Do the code and the conduct match?

David Weiler, Associate

Last month two former ANZ financial traders brought separate but related actions against the bank following the termination of their employment. The Australian Financial Review has  reportedthat one of the claims is for approximately $30 million in damages for loss of deferred shares and future income.

The reasons for the terminations were cited as “serious breaches” of ANZ’s code of conduct including inappropriate comments over the bank’s internal messaging system. The employees allege that behaviour such as drug use, excessive alcohol consumption and trips to the strip club during work were known about, and in some cases encouraged, by senior members of the bank.

While the actions have not been heard by a court yet and may not ultimately be established, on a general level, the allegations highlight the importance of leaders of organisations doing exactly that, leading. Employers should be aware of the potential difficulties in enforcing a code of conduct if executives and team leaders are not held to the same standard as those that they supervise.

While codes of conduct may be a good reference point, workplace conduct does not occur in a vacuum and festering “grey areas” can cause serious issues when a party comes to the conclusion that the employment relationship should come to an end.

While employers will inevitably need to draw a line in the sand and cannot continue to allow inappropriate behaviour to go on, they should be cautious of acting on the conduct without consideration of applicable workplace laws.

At the same time, employees who feel as though they are part of a “poor culture” must consider their position within the organisation and the impact of their own behaviour on the organisation as a whole.

The conduct alleged in these types of actions, if established, can negatively impact a business’ brand long after deeds are signed or orders are made. Although it is of course better to address these issues before they become ingrained in a culture, there is no better time than today to reflect on how your organisation’s code of conduct matches up with the conduct of its employees (especially those in leadership positions).

Forecasting 2016: hot topics and trends for the year ahead

Erin Lynch, Senior Associate

As we all return from what has hopefully been a refreshing and relaxing break, the team at PCS are excited about what 2016 has to offer and are making our predictions for the year ahead.

Here is a list of the hot topics for labour and employment law in 2016:

  1. the death of the yearly performance appraisal;
  2. diversity in the workplace;
  3. the Final Report of the Productivity Commission; and
  4. the debate over penalty rates.

Performance Appraisals

Employers are increasingly recognising that, in some instances, a once a year, “tick-a-box” performance appraisal is an arbitrary method of assessing an employee’s performance and an ineffective means of building employee engagement.

Rather, a trend is emerging towards more organic and fluid styles of performance appraisal that seek to align the goals of the organisation and the employee. This new style of performance appraisal involves:

1. A focus on career development – while assessing previous performance is important, employees will respond better if a performance appraisal looks at their future and how they can develop and progress through the organisation.

2. Setting clear and measurable goals – it’s easy to use language that is ambiguous and set unrealistic goals, or goals that the employee is not aligned to. The employee should have “buy-in”, the goals should be achievable and there should be a clear path on how they will be achieved.

3. Customising your method – if the same appraisal method or goals are used across your organisation you run the risk of failing to recognise the individual skills and talents of your employees.

4. Engaging regularly – it’s common in a once-a-year performance appraisal for an employee to be surprised by any negative feedback that is being raised.

That’s usually because it is only discussed with the employee at this juncture. If employees receive regular performance feedback, quarterly, or even monthly, there is less room for surprises, employees are more likely to achieve their goals and there is a greater alignment of expectations.

Diversity in the Workplace

PCS has seen a surge in clients looking for ways to properly include employees from diverse backgrounds (for example, transgender employees) within their policies, and the importance of this topic is highlighted by the fact that a whole article is dedicated to it in this issue of Strateg-Eyes.

This area of law remains a developing one, and as such there are a number of questions that are yet to be answered about how far the protections afforded by the law extend and how they are applied in practice, including in the workplace. For example, while it is clear that, from a discrimination perspective, transgender employees must not be prevented from using toilets and change rooms and other facilities designated to the gender with which they identify should they choose to do so, it is less clear what employers are required to do in a number of administrative matters relating to the employment of transgender employees, such as whether a transgender employee who is not a “recognised transgender person” can insist that their employment records reflect their preferred gender.

