The Federal Circuit Court of Australia (the Court) recently ruled on an application brought by an employee alleging that three respondents had engaged in breaches of the Fair Work Act 2009 (Cth) (FW Act), including sham contracting and dismissing the employee because she was pregnant.
The First Respondent operated a business providing online directory services. The First Respondent was supported in its business by the Second Respondent and the Third Respondent, who was involved in managing the business.
In February 2018, the employee (the Applicant) was engaged by the First Respondent pursuant to an independent contractor agreement. Under the contractor agreement, the Applicant was responsible for generating sales leads for the First Respondent’s online directory business. The Applicant was required to have an Australian Business Number (ABN) but was paid by the First Respondent on an hourly basis on presentation of an invoice, however the First Respondent was responsible for paying superannuation on behalf of the Applicant. The Applicant would perform her duties under the overall direction of the Third Respondent at the First Respondent’s office.
In August 2018, the Applicant entered into a further independent contractor agreement with the First Respondent on similar terms. Under this contractor agreement, the Applicant was to perform debt collection and other administrative duties.
Whilst engaged by the First Respondent, the Applicant fell pregnant. The Applicant was required to take time off to care for herself or for her pre-school aged son due to general illness or for pregnancy-related medical matters. The Applicant provided evidence that she was required to advise the Third Respondent when she took leave and subsequently submit a leave request form. The Applicant also claimed that the Third Respondent and others in the workplace would make resentful comments about her requiring time off.
On 10 October 2018, the Third Respondent, acting on the direction of the First and Second Respondents advised the Applicant that her services were terminated with immediate effect.
After the termination of her services, the Applicant asked the Third Respondent if she was terminated because she was pregnant. The Applicant claimed that the Third Respondent said to her “Well you weren’t planning to return to work anyway.”
The Applicant commenced proceedings alleging that the First Respondent breached the FW Act by:
- misrepresenting her contracts as independent contracting agreements;
- discriminating against her by terminating her employment because she was pregnant;
- terminating her employment because she exercised a workplace right to take leave to care for her son or to attend medical appointments;
- terminating her employment because she was absent due to illness or injury; and
- failing to provide her with payslips during her employment.
The Applicant claimed that the Second and Third Respondents were involved in the contraventions and were accessorially liable pursuant to section 550 of the FW Act.
Examining the contractual relationship between the Applicant and the First Respondent, the Court found that a number of matters which supported this included, but were not limited to:
- the level of control the First Respondent (through the Third Respondent) exercised over the Applicant’s work and working arrangements;
- that the Applicant had not previously operated as a sole trader or conducted work under her ABN;
- the Applicant did not carry out any work for herself and worked exclusively for the First Respondent;
- the Applicant worked only from the First Respondent’s premises and the First Respondent provided all facilities and equipment to perform work;
- the Applicant did not and could not subcontract her work;
- the Applicant made representations for and on behalf of the First Respondent’s business;
- the Applicant was paid an hourly rate of pay and bore no commercial risk; and
- there was no ability for the Applicant to negotiate her fees.
The Court concluded at : “The reality of the parties’ day-to-day interactions actions is reflective of an employment relationship throughout the whole of the applicant’s engagement by the first respondent.” In the Court’s view, the Applicant was at all times an employee.
Having forming this view, the Court found that the First Respondent through its agents made misrepresentations to the Applicant about the nature of the relationship when they required her to sign an independent contractor agreement in contravention of the sham contracting provisions of the FW Act. The Court was also satisfied that the Third Respondent was accessorially liable because she aided and abetted the contraventions when she facilitated the making of the misrepresentations.
Given this, the Court also found that the First Respondent breached the FW Act each time there was a failure to provide the Applicant a payslip and that both the Second and Third Respondents were involved in this contravention.
In relation to the claim of discrimination, the Court found that the First Respondent did not rebut the presumption that adverse action was taken against the Applicant for a proscribed reason. The Court accepted that there was evidence which supported that the Applicant was dismissed because of her pregnancy. This included the Applicant’s evidence about the Third Respondent’s frustration that she requested time off to care for her son and pregnancy related matters and other comments made by the Second and Third Respondent to the Applicant. In particular, for the Court, the Third Respondent’s comment “Well you weren’t planning to return to work anyway” suggested that the adverse action was taken against the Applicant because she was pregnant.
The Court found that the Second Respondent was involved in this contravention because he made the decision to terminate the Applicant’s employment.
The Court did not accept that the Applicant’s other claims (that adverse action was taken because she exercised a workplace right to take personal leave or because of she was temporarily absent from work) had not been made out.
Orders were made for the First Respondent to pay the Applicant a total of $8,020.00 in compensation for economic and non-economic loss. The matter was otherwise adjourned for penalties to be fixed and whether orders should be made for the Second and Third Respondents to pay compensation to the Applicant.
Lessons for employers
There are significant consequences on employers who contravene the sham contracting provisions under the FW Act by misrepresenting an employment relationship as one of principal and contractor or who contravene the other general protections provisions. Employers should take care when engaging contractors to ensure they do not fall afoul of the sham contracting provisions. Penalties of up to $13,320 for individuals and $66,600 for corporations can be imposed for each contravention of a civil remedy provision.
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