High Court denounces sham independent contractor arrangements

The High Court has unanimously ruled that an employer breached the Fair Work Act 2009 (FWA) when it misrepresented to its employees that they were engaged as independent contractors and not employed as employees.

The employer had set up an arrangement for two of its employees to be independent contractors with a third party. The third party under a labour hire agreement then offered the services of the workers back to the employer. The High Court found that the employees ‘continued to perform precisely the same work … in precisely the same manner as they had always done. In law, they never became independent contractors’.

The FWA prohibits an employer misrepresenting employment as an independent contracting arrangement. The High Court disagreed with the Federal Court’s narrower interpretation of the relevant provision of the FWA saying that the provision’s 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’.

The High Court held that it was a sham arrangement and found it is the ‘status of an employee which attracts the existence of workplace rights’.

The case demonstrates how difficult an area of law this can be for business owners, with the employer previously successfully arguing that the relevant FWA provision had not been breached at the original Federal Court hearing and then on appeal to the Full Federal Court.

This High Court ruling sends a clear warning to business owners about entering sham independent contractor arrangements in an effort to avoid obligations towards employees. The High Court reminded us of that old adage: if you have a rooster don’t call it a duck and insist that everyone else call it a duck.

For more information please contact:

Jim Rutherford
Principal
Harwood Andrews
T: 03 5226 8579
E: jrutherford@harwoodandrews.com.au

Sonia McCabe
Senior Associate
Harwood Andrews
T: 03 5226 8558
E: smccabe@harwoodandrews.com.au