The High Court has today unanimously found that an employer breached the Fair Work Act's anti-sham contracting provisions when it misrepresented an employment relationship as one of independent contracting.
The five-member bench held that s357(1) prohibits employers from misrepresenting to employees that they are working as an independent contractor under a contract for services with a third party.
Chief Justice Robert French and Justices Susan Kiefel, Virginia Bell, Stephen Gageler and Geoffrey Nettle overturned a full Federal Court ruling that Quest South Perth Holdings Pty Ltd and an Odco-licensee, Contracting Solutions, had not contravened the Fair Work Act's sham contracting provisions when they moved two housekeepers onto Odco-style independent contractor arrangements (see Related Article).
The High Court bench in its terse seven-page judgment said Quest's misrepresentation fell "squarely within the scope of the mischief to which the prohibition in s357(1) was directed and is caught by its terms".
It said Quest and Contracting Solutions "purported" to enter into a "triangular contracting" arrangement, under which the labour hire business sought to:
- engage the housekeepers under contracts for services; and
- provide the housekeepers' services to Quest under a labour hire agreement.
Quest then "represented", through its conduct, that the pair performed work for it as independent contractors of the labour hire company, the High Court bench said.
"In fact, [the housekeepers] continued to perform precisely the same work for Quest in precisely the same manner as they had always done.
"In law, they never became independent contractors.
"At the time Quest represented that they were performing work for Quest as independent contractors of Contracting Solutions, they remained employees of Quest under implied contracts of employment," the High Court bench found.
Full court's interpretation too confined
The High Court bench said it disagreed with the full court's interpretation of 357(1), in which it found that to break the law, an employer had to mischaracterise the employment contract "as a contract for services made between the employee and the employer".
It said that "[n]othing in the language of s 357(1) warrants the construction that the representation prohibited by the provision is confined to a representation that the contract under which the employee performs or would perform work as an independent contractor is a contract for services with the employer."
The bench said that confining the prohibition to a representation that the purported independent contract is a contract for services with the employer "would result in s 357(1) doing little to achieve its evident purpose within the scheme of Pt 3-1.
"That purpose is to protect an individual who is in truth an employee from being misled by his or her employer about his or her employment status.
"It is the status of an employee which attracts the existence of workplace rights", it said.
Confining prohibition could generate capricious result
The High Court bench also pointed out that confining the prohibition in the manner suggested by the full court would mean it could operate capriciously.
"An employer would be liable to pecuniary penalty if the employer said to an employee 'you are employed by me as an independent contractor'. The same employer would act with impunity if the employer said to the same employee 'you are employed by X as an independent contractor'.
"That would be so even if X were entirely fictitious. Either way, the employee would be misled by the employer to think that the employee was an independent contractor, and the extent of the practical denial of workplace rights would be the same", the High Court bench said.
The case, brought by the Fair Work Ombudsman, will now go back to a single Federal Court judge to to decide on any penalties against Quest.
Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] HCA 45 (2 December 2015)