Wham bam thank you… sham?

A recent decision of the Federal Court has held a company director personally liable for sham contracting and the unlawful termination of employees.

Mr and Mrs Wells were the Directors of Maclean Bay Pty Ltd which owned and operated a resort in Tasmania. Mrs Wells decided to place all of their casual staff on independent contracting arrangements in an attempt to minimise their administrative duties in relation to tax and superannuation. Any employees who refused the contracting arrangements had their employment terminated.

A case was brought against Maclean Bay by the Fair Work Ombudsman for allegedly breaching the provisions of the Fair Work Act 2009 (Cth). This Act prohibits the dismissal of an employee for the main purpose of engaging the employee as an independent contractor to perform substantially similar work and/or entering into a contract for services which is actually a contact of employment. Further, dismissing an employee because he or she is entitled to benefits under workplace laws is prohibited.

It was found that under the new arrangements, the contractors were required to perform substantially the same roles as when they were employees, they continued to perform their duties under the direction of Maclean Bay and they were not required to provide their own tools or equipment.

Maclean Bay was also found to have breached the similar provisions relating to sham contracting and unlawful termination under related Commonwealth legislation. Accordingly, it was ordered to pay damages for back pay of approximately $37,500 to current and former employees and a penalty of $280,500.

Further, Mrs Wells was the sole decision maker involved in the contravening contracting arrangements and she was found to be personally liable for the conduct of the Company and ordered to pay a penalty of $13,860.

In light of this decision, company directors and other managerial staff must be aware of the law in relation to employment arrangements to avoid corporate and/or personal liability. Accordingly, it is recommended that you seek legal advice in relation to any planned restructuring of your business.