Risks for Employers in Contracting Relationships

Over the last 10 – 15 years, many employers took steps to get employees “off the books” by engaging labour through contractor relationships rather than employment relationships. In at least some cases, employers “converted” employees into contractors. In the transport industry for example, many employed truck drivers were required to establish their own company and obtain their own insurances; and then contract back to the “employer” to provide essentially the same services as when they were employees.

Employers who may wish to adopt similar practices today may be liable to prosecution. The Workplace Relations Act (1996) (Clth) was amended with effect from 1 March 2007 to incorporate provisions relating to “sham” contracting arrangements.

The new provisions are relatively complex, and cannot be dealt with in detail in an article of this nature. Employers should however be aware, in general terms, that they are liable to prosecution if they enter a sham contracting arrangement and that the new provision is drafted in such a way that the employer has the onus of proving they were not in breach of the new law (rather than the traditional position, in which a prosecutor bears the onus of proving that an offence occurred).

The penalties for breach of the new provision are up to $33,000.00 where the employer is a company, so the exposure of employers could be substantial – particularly in the case of a major workplace restructuring that affects a number of workers.

The new law creates a specific offence if an employer dismisses or threatens to dismiss a worker if the main purpose of the dismissal is an intent to re-engage the person on a contract basis.

Employers who are considering workforce restructuring – a real possibility in the current difficult economic circumstances – should carefully consider their exposure to these new provisions before implementing any plans for change.

Tony Cavanagh is a partner at Mullane & Lindsay, and practises extensively in commercial and other litigation. We are available for consultations at our Tea Gardens office each Monday, Wednesday (by appointment) and Friday between 2:00 pm and 5:00 pm at 191 Myall Street Tea Gardens or at our Newcastle office at any other time during business hours (T: 4928 7300).