Is ignorance a defence to sham contracting? By Charles Power Editor-in-Chief, Employment Law Practical Handbook Two parties proceed upon the understanding that they are party to an independent contractor relationship, yet this understanding is later shown incorrect (i.e. a Court finds that they were actually in an employment relationship). Does the employer have any defence to underpayment claims for minimum entitlements? Unfortunately for the employer, the answer is no. Employers and employees cannot contract out of safety net conditions provided by the Fair Work Act (such as minimum entitlements to leave and rates of pay) so that the worker receives less than those minimum conditions. This is the case even if they enter into that contract based on common belief that the safety net did not apply. The Federal Court in the 2011 decision of ACE Insurance Ltd v Trifunovski confirmed this. Case Law: ACE Insurance Ltd v Trifunovski Five insurance sales representatives were engaged under a contract that explicitly stated that they were independent contractors. Two of those contracts were with a company, rather than the individual sales representatives. Despite this, the Court found that all five representatives were in fact employees. In determining this, the Court looked at the companys control over the representatives work and the deployment of the various agents in their team. The company also had an ongoing intensive training program that the representatives were required to undertake. In addition, the representatives were not entitled to engage anyone else to sell the insurance on their behalf. The Court ruled that the fact that two of the representatives were contracted through a company did not change the reality that the relationship was one of employment. What are the sham contracting provisions? Despite the case above, if you are not aware that the true legal nature of the relationship is one of employment, you are unlikely to contravene the sham contracting provisions of the Fair Work Act. Section 357 of the Fair Work Act provides that an employer that employs, or proposes to employ, an individual must not represent to the individual that the contract of employment is a contract for services of an independent contractor. If the worker forms his or her own view of the legal relationship and genuinely believes the engagement is as independent contractor, then it will be difficult to claim that you misrepresented an employment relationship to be a contractor relationship. Even if a misrepresentation did arise because the worker relied on your assurances that it was a contractor relationship, you will have a defence if you prove that at the time you offered the agreement to the worker: (1) you did not know; and (2) you were not reckless as to whether the worker was in fact an employee. In May this year, I mentioned in a bulletin the case of Fair Work Ombudsman v Metro Northern Enterprises Pty Ltd (2013) in which the Court found that a company director was reckless when determining an employee to be a contractor because of the presence circumstances that pointed towards the relationship being one of employment, such as the job advertisements, job descriptions, training and related materials. Despite these things, the director relied on legal advice and the fact that the contractor agreement labelled the legal relationship as contractor. This was not enough to avoid the Courts finding that he was reckless. Regards, Charles Power Editor-in-Chief Employment Law Practical Handbook
Posted on: Wed, 16 Oct 2013 20:40:22 +0000
Trending Topics
Recently Viewed Topics
© 2015