Final report of the productivity commission

On 21 December 2015 the Productivity Commission released its final report on its assessment of Australia’s workplace relations framework. The purpose of the inquiry was to examine the current operation of the Fair Work laws and identify future options to improve the laws, bearing in mind the need to ensure workers are protected and the need for business to be able to grow, prosper and employ.1

Of particular interest in the final report were recommendations that the Government should:

1. amend the Fair Work Act 2009 (Cth) (“FW Act”) to create a new employment instrument, the enterprise contract, that would allow businesses the flexibility to vary an award or awards for a class of employees (as nominated by the employer) to suit their business operations;2

2. give the Fair Work Commission more discretion to order that an employment arrangement (such as an enterprise agreement) of an old employer does not transfer to a new employer, where that improves the prospects of employees gaining employment with the new employer;3

3. remove the emphasis on reinstatement as the primary goal of the unfair dismissal provisions in the FW Act;4 and

4. create a statutorily independent Workplace Standards Commission with responsibility for reviewing and varying the national minimum wage and modern awards (including the making of equal remuneration orders).5

It will be interesting to see if these recommendations play out in changes to legislation or government policy.

Debate over penalty rates

One of the hottest topics in 2016 will be penalty rates and their role in the modern workplace relations system. How this plays out may be dependent on the outcome of this year’s Federal election.

The Australian Government is under increasing pressure from stakeholders in affected industries (including retail, hospitality and entertainment) to make changes to the current penalty rates system, particularly with respect to new public holidays and Sunday penalty rates.

Defenders of the penalty rates regime argue that it is necessary to compensate employees working “unsocial” hours and that the increase in revenue for businesses that attaches to public holidays largely offsets any increase in wages.

While the Labor Party is attempting to persuade voters that Prime Minister Turnbull is in favour of slashing penalty rates, Employment Minister Michaelia Cash has said that, while the idea was something the Fair Work Commission may adopt, the Turnbull Government currently has no plans to change the penalty rates regime.6


1. Productivity Commission, Productivity Commission Inquiry Report Volume 1 (30 November 2015), v.

2. Productivity Commission, Productivity Commission Inquiry Report Volume 1 (30 November 2015), 63.

3. Productivity Commission, Productivity Commission Inquiry Report Volume 1 (30 November 2015), 65.

4. Productivity Commission, Productivity Commission Inquiry Report Volume 1 (30 November 2015), 56.

5. Productivity Commission, Productivity Commission Inquiry Report Volume 1 (30 November 2015), 49.

6. Gareth Hutchens, Coalition voters reject cut in Sunday penalty rates, Sydney Morning Herald (27 December 2015).

In the Spotlight: Alternative Dispute Resolution

Lyndall Humphries, Senior Associate

Alternative dispute resolution (“ADR”) is now a familiar part of the workplace relations landscape, both before and after the commencement of litigation. There are a lot of cases in which ADR is not only appropriate but a much better way of reaching an outcome than by way of legal proceedings.

WHAT IS ADR?

ADR encompasses a wide range of processes designed to resolve disputes without judicial determination. ADR most commonly involves an independent person helping people in dispute resolve the issues between them. The flexibility of ADR means that it can be used for almost any kind of dispute and is particularly well suited to workplace grievances including where there is an ongoing employment relationship.

In some cases it is a voluntary process engaged in with the agreement of all parties and in other cases legislation or an industrial instrument may require parties to participate in a particular form of ADR. The name ADR suggests that it is an alternative to litigation. However, these days, it is often incorporated into the litigation process or used alongside legal proceedings.

TYPES OF ADR

There are many different types of ADR processes that can be used to manage a dispute. This article focuses on mediation due to its suitability for workplace disputes. However, we also draw your attention to other types of ADR commonly used in the workplace:

Negotiations

When a workplace dispute has arisen, negotiation is the most simple and flexible form of ADR. This process is suitable if the parties can discuss matters directly and want some control over the outcome. Settlement negotiations can be conducted by telephone, in correspondence or face-to-face. If there has been a breakdown in the employment relationship, it may assist to have another person, such as a lawyer, helping with the negotiations. Employment lawyers are experienced at resolving workplace grievances and negotiating outcomes for clients. Either party to legal proceedings may serve an offer of settlement or compromise on the opposing party. Offers to settle may also be made by way of a Calderbank offer. Consideration needs to be given to the potential cost consequences of making or rejecting offers of settlement in the context of negotiation and litigation.

