW Act and Award.

Easttrac and Klemtrac’s senior decision makers, Mr Wallis and Mr Welch, admitted to being accessories to the companies’ respective breaches. Both men were responsible for management of the workers and ensuring the companies met their legal obligations.

In considering what financial penalty to impose, the FCC considered:

  • the “extreme recklessness” of the respondents’ actions; 
  • the need for an “element of general deterrence”;
  • the contrition demonstrated;
  • the compensation provided to the employees to rectify any underpayments;
  • the absence of any prior offences; and
  • the cooperation given to the FWO.

The FCC imposed the following penalties:

  • Easttrac: $125,874;
  • Klemtrac: $77,112;
  • Mr Wallis: $5,783.40;
  • Mr Welch: $7,711.20.

The Lessons

It is important to understand the difference between independent contractors and employees, and to ensure the appropriate contractual arrangements are put in place.

As this case shows, the FWO will pursue companies and individuals who engage in sham contracting, even if there was no deliberate intent to breach the FW Act or a relevant industrial instrument.

0

In your cart

item

$0

View cart
Checkout
View Cart
Copied