The nature of work has been changing for quite some time along with employer obligations. Rapid advancements in technology have transformed the manner in which work is performed. Labour is expensive, and so it’s no surprise that businesses are heavily investing in technologies that seek to increase efficiency. However, the increasing desire to outsource the risk of a direct employment relationship that has presented the biggest challenge for Australia’s workplace relations system.

New technology linking those willing to work with those who need workers, combined with an increasing desire for flexibility, has seen a rapid growth in the so-called ‘gig economy’. Ridesharing companies such as Uber and Ola, food bike couriers like Deliveroo and Uber Eats, and online jobsites like Airtasker, all have contributed to this rapid growth. There are now thousands of people willing to perform a wide range of tasks on a contract basis, but the question arises: how can these arrangements be appropriately regulated?

An inquiry into corporate avoidance of the Fair Work Act

In early 2017, the Senate’s Education and Employment References Committee was tasked with examining the incidence of, and trends in, corporate avoidance of the Fair Work Act 2009 (the Act). In particular, the Committee considered in their report, amongst other things:

  1. the use of labour hire and/or contracting arrangements that affect workers’ pay and conditions;
  2. the extent to which companies avoid their obligations under the Fair Work Act 2009 by engaging workers on visas; and
  3. whether the National Employment Standards and modern award system acts as an effective ‘floor’ for wages and conditions and the extent to which companies enter into arrangements that avoid these obligations.

The report considered that the legislative framework at the time was ineffective at both preventing and addressing workplace non-compliance outside of the direct employer/employee relationship. A total of 29 recommendations were made and addressed amendments to safety, tax and migration legislation.

Are you at risk of sham contracting?

As it currently stands, the Act regulates the direct employer/employee relationship. This extends to on-hire arrangements to the extent that an individual is employed by a labour hire company to perform an assignment for a client of that company. Businesses have always been free to engage individuals on a contract basis, however, the rise of the gig economy has seen companies like Uber, Airtasker, Uber Eats and Deliveroo the subject of much criticism for allegedly using sham contracting to evade minimum rights and entitlements.

Sham contracting is where an employer unlawfully disguises an employment relationship as an independent contracting relationship. Under the Act, an employer cannot:

  • misrepresent an employment relationship as an independent contracting arrangement;
  • dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor; or
  • make a knowingly false statement in an attempt to persuade or influence an employee to become an independent contractor.

The reality is that any business which engages an independent contractor is at risk of sham contracting, and there are big penalties for those who get it wrong! It is not enough to simply label someone as either a ‘contractor’ or an ‘employee’. As one Judge colourfully put it, you “cannot create something which has every feature of a rooster but call it a duck”.

Choosing to engage someone as an independent contractor or as an employee is a crucial business decision that will have far-reaching implications for the respective individual’s rights and entitlements. There is a common misconception that because someone has an ABN that they are an independent contractor – this is certainly not the case. Rather, the courts examine the totality of the arrangement and apply a multi-indicia test when determining whether the relationship is an employment relationship governed by the Act, or a true independent contracting arrangement.

How you can minimise the risk

HRA Cloud is our innovative Human Resources Information Solution (HRIS). This cradle-to-grave management system provides you with the right tools and processes to minimise the risk of being exposed to penalties for sham contracting.

Our Contractor Engagement Checklist is specifically designed to give you the tools you need to lawfully engage independent contractors. It contains an array of documentation, including:

  • Robust independent contractor agreements;
  • Confidentiality agreements;
  • A suite of company policies and procedures; and
  • A place to upload and store the person’s insurance details, including workers compensation insurance, public liability insurance and professional indemnity insurance.

Recent decisions in both the UK and Australia indicate those who operate in the gig economy are at risk of sham contracting. These developments are likely to have much wider implications for anyone who engages an independent contractor. At the very least, independent contracting arrangements are likely to continue to be the focus of much scrutiny as the gig economy continues to grow. Businesses should seek specific advice before engaging someone on a contract basis to assess risk.

Have a question about sham contracting? Contact the HR Assured team.

If you’re not already an HR Assured customer and you’d like to try our award-winning Telephone Advisory Service, contact us for a FREE no-obligation consultation.