Conciliation

Conciliation is a similar process to mediation. A conciliator will assist the parties to identify the disputed issues, develop and explore possible options and ultimately reach an agreement. The conciliator may take an advisory role and usually has specialist knowledge. Conciliation can be helpful when parties want an expert view or where self-represented litigants would like to reach an agreement on technical legal issues. Conciliation may be voluntary, court ordered or required as part of a contract or industrial instrument.

Arbitration

Arbitration involves the parties to a dispute presenting arguments and evidence to an arbitrator for determination. The arbitrator’s decision is binding and enforceable. The arbitrator may be a lawyer and usually has specialist knowledge. Arbitration is the most similar process to legal proceedings and parties are often legally represented. Arbitration may be useful when the parties want a decision made for them other than imposed by legal proceedings.

The flexibility of ADR means that hybrid models of the above processes are sometimes used. In addition, online ADR is becoming increasingly more prevalent as ADR is taking place via email, Skype and video conferencing.

INTERACTION WITH LEGISLATION

The emphasis on settling disputes by means of ADR processes is sometimes set out in legislation. For example, the Fair Work Act 2009 (“FW Act”) requires that all modern awards include a term which sets out a procedure for resolving disputes between employers and employees about any matter arising under the modern award and the National Employment Standards. In addition, when making an enterprise agreement, the FW Act requires the parties to include a dispute resolution clause. Enterprise agreements lodged without such a clause will not be approved. The FW Act also requires that parties to a contested unfair dismissal or general protections dismissal application attend a conciliation conference.

FOCUS ON MEDIATION

Mediation is the process of assisted negotiation guided by an independent and impartial professional who helps to clarify the issues in dispute, identify options, consider alternatives and jointly agree the details of any settlement. The mediator generally does not give opinions or advice.

Parties are not restricted to discussing matters that would be the subject of legal proceedings and parties can generally bring any issues to the table. It is interest-based in that parties are free to reach settlements that are based on interests rather than legal entitlements.

Mediation is confidential and this is essential to encourage the parties to engage in open dialogue. Anything that is said during discussions cannot later be used as evidence in litigation, much like without prejudice negotiations.

Decisions on settlement are made by the parties themselves and, as there is no imposed outcome, mediations do not always conclude with resolution of the dispute.

It is important that those attending the mediation have the necessary authority, or delegated authority, to settle a legal claim. This enables the mediation to end with clarity about whether the dispute has settled, in full or in part, and if so what the terms of settlement are.

CHOOSING A MEDIATOR

Mediators do not have to be lawyers, but they often are. Parties attending a mediation on a workplace dispute are likely to engage a mediator who is a workplace relations specialist. In addition to expertise, personal style and approach will impact on the mediation’s success.

REPRESENTATION AT MEDIATION

Mediation is about establishing a dialogue between the parties and who is best placed to do this will depend on the particular case. Whether it is a lawyer or the parties themselves who speak will depend on status, confidence and impact. Regardless of who speaks, a lawyer may assist by framing realistic expectations with regard to legal rights or by drawing up the settlement agreement.

THE MEDIATION PROCESS

Mediation is not as informal as one might think. It uses a structured approach to identify the issues in dispute, discuss desired outcomes and explore possible solutions whilst encouraging the parties to be realistic in their expectations.

Generally, the first phase is a joint meeting and the second phase is separate private sessions with the mediator shuttling between the parties. The final stage of the mediation process may be the settlement agreement and closure. The mediator will ensure that the parties are clear about what has been agreed in writing at the time.

KEY TAKEAWAYS 

  • Use of ADR processes can be considered both before or throughout any legal proceedings. 
  • There are a range of ADR processes that are suitable for resolving workplace disputes including negotiation, conciliation, arbitration and mediation. 
  • Effective use of ADR may offer benefits over litigation including reduced time and costs and increased settlement, certainty and control over the outcome.

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The Fair Work Act in a Global Setting: the low down on employing foreign nationals in Australia

Adriana Bedon, Senior Associate

It is becoming a well-worn cliché that expats living in Australia are happier and living a greater quality of life than their counterparts at home. This perception resonates throughout the annual survey rankings of the world’s cities that offer the highest quality of life. 2015 was no exception, ranking both Sydney and Melbourne in the top 5.1

This promotion has served not only to attract skilled talent for recruitment purposes, but provides international employers with a powerful engagement and retention tool, should they wish to offer transfers and secondments to their respective Australian offices.

Given the above, Australia has become one of the most popular ex-pat hubs and as a result, HR departments globally are facing a growing need to become well acquainted with Australian labour laws and the skilled migration programs that work in tandem with these laws.

We set out a useful guide to this maze of overlapping laws and requirements below.

Migration check-in: requirements to be addressed from the outset

It is all too often the case that migration requirements are not considered until the last stage of a global mobility plan’s execution. For such a plan to move forward, all migration requirements need to be fully met before any transfers or secondments can commence, irrespective of the seniority of the visa applicant, or the urgency of their arrival.

In order to be able to sponsor foreign nationals for employment under the commonly known Subclass 457 Visa scheme (“Visa”), employers must become registered as “Business Sponsors” for Visa purposes.

(i) Employers with an established Australian office

International employers with an Australian office that has been in operation for 12 months or more are required to apply for a Standard Business Sponsorship (“SBS”).

Generally speaking, employers are required to demonstrate that they have lawful and financially viable Australian operations in place and are further required to meet training benchmark requirements.

Training benchmark requirements are met by providing evidence that the business has spent more than 1% of annual payroll on training related activities for the benefit of their Australian employees in the 12 months prior to making the application. Alternatively, employers with no Australian employees may make a donation in the amount of 2% of their annual payroll to an industry relevant training fund to meet this requirement.

(ii) Overseas employers with no Australian office

International employers that do not have an Australian presence but need an employee to carry out business in Australia on their behalf, or establish their Australian operations, may apply for an Overseas Business Sponsorship (“OBS”).

This application is essentially the same as that involved for an SBS, without the requirement of meeting the training benchmark. Instead, OBS applicants are required to provide supporting documentation to evidence the business requirement their foreign national employee will be addressing, or a business plan to evidence their intention of establishing Australian operations.

(iii) New entrants to the Australian market

Australian start-ups (less than 12 months in operation) may also be eligible to sponsor foreign nationals for a Visa. Start-up businesses do not need to meet training benchmark requirements but must provide an auditable training plan to demonstrate how they will meet such training benchmarks once they reach the 12 month mark.

Nominating an employee

Once an employer is registered as an Australian business sponsor they may proceed to nominate a foreign national provided there is a genuine need for the nominated role to be filled.

Further, the nominee must be coming in to take a role that is able to be sponsored, fits within the nature and scope of the business and, in some instances, employers will also be required to meet labour market testing requirements.

There are also requirements that apply with respect to a nominee’s salary. In this regard, a nominee’s Guaranteed Annual Earnings (“GAE”) must comply with two basic standards: in the first instance the GAE must at the least be equal to or above the Temporary Skilled Migration Income Threshold (“TSMIT”) and, more importantly, this amount must comply with Australian market rates for the nominated role.

In addition to the above, the GAE and other benefits must comply with rates imposed by any Modern Award or Enterprise Agreement, where applicable. Finally, the nominee must have the requisite skill level for their nominated occupation and meet a series of other thresholds to obtain the corresponding Visa. This includes mainly health, character and English language requirements.

Are employers required to issue a written employment contract to new recruits commencing in their Australian offices?

There is no statutory requirement to issue a written employment contract to a new recruit in Australia.

However, we strongly advise that our clients issue contracts or transfer agreements that have been drafted to cater for their intentions on entering into the employment relationship so as to pre-emptively position the resolution of a dispute in their favour.

In particular, we recommend that Australian employment contracts issued to foreign nationals be drafted to include clauses that make the employment relationship contingent on the foreign national’s ability to ascertain and maintain a valid visa with working rights. This will facilitate an employer’s ability to terminate an employee should they breach visa conditions or otherwise compromise their visa status.

Australian HR teams should therefore execute contracts of employment with foreign nationals on engagement, as opposed to offering a simple letter confirming the basic terms and conditions. If an Australian employment contract is not executed, this may indicate that the law of the respective Australian state of the employment will govern future disputes. In such scenarios, the governing law of the contract in place may still govern remedies for breach of contract (i.e. post-termination restraints).

In Australia, a range of terms may be implied into an employment agreement such as duties relating to work health and safety, or to the provision of reasonable notice on termination of employment.

Which laws apply to foreign nationals once they commence their roles in Australia?

Once a foreign national commences their role in Australia they will be subject to Australia’s statutory employment law as per the Fair Work Act 2009 (Cth) (“FW Act”), regardless of the governing law of their employment contract, with some minor exceptions.

Irrespective of any written employment contract or lack thereof, employees working in Australia will be entitled to:

  • the standards set out in the ten National Employment Standards (“NES”); and
  • the minimum terms of employment set out in any Modern Award or Enterprise Agreement, if one applies to the foreign national’s role.

Negotiation considerations: holiday entitlements

The NES provide that Australian employees are entitled to 4 weeks of paid annual leave, calculated on a pro-rata basis. This is an accrued entitlement (which means it becomes available for use as it accrues).

Foreign nationals may find this to be a pleasant or not so pleasant surprise, depending on what they receive in their home-jurisdiction. On the one hand, this may be used as a point of negotiation when offering transfers to foreign nationals that are not accustomed to receiving this much leave. On the other hand, foreign nationals that are accustomed to 5.6 weeks of paid holiday leave (like our lucky UK counterparts) may need to be compensated with other benefits to address this shortfall.

Further, it is important to note that, unlike our UK counterparts, Australian employees retain all unused annual leave, meaning that it carries over from previous years when not used. For this reason, Australian employers will often have annual leave policies that require employees to take annual leave during mandatory shut down periods (for example, Christmas), or when it remains unused for a lengthy period of time, to avoid large pay-outs in the future.

What laws will govern disputes relating to visa holders in Australia who require intermittent travel to their home office

In today’s globalised work culture, employees are often travelling into different jurisdictions as part of their daily roles.

Whilst the nature of circumstances surrounding a dispute will determine the governing laws, in some circumstances, the FW Act’s provisions (such as the NES) or the conditions of a modern award extend to employees whilst overseas.

Accrued entitlements

In the same vein, it is important to note that the FW Act provides that employees will accrue the following entitlements on the basis of their length of service:

  1. annual leave;
  2. personal/carer’s leave;
  3. additional entitlements to notice periods on termination;
  4. redundancy pay;
  5. parental leave; and
  6. long service leave.

Long service leave (“LSL”) in particular can cause issues for employers who have globe-trotting employees. At present there is no definitive standpoint on whether LSL is available to employees in Australia for periods spent working overseas for the same employer. However, the current authority on this matter notes that an entitlement to LSL may arise if an employee is terminated while they are in the same state of Australia in which they were engaged, and their service during the relevant time period is seen as “substantially connected” to that state.

Given the above, we recommend that HR teams carefully monitor accrued entitlements for all foreign nationals, namely those initially engaged in Australia.

Terminating a visa holder

The threshold for what is considered to be a “harsh, unjust or unreasonable” termination is generally lower when it comes to Visa holders, given that their lawful stay in Australia is dependent on their ongoing employment.

Once terminated, Visa holders have 90 days to arrange for another visa or their departure from Australia. Given the gravity of the consequences for a Visa holder, a number of decisions have provided access to remedies under the FW Act, even in instances where the termination was for a valid reason.

HR teams need to ensure that procedural fairness is both offered and recorded to mitigate the “difficult circumstances” a Visa holder can be placed in on termination. It is also recommended that the services of a Registered Migration Agent be arranged to facilitate the Visa holder’s ability to remain in the country, if this is their preference.

On termination, HR teams should also be mindful of their sponsorship obligations, including communicating the termination to the Department of Immigration and Border Protection within a 28 day period and maintaining records.

HR teams should also be aware that they will have an obligation to cover reasonable return travel air fares (i.e. economy class) for recently terminated Visa holders who request this in writing.

Key takeaways 

  • address migration requirements from the outset; 
  • have robust Australian employment contracts and/or secondment agreements for prospective foreign national employees; 
  • ensure foreign nationals are across their entitlements on engagement; 
  • monitor accrued entitlements; and 
  • carefully execute termination of Visa holders.

1. Monocle, The Monocle Quality of Life Survey 2015

Navigating the Minefield: contracts of employment vs. independent contracts

Michael Starkey, Graduate Associate

Most employers are familiar with the distinction between an employee and an independent contractor in terms of the “end-game”: while employees are entitled to certain benefits of employment (such as paid annual and personal leave), independent contractors are not. For many employers, this distinction makes engaging certain workers as contractors an attractive proposition. While doing so can be a legitimate business strategy, certain assertions can set alarm bells ringing for lawyers: “she’s definitely a contractor”; “he’s on a contract”; “we’ve contracted them”.

The substantive distinction between whether a work arrangement is a contract of employment or a contract to provide services can be difficult to establish. Whether a worker is ultimately found to be engaged as an employee or a contractor is something that will be decided by a court or tribunal, rather than the label given to the worker by an employer.

To help navigate the minefield, this article takes a look at the factors that will be considered in determining whether a worker is an employee or a contractor, the consequences of getting it wrong, and strategies you can adopt to avoid the pitfalls.

SPOT THE DIFFERENCE: EMPLOYEES (ROOSTERS) AND CONTRACTORS (DUCKS)

A common misapprehension is that the way in which a work relationship is thought of by the parties or described by the contract will be determinative of how that relationship is actually characterised. While the understanding of the parties and the title used are relevant (particularly when a worker is more highly skilled or has a reasonable level of bargaining power), they are not decisive.

“The parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.”1

Whether a worker is an employee or contractor will depend on how the total relationship between the parties can be characterised and involves a number of considerations, including those below.

Control

A relationship is more likely to be regarded as one of employment where the putative employer exercises (or has the legal right to exercise) control over the work of the other party, including what work is performed, as well as when and where. A high degree of control need not be manifested in actual direct supervision – rather, the question is which party has the ultimate authority over the performance of work.

Investment and reward

A worker who brings his or her own tools of trade or highly specialised skills to a role is more likely to be characterised as an independent contractor than an employee.

Another question is who stands to reap the rewards of the worker’s work. A worker whose efforts benefit the other party – for example, by generating revenue or goodwill – and whose rights to any intellectual property created in the course of the work relationship are limited is more likely to be an employee.

Exclusivity of service

A strong indicator of employment is that the worker in question is not entitled to perform work for others. This may extend to the worker having restrictions on his or her ability to compete with a former employer after the employment relationship has come to an end. While certain types of restraint on a contractor may be warranted in particular circumstances (for example, if the contractor has access to highly confidential information), such restraints are less common than those imposed on employees.

A contractor is usually free to provide services to a number of parties at any one time and, additionally, has the capacity to subcontract work to others.

Whether a worker is permitted to advertise his or her own services independently of his or her putative employer may also be relevant.

Presentation of the business

The way in which a worker is presented to the world at large is a central consideration. For example, the identity of a worker’s employer may be ascertained, for example, from the uniform that worker is required to wear, or the use of business cards identifying the worker with the employer.

Method of payment

While an employee tends to be paid a regular wage or salary, a contractor is more likely to invoice a party for his or her services. Further, an employee’s salary is not usually linked to the completion of particular tasks, while a contractor’s fee for services may be.

GETTING IT WRONG: SOME OF THE CONSEQUENCES

Sham arrangements

The “sham arrangements” provisions of the Fair Work Act 2009 (Cth)2 (the “FW Act”) have recently been in the spotlight, with the High Court holding in December that Quest South Perth Holdings Pty Ltd (“Quest”) breached the provisions by making certain representations to two employees about the nature of their engagement.3

The two employees in question were cleaners, originally employed by Quest, whom Quest had purported to “convert” to independent contractors through a triangular arrangement with Contracting Solutions Pty Ltd (“Contracting Solutions”). It was held that this “conversion” was never effected, and Quest was found liable for representing to the employees that they were contractors of Contracting Solutions engaged to perform work for Quest, rather than employees employed by Quest itself.

The High Court overturned the Full Federal Court’s ruling4 that Quest had not breached the sham arrangements provisions because the representations it made were not about the relationship between Quest and the employees, but the purported relationship between Contracting Solutions and the employees. The decision reinforced the intention of the sham arrangements provisions to “protect an individual… from being misled by his or her employer about his or her employment status”.5

The significance of the High Court’s decision is that an organisation will be liable for a misrepresentation about the working relationship between a worker who is in truth an employee of that organisation, no matter the “counterparty” about which the representation is made. This risk reinforces the need for organisations to ensure any triangular contracting arrangements entered into are genuine and properly constructed (discussed below).

Liability for entitlements

If a worker purportedly engaged as an independent contractor is actually an employee, he or she will accrue employee entitlements for the entire period of their engagement. Employers may therefore find themselves “retrospectively liable” for those entitlements.

For example, in Fair Work Ombudsman v Crystal Carwash Cafe Pty Ltd (No 2) [2014] FCA 827 (“Crystal Carwash”), the employing entity and two of its senior managers were held liable for underpayment of wages to 359 employees, totalling almost $180,000 over a 10 month period. The workers were purportedly engaged as contractors by ten sham labour hire companies, but were ultimately found to be employees.

Additionally, $90,000 worth of penalties were imposed after the employer admitted the sham arrangement.

Organisations should be aware, however, that liability for entitlements will accrue even when the mischaracterisation of the employment relationship in question is not deliberate (although an “innocent” employer may not be exposed to the same penalty consequences as in Crystal Carwash).

STRUCTURING ARRANGEMENTS PROPERLY: TRIANGULAR CONTRACTING AGREEMENTS

If an organisation reaches the conclusion that a contracting arrangement is appropriate in the circumstances (for example, because the job to be done is of limited duration, is highly specialised or lies outside the organisation’s usual functions), a “triangular”, or “tripartite” contracting agreement is one way of structuring the relationship between the parties so as to limit an organisation’s exposure to claims that the worker engaged is actually an employee.

Triangular contracting arrangements are so named because they involve three parties:

  • the Principal (your organisation);
  • the Contractor (a second corporate entity); and
  • the Personnel (the individual who is to perform the work).

Triangular contracting arrangements which introduce a corporate party (the Contractor) to stand between your organisation (the Principal) and the individual performing work for it (the Personnel) are likely to reduce the chances of that worker being deemed an employee of your organisation, but:

  • only if the arrangement is constructed properly; and
  • the true relationship between the parties reflects both what is contained in the agreement and the nature of the work undertaken (in contrast to the situation in the Quest case discussed above).

A triangular contracting arrangement will not be effective if it is an attempt to disguise what is really an employment relationship.

KEY TAKEAWAYS 

  • Choose the right arrangement for the job: while independent contracting may be appropriate in certain situations, a square peg will never fit a round hole. 
  • Be aware of the difference between an employee and an independent contractor: the courts consider the actual nature of the relationship between the parties. Simply calling someone an independent contractor and paying them according to an invoice will be insufficient if other factors suggest the relationship is really that of employer and employee. 
  • Utilise strategies like triangular contracting arrangements: if you determine that independent contracting is right in the circumstances, record the arrangement in a well constructed agreement in consultation with your legal advisors. 
  • Know your obligations: an organisation that is aware of its statutory obligations to all workers, be they employees or independent contractors, will be better placed to limit its exposure to liability.

1. Re Porter [1989] FCA 226, at [13].

2. Fair Work Act 2009 (Cth), ss 357-359

3. Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45 (“FWO v Quest”).

4. Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] FCAFC 37.

5. FWO v Quest, [